Growth Plan 2022 – A gamble too far?

September 23, 2022  

The shift in direction is stark. Less of a ‘mini-budget’, as it was initially dubbed, this was a full-blown budget in all but name. With the Treasury at pains to state that this is the Growth Plan, it’s clear that this Government believes that driving down taxes and regulation will drive up economic growth.

The problem is that communities and public services are still dealing with the challenges of the last 12 years of austerity, the fallout from Covid and the cost-of-living crisis. Are they about to be squeezed even further?

We set out below some of the key announcements that we think could impact councils up and down the country.

Levelling Up and Investment Zones

Levelling up was the previous Government’s key initiative to address regional inequality. It’s evident that the current regime has a less favourable view, focusing instead on newly announced Investment Zones.

This will be a network of circa 40 low tax, low regulation zones to encourage industrial, commercial, and residential development, with incentives to keep and attract businesses and residents. Little detail has been provided on where these zones could be, what policy levers they cover, and who has been consulted on their design.

The key question here will be to what extent (if any) does it transfer power to local areas? Will it end up being a crude, top-down way of circumventing local voices, communities and opinion? Ignoring the important role communities can have in providing insight, ideas and solutions would be a huge mistake.

The measure of success of this Government’s plans should be its impact on communities.

Energy price freezes

The Government had already announced support for residents’ energy bills – the £150bn energy price guarantee will freeze energy prices for most residents for the next two years (at around £2,500 per year on average). Today they have confirmed support for businesses through the Energy Bill Relief scheme, available to businesses, voluntary organisations and public sector organisations (such as schools, hospitals, and care homes) to fix prices for six months initially – suggesting this could be extended.

This will come at a significant cost to the public purse. With tax cuts a priority, there are valid questions around the extent to which this will impact public services as spending trade-offs are considered.

Tightening Universal Credit rules

Reforms have been announced to Universal Credit which will impact part time workers in particular. Those who now work up to 15 hours per week will risk having their benefits reduced if they don’t take steps to find further work (this was previously nine hours, though it was increased to 12 hours in the summer which will come into force next week).

The rationale for this is to reverse the trend of increased economic inactivity in the labour market. However it could further exacerbate the challenges for local councils around the cost-of-living crisis, poverty and destitution, that already stretched local services will need to address.

Tax cuts galore

Where do we start with tax cuts? The reduction in the basic rate of income tax from 20p to 19p from April next year, the scrapping of the 45% additional rate of income tax paid by the highest earners, the reversal of the planned National Insurance increase, the cancellation of next April’s corporation tax rise, the scrapping of the Health and Social Care Levy and the cut in Stamp Duty (alongside the removal of the non-taxation banker’s bonus cap) – these are the announcements that have made the headlines and signalled the shift in policy to the “unashamedly low tax and pro-growth economy”.

However, this ‘Growth Plan’ comes with no independent assessment from the Office for Budget Responsibility (like a conventional Budget would), so there are serious questions around the inevitable hole in the public finances that these tax cuts could create. What will this mean for public services with an ageing population and growing demand, and thus, for longer term community resilience?

As we’re hobbling from one crisis to the next, there is a strong argument that resilience is much more important than macro focused economic growth.

The Plan for Patients

In light of the cancellation of the Health and Social Care Levy (originally allocated to support the NHS and social care reform) the government announced yesterday its Plan for Patients – which will “focus relentlessly on ABCD – ambulances, backlogs, care, doctors and dentists”.

A £500m adult social care discharge fund is welcome, but this is not new money. Much in the plan had already been previously announced. It appears to be a narrow, short-term view of the system with a focus on reducing hospital pressures rather than addressing unmet need, improving service quality, recruiting more staff and ultimately improving lives.

Finally, fracking

Who saw this coming? A ban has been lifted on fracking for shale gas, a signal that the Government views fracking as a way to boost domestic gas supplies during a time of skyrocketing energy prices. However, this does little in terms of addressing the energy crisis. Fracking is unlikely to affect the price consumers pay for energy (as the gas will likely be sold to the highest bidder).

With the scrapping of the green levy, which was intended to fund schemes such as insulation and renewable energy, we continue to wait for any concrete initiatives on boosting local energy resilience such as retrofitting, advancing renewable energy, and responsible energy usage campaigns.

Moreover, the degree to which local communities may be ignored is extremely worrying – if fracking is allocated as a Nationally Significant Infrastructure Project (NSIP) then the need for local agreement may be severely curtailed.

Ignoring the important role communities can have in providing insight, ideas and solutions would be a huge mistake.

What to make of the Growth Plan as a whole?

The measure of success of this Government’s plans should be its impact on communities. We should be bolstering public services and creating resilience to external shocks. However it appears that the Government’s view of success will be solely focused on national economic growth with a bold target of 2.5%.

With the UK already in a recession, a weak forecast for global growth, and yesterday’s increase in interest rates to 2.25% (a 14-year high), current challenges are only likely to be exacerbated. There is no guarantee that today’s announcements will stimulate economic growth.

There are also big questions regarding the state of public finances and the implications for the funding of local services. As we’re hobbling from one crisis to the next, there is a strong argument that resilience is much more important than macro focused economic growth.

Ultimately the announcements feel like top-down decision-making, creating winners and losers at an individual level with the aim of growth at the headline level. This loses sight of the importance of community and local public services. It’s these institutions, rather than national policy, that create thriving places and economies.

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