Assessing the ‘mini-budget’

Chancellor of the Exchequer Kwasi Kwarteng delivered his first fiscal statement (the Growth Plan) on Friday, 23 September 2022. The Growth Plan aims to ensure that PM Liz Truss can deliver on the significant promises she made during her leadership campaign.

The fiscal statement, which had been widely referred to as a ‘mini-Budget’, was anything but ‘mini’. It was more analogous to a regular Budget and stated by some economists to be the ‘biggest political roll of the dice in decades’, albeit without the usual Office for Budget Responsibility (OBR) scrutiny. It is expected that a ‘normal’ Budget will follow later this month, November at the latest.

Only days after US President Joe Biden, Tweeted on the inability of trickle-down economics to deliver economic growth, the Chancellor’s mini-Budget announced a raft of measures based on a similar approach, to be paid for with further UK borrowing.

Headline-grabbing announcements of particular interest to business included cutting National Insurance contributions from November 2022, cancelling the Health and Social Care Levy and the planned rise in corporation tax, reducing the stamp duty land tax (SDLT) burden on residential land purchases, bringing forward a planned 1% cut to the basic rate of income tax to April 2023 and creating new ‘Investment Zones, with multiple tax reliefs.

Elsewhere, the review into R&D tax reliefs will continue (with a promise of further reforms). All this, and there was still room for the subsequently ill-fated proposal to reduce the 45p top-level tax rate.

ECA’s response was that the fiscal statement gave a mixed message to business. In general, it welcomed the various tax interventions, but it criticised the reversal of IR35 reforms, citing this reversal is an example of policy instability and see-sawing compliance requirements that businesses don’t need. Such see-sawing tends to add costs and uncertainty to doing business and act as barriers to growth.

But there was even more in the Chancellor’s Growth Plan. To help increase UK energy resilience, it restated an end to the moratorium on fracking but, more usefully for our industry, presented good news for onshore wind. The Chancellor promised to bring the consenting process and planning policy for onshore wind ‘in line with other infrastructure to allow it to be deployed more easily in England’. Yet another acknowledgement that the UK’s energy future will need to rely on increasingly clean, and highly adaptive, electricity.

There are some impacts for the UK construction industry that we can identify (albeit quantifying them is a much greater issue).

Inflationary pressures persist

For engineering services sector businesses, the mini-Budget may help to alleviate some of the immediate drivers of what has become hyperinflation. 

In the past 12 months, inflation in the engineering services market was mainly caused by demand levels exceeding pre-pandemic levels, whilst the sector sought to recover from the economic impact of the pandemic and rise to the challenge of insatiable demand. But we all know that if the job is too expensive and the price means it is no longer viable, the project gets scrapped and demand wains. 

ECA Members remain very concerned about the long-term outlook for businesses who are struggling to control costs and recruit skilled labour. 

Global pressures are now firmly behind inflation. Any further depreciation of the Pound would further increase many construction material prices in an electrotechnical industry that has already experienced 23%+ inflation. Directly, the price of imported construction products (such as steel, copper, aluminium, any products with semi-conductors and electrical wiring) would undergo even greater price increases. 

Even switching to UK product sourcing may be ineffective if the products rely on overseas materials and components, which may in turn be expensive or in short supply.  On a global level fuel and energy is often priced in USD and a depreciating pound would add to already sky-high energy prices, which affect everyone. 

Further analysis of the Chancellor’s fiscal statement and how it may impact the construction sector will be featured in ECAtoday magazine’s Autumn-Winter 2022 print issue, which will be published soon. 

To read the current issue of ECAtoday magazine, click here.