CSA reaction to 'Growth Plan'

Commenting on the Kwasi Kwarteng’s fiscal announcements in the Commons today, CSA Chief Executive Chris Leslie writes:

“The Liz Truss era has begun with less populism than her predecessor favoured – and perhaps a more distinct philosophical direction of travel. The Government had little choice but to intervene in both the residential and commercial energy markets, pushing up public borrowing in the medium term by a significant yet uncertain amount. The strong emphasis on stimulating economic growth through deregulation and tax cuts is welcomed by those think tanks on the right of the spectrum including the Institute of Economic Affairs and Reform, where it is worth remembering that Truss was once deputy director. There is a strong sense that the policy choices set out by new Chancellor Kwasi Kwarteng have not been driven by focus-groups or attempts to curry electoral favour, but a determination to choose a pro free-market approach as the route to unlocking economic prosperity. 

“The gilt market and foreign exchange market have reacted less than favourably on the day, suggesting concerns about the sustainability of borrowing, perhaps not helped by the decision to decouple the mini-Budget statement from an accompanying analysis by the independent Office of Budget Responsibility. When Liz Truss said she intended to depart from ‘Treasury orthodoxy’, she has certainly done so, also removing the Treasury’s permanent secretary in the process. 

“On the one hand, the Bank of England are acting to cool demand, while on the other hand the Treasury is looking to boost it. This tension between monetary tightening and fiscal loosening may be confusing, and to a degree they almost cancel each other out. The downside is that the Bank of England’s next moves on interest rate rises could involve an even steeper leap than this week’s 50bps move, to offset the impact of fiscal stimulus. However, while a £45 billion package of tax cuts is very significant, the impact is either staggered over time (for instance income tax cuts only commencing next April) or reversing planned increases which haven’t actually taken effect yet (such as the decision to reverse planned rises in corporation tax). 

“As a result, the vast majority of customers on repayment plans are unlikely to be affected significantly by today’s announcements, although some of the moves in work incentives on Universal Credit and the National Insurance Contributions cut may impact personal budgeting on the margins. Perhaps the bigger impact for our sector will be the support for businesses in the form of a reversed NICs change, lower than planned corporation tax and even smaller but notable announcements such as the repeal of IR35 off-payroll reforms affecting workers who provide services via a personal service company.”