Liz Truss energy and tax plan ‘will give richest families twice as much support’

Liz Truss’s plans for an energy price freeze and sweeping tax cuts will give Britain’s richest households twice as much financial support with living costs as the poorest households, according to a leading thinktank.

Richard Partington 

The Resolution Foundation said the prime minister’s energy package, announced hours before news of the death of the Queen last week, would come with a “colossal” price tag for taxpayers that was poorly targeted to help those most in need when combined with tax cuts promised in her leadership campaign.

It said the richest tenth of UK households would receive £4,700 in support, on average, from the government’s “energy price guarantee” and cuts to national insurance – far in excess of the £2,200 support for a typical household in the poorest tenth.

The intervention comes as details of the new prime minister’s plan to support struggling households remain unclear, after she chose to hold back from publishing the costings for her proposal until a mini-budget, expected to take place next week.

The Resolution Foundation said the plan to limit an increase in the cost of a typical household energy bill to £2,500 for two years from October would cost about £120bn. It warned that Truss’s plan to avoid a fresh windfall tax on energy producers would mean heaping the cost on taxpayers, with as little as £1 in every £12 spent on energy support for households recouped directly from higher taxes on energy firms.

The thinktank said the average level of support for households would hit £2,000 this year because of the energy price guarantee, as well as financial support for all households and additional one-off payments for those on means-tested benefits. Taken together, it said a similar level of support was provided for rich and poor households.

However, richer households will benefit substantially more next year from plans to reverse national insurance tax increases implemented in April. Alongside the blanket support from the energy price freeze, which will benefit households with the biggest gas and electricity bills, it said this would “skew support towards the very highest-income households”.

Torsten Bell, the Resolution Foundation’s chief executive, said: “Last week, the prime minister announced a simply colossal energy support package to prevent a living standards catastrophe this winter.

“The support was big, bold and – together with announcements earlier this year – amounts to over £2,200 for every household in Britain. Even so, families should still expect a tough winter ahead, with rich households getting twice as much cost-of-living support as poorer households next year.

“The energy price guarantee was absolutely the right thing to do in terms of providing support where it’s needed. But, by ruling out any attempt to fund it through further windfall taxes, the welcome support today could have a nasty sting in terms of higher mortgage payments and higher taxes tomorrow.”

Truss hints she may reduce Planning Inspectorate’s powers

Needs to be read in the context of two types of “Conservative” councils: those that are conservative Conservative and those that are “build, build, build” Conservative. – Owl

Will Ing 

On Wednesday (7 September), Conservative MP Peter Bottomley asked the new prime minister why the national planning body ‘is able to overturn councils’ planned protections’ for green areas.

Bottomley also raised specific concerns about the housebuilder Persimmon’s plans to build 475 homes in the Goring Gap in Worthing, which were approved by the Planning Inspectorate but later overturned in the High Court.

Liz Truss responded that Bottomley was ‘right’ that ‘there is not enough power in local hands at the moment’.

She added: ‘It is too easy for local councils to be overruled by the Planning Inspectorate and that is certainly an issue that I expect my secretary of state for levelling up, housing and communities [Simon Clark] to look at’.

The commitment appears at odds with elements of planning reform proposed by former housing secretary Michael Gove earlier this year – which were described by critics as an attempt to ‘radically centralise planning decision-making’.

Lawyers for campaign group Rights: Community: Action have said that the Levelling-up and Regeneration Bill contains provisions which would allow the housing secretary to grant permission to contentious developments and ‘bypass the planning system entirely’ with ‘no right for the public to be consulted as part of this process’.

It is not yet clear whether Truss and Clark will look to pass the bill in its current form. If the government did review and change its proposed planning reforms, it would be for the second time since then-housing secretary Robert Jenrick unveiled a white paper on planning in August 2020.

Are the Tories on course to crash the economy?

Liz Truss and Kwasi Kwarreng are betting the farm on cutting taxes to stimulate growth to pay for the aforementioned tax cuts (and win the next election).

Three comments from leading economists:

“Unsubstantiated hogwash – ideological faith triumphing over evidence and reason.” Will Hutton

“Just wishing for 2.5% growth won’t make it happen” David Smith

“The energy price freeze must be replaced by “something better next winter” because it will cost up to £150bn” Paul Johnson, Institute for Fiscal Studies.

Pulling the economy around before the next election is very unlikely. Owl fears this will all end in tears.

Here is a summary of the context:

  1. TheTories have just squandered six weeks gazing at their navels whilst a serious economic crisis developed. Economic crises require speedy and decisive action or they get worse. Events beyond the Government’s control have now taken over and the Government is on the back foot.
  2. On appointment to be Chancellor Kwasi Kwarteng summarily sacked the perm sec to the Treasury, Sir Tom Scholar. He represented Treasury orthodoxy, which right wingers blame for lack of economic growth. Scholar was the man devising a set of economic support options that could be implemented quickly whilst the Tories were asleep at the wheel. So bang goes any continuity of experience at the top of the Treasury and civil servants will now find it difficult to “speak truth to power” at a time when it is most needed. In economic crises stability matters.
  3. Events have caused the Bank of England to postpone interest rate rises.
  4. The pound has been falling.
  5. Because of her unpreparedness, “No Handouts” Liz Truss has been forced to announce the biggest open ended handout in history for individual energy consumers. Businesses only have vague promises. In the short term this will reduce inflation because the taxpayer is picking up the bill, However, as this support is untargeted it is almost certainly unsustainable (see 8 below). 
  6. What Liz Truss and Kwasi Kwarteng are betting the farm on is that by cutting taxes they can stimulate growth to the extent they are keen on borrowing another £30bn to do so. 
  7. Latest ONS growth figures are lower than expected. Recession seems certain. The questions are how deep will it be and how long will it last?
  8. Truss and Kwarteng have refused to put a figure on the support package they will announce. Their “fiscal event” will avoid OBR scrutiny. It will, therefore, be free of analysis, costings and forecasts.  Paul Johnson, director of the Institute of Fiscal Studies reckons the first year may cost £150bn and, at that level, would be unstainable beyond.

Here are two recent comments from economists:

“Unsubstantiated Hogwash” Will Hutton on cutting taxes to stimulate growth

“Bold action,” he [Kwarsi Kwarteng] suggested, was an imperative to relieve this “toxic combination”: “Cutting taxes, putting money back into people’s pockets and unshackling our businesses from burdensome taxes and unsuitable regulations.” Only thus could investment and growth be unlocked. Better that, he added, than “burying our heads in a redistributive fight over what is left”.

It is unsubstantiated hogwash – ideological faith triumphing over evidence and reason. In these terms, Scholar, exemplar of the alleged old economic managerialism, had to go. We are on an economic fairground ride led by fairies and fools.

Of course, the two-year £2,500 price cap is welcome. It will lift from millions of people the threat of desperate choices over warmth or food. It will also lower the peak inflation rate by up to 4% and so lower debt service costs in a full year by around £20bn – a quarter of our national debt is represented by bonds indexed to the level of inflation. It will also partially avert the risk of a dangerous wage price spiral. But those were the reasons Labour first advocated a price cap. The libertarians only changed tack when they realised that resisting and sticking to their preferred response of tax cuts and minimalist rebates risked them being politically overwhelmed.

But you don’t win wars and reset economies with daffy libertarianism. Europe is in a de facto war with Russia over Ukraine, as it threatens a price cap on Russian gas. Putin responded by saying in Vladivostok that at the limit Russia will export nothing – no gas, no oil, no food – to Europe. This is economic rather than battlefield war, but it is war nonetheless. Britain’s energy policy is not serious, it betrays the cause.

Energy policy in a time of potentially prolonged supply disruption has to be designed for the long term; has to protect business as much as consumers; has to be financially sustainable and avoid the risk of blackouts. The government plan fails on all counts.

Crucially, it is not financially sustainable: Britain’s national debt, as the Trussians continually say, is the lowest in the G7 bar Germany so there is scope to borrow. But the dollar, yen and the euro are the world’s reserve currencies and Canada runs a balance of payments surplus. Britain is alone, outside any of the major trade blocs, with a weak, legacy economy and a chronic international payments deficit. It cannot sell at least £100bn of extra public debt a year to protect living standards rather than raising investment without the threat of further sterling weakness or an enforced jump in interest rates.

Financial sustainability could have been addressed in a number of ways. A further windfall tax could have been imposed on the extraordinary profits in the energy sector. In addition, for the duration of the Ukraine war, all gas and oil from British fields should be required to be sold to the government on a cost-plus basis rather than distorted international prices. Consumers could have been told to tighten their belts with ministers giving a lead and a rationing system rolled out if needed. There should be a state-led crash programme of building onshore and offshore windfarms, – the fastest and lowest cost route to boosting energy supplies – along with accelerating the home insulation programme.

For libertarians, every such measure sticks in their craws. Thus they propose untargeted, if generous, help for households but, because even they recognise the near open-ended costs, they have limited the help to business to six months. Scared of what may follow, business will batten down the hatches so that Kwarteng cancelling the proposed corporation tax rise will have zero effect on investment. It is also aware of the risk of blackouts this winter, unrelieved by the uncertain prospect of fracked gas on stream in a decade.

Just wishing for 2.5% growth won’t make it happen David Smith

In the meantime, let me turn to another issue, the new administration’s ambition to get the economy to 2.5 per cent trend growth, which the new chancellor, Kwasi Kwarteng, reiterated at a meeting with business leaders.

It is an ambition that sounds a bit geeky but is very important. The economy’s trend growth rate is what determines our prosperity, and 2.5 per cent is an interesting number. It is, in fact, exactly the average growth rate for the UK economy since 1949.

That 2.5 per cent average, however, reflects different experiences in different periods. Growth was strong in the second half of the 20th century, and the UK outperformed most rivals after joining the European Economic Community in 1973. But growth this century has been slower, averaging 1.8 per cent, and particularly weak since the financial crisis at an average of 1 per cent.

Apart from last year’s bounce-back from the pandemic, which followed an even bigger fall in 2020, the only two years of 2.5 per cent-plus growth were 2014 and 2015, as the economy was getting into its stride after the crisis but before the EU referendum.

Pre-crisis, in the 2000s, 2.5 per cent was a very modest ambition for the economy’s trend growth rate. In fact, the Treasury — these days thought of by new cabinet ministers to be some kind of malevolent growth-destroyer — used 2.5 per cent as its “cautious” assumption for meeting the government’s fiscal rules, believing then that the true trend growth rate was 2.75 or 3 per cent.

When 2.5 per cent trend growth was thought to be the (cautious) norm, it was easily described. Simply put, it consisted of 2 per cent annual growth in productivity, the long-term norm, and 0.5 per cent workforce growth.

Now, 2.5 per cent trend growth is harder. The Office for Budget Responsibility (OBR) always takes a relatively optimistic view on the prospects for productivity recovery, assuming its growth will get back to 1.5 per cent a year after over a decade of near stagnation. But the OBR also expects the workforce to shrink by 0.1 per cent a year, and its estimate of long-run trend growth, in its “Fiscal risks and sustainability” report in July, is only 1.4 per cent a year. If productivity does not perk up, that might be optimistic.

The trend has been undone by four growth-damaging events: the financial crisis, Brexit, the pandemic and now the cost of living crisis. We are back to the age-old question of whether it is possible to waken productivity out of its slumber.

Kwarteng, meeting business leaders, was right to focus on “unlocking” business investment as one of the keys to doing this. Rishi Sunak, having identified the problem, was working on this when chancellor. Perhaps the new chancellor will bring forward some of his ideas.

But the challenge of boosting business investment is considerable. Despite a small second-quarter rise, it remains below pre-pandemic levels and, indeed, is at pre-referendum levels — despite a large incentive to invest now because of the super-deduction tax allowance.

An excellent new Institute for Government paper by Giles Wilkes, “Business investment: not just one big problem”, outlines the difficulty. There are no easy levers for the government to pull to stimulate investment. Merely cancelling next April’s planned increase in corporation tax will not do the trick. “Policymakers once hoped that steadying the macro economy would create the conditions needed for a rise in business investment,” Wilkes writes. “But such stability is often elusive — for reasons both within and beyond the control of politicians … And while macro-economic stability is a necessary condition for growing investment, it may not be sufficient. Nor are the standard recourses of chancellors in the past: financial help for investment, lower interest rates, targeted subsidies or the perennial call for tax cuts. All can make a difference, but given the ‘lumpy’ nature of investment, none is able to drive new projects when conditions are not otherwise encouraging.”The policy debate is thus in danger of becoming a bit circular. Business investment would pick up strongly if firms were more confident about UK growth, but long-term growth will not recover without a rise in business investment. It is a bit of a catch-22. Merely talking about growth will not ensure that it happens.

Find ‘something better’ than energy price freeze set to cost £150bn, Liz Truss told

The energy price freeze must be replaced by “something better next winter” because it will cost up to £150bn, a leading economist has warned Liz Truss.

Rob Merrick

Paul Johnson, the head of the Institute for Fiscal Studies, urged the prime minister to ditch plans to hold down everyone’s bills until 2024 and find a smarter solution to the crisis.

The plea comes after fierce criticism of the government for failing to reveal the expected cost of a two-year freeze ahead of an expected ‘mini-budget’ next week.

Mr Johnson called that decision “extraordinary”, saying: “This could actually turn out to be the biggest single fiscal announcement in my lifetime, because this could cost £150bn.”

He agreed the freeze “might be necessary” for this winter, but warned: “It’s incredibly expensive. It’s totally untargeted.

“It gives large amounts of money to people who don’t need it, and it means that we’re not facing the price signal that there is less gas out there. And yet, we’re being massively subsidised to use gas.”

Mr Johnson told Times Radio: “One of the things that I really hope is that they’ve got teams of people working next year on thinking of something better for next winter.”

Ms Truss carried out a spectacular U-turn, just two days into her premiership, by announcing average annual household bills will be frozen at £2,500 until 2024.

They were set to rise to £3,549 from next month and to more than £5,000 next year – threatening millions of people with bills they would be unable to pay.

Full details of how the “energy price guarantee” will work are yet to emerge, as the announcement was immediately drowned out by the death of the Queen.

The government will meet the cost – through a leap in borrowing – of capping the amount energy companies can charge customers for one unit of gas.

A £400 rebate on all bills announced earlier this year has been retained, cutting £66 every month from October until April, and green levies suspended, saving the average household about £150 a year.

The Resolution Foundation think tank has put the price tag at £120bn – the bill just to bail out households, with separate tens of billion needed to rescue businesses.

Although it is called a “guarantee”, people in large or draughty homes will inevitably pay significantly more.

Ms Truss downgraded her planned emergency budget to a “fiscal event” – to avoid scrutiny by the Office for Budget Responsibility – which was pencilled in for next week.

She is expected to fly to New York for the UN leader’s meeting as early as Monday evening, within hours of the Queen’s funeral, returning to the UK late on Wednesday or early Thursday.

That would allow the mini-budget to be held on Thursday next week, before parliament breaks up again for the Labour and Conservative party conferences.

Housebuilders ‘lobbied against plan for electric car chargers in new homes in England’

Ah yes – the rules announced in the infamous Peppa Pig speech. That’s the one in which he imitated the sound of an accelerating car with grunts that the official Downing Street release transcribed as “arum arum aaaaaaaaag”; and compared himself to Moses over his plan to help business invest in tackling climate change.

“I said to my officials the new 10 commandments were that ‘Thou shalt develop industries like offshore wind, hydrogen, nuclear power and carbon capture.’” (Pity “Fracking” Liz Truss wasn’t listening – Owl)

Jasper Jolly 

Britain’s biggest housebuilders privately lobbied for the government to ditch rules requiring electric car chargers to be installed in every new home in England, documents have revealed.

The FTSE 100 construction firms Barratt Developments, Berkeley Group and Taylor Wimpey were among the companies who argued against the policy in responses to an official consultation seen by the Guardian. The “blatant lobbying efforts” were criticised by Transport & Environment, a campaign group.

Swapping cars powered by fossil fuels for zero-emission models is viewed by scientists, environmental campaigners and the government as key to reaching net-zero carbon emissions – alongside increased public and active transport. However, the lack of chargers is seen as a barrier to uptake.

The rules requiring all new homes to have a charger were announced by Boris Johnson in November 2021 as the flagship policy of a speech to business leaders. While the details were overshadowed at the time, as the former prime minister meandered through his speech with a riff on the children’s cartoon character Peppa Pig, the government hopes 145,000 charging points will be installed thanks to the rules.

However, the housebuilders who responded stated their opposition to the policy, citing cost concerns. They also warned that mandating installation could lock homeowners into obsolete technology, that there could be a risk of electric shocks with some car chargers, and even that the plan could prevent owners from choosing between cars with different plug types used in Asia and Europe.

Taylor Wimpey warned that the installation of chargers could result in fewer homes being built. “We see practical and financial challenges associated with the proposed approach,” it wrote, citing “significant uncertainty over the financial costs”.

Berkeley Group said it did not believe chargers would be required at every parking space because people would charge at work or while “going to the gym”.

However, automotive industry leaders say charging at home is more attractive for users because it removes the need to search for available power outlets during the day and because smart tariffs allow people to charge overnight, when energy is cheapest.

The housebuilders argued that their responsibilities should end with the laying of “cable routes” into homes, which could then be used for charging points, saying this would avoid the installation of infrastructure that went unused. In most cases, these would be simple – and cheap – pipes or gutters that could later carry cables to parking spaces.

Matt Finch, T&E’s UK policy manager, said: “It’s absurd that housebuilders attempted to hold back progress and slow down the drive to net zero. In the future, all cars will be electric, and futureproofing new homes with charging infrastructure is an obvious step to take.

“The government should be applauded for resisting these blatant lobbying efforts.”

Cost concerns were a common theme in the housebuilders’ warnings. Barratt said mandatory chargers could cost it as much as £63m. Vistry Group, which recently changed its name from Bovis Homes, argued that the requirement would cost the FTSE 250 company up to £14m.

The details of the lobbying efforts came in freedom of information disclosures obtained by the Guardian, as part of the building industry’s response to ministers consulting on the new charging point rules in late 2019 – before the government introduced the measure.

Spokespeople for Berkeley Group and Taylor Wimpey said they supported moves to encourage electric vehicle adoption. The companies are now installing charging points in line with the law.

The Taylor Wimpey spokesperson said it had provided “constructive feedback” ahead of the rules being introduced, while arguing that a “wire-only approach” would have reduced the “need for retrofitting in the event of incompatible technology should electric vehicle charging technology advance”.

A Barratt spokesperson said its view in 2019 was that there was not “sufficient supply chain capacity to support full electric vehicle charging point rollout nationwide”. Since then it has worked with the government on regulations that give customers choice while “being practical for the industry to deliver at scale”.

Vistry did not respond to a request for comment.

New ‘lifeline’ banking hub to open in Axminster

A banking hub is set to open in Devon along with 12 other branches around the UK. It comes after many areas have seen the last of their banking branches close.

Does a bus service come with the hub? – Owl

Mary Stenson 

Axminster will see the opening of a brand new ‘Bank Hub’ which will serve customers of all banks. The hubs being opened in a number of locations are the Post Office’s answer to the widespread closure of banks across the country and will allow customers to access their accounts, deposit cash and checks and withdraw money.

John Howells, chief executive of Link – which is the biggest interbank network in the UK – said on BBC Radio 4’s Today programme: “”Cash is disappearing at a frightening rate, and so are ATMs and branches and it is not acceptable to leave communities without access to cash

“There is real investment and effort going in by the banks now…But now that pace needs to be picked up”.

Representatives from each of the major banks will visit the Bank Hubs once a week to deal with more complex customer enquiries.

The Anxminster branch will be joined by locations in Brechin in Angus, Forres in Moray, Carluke in Lanarkshire, Kirkcudbright in Dumfries and Galloway, Axminster in Devon, Barton-upon-Humber in Lincolnshire, Lutterworth in Leicestershire, Royal Wootton Bassett in Wiltshire, Cheadle in Staffordshire, Belper in Derbyshire, Maryport in Cumbria, Hornsea in Yorkshire and in Kilkeel in Northern Ireland.

After visiting a prototype shared banking hub in Rochford, Essex, the BBC was told the initiative had been “a lifeline” after the town’s last branch closed.

Natalie Ceeney, who chairs the Cash Action Group which is overseeing the project, said: “Cash still matters hugely to millions of people across the UK and with the cost-of-living crisis biting, more and more people are turning to cash as a way of budgeting effectively. Banking Hubs are an important part of the solution.”

However, it has been noted that there could be a delay in the branch’s opening. Link – the organisation which currently oversees the UK’s ATM network – assesses the need for a Bank Hub each time a core banking service closes. This assessment looks at the community’s cash needs, the ease of travel to the nearest alternative service and the demographics of local residents.

Despite this work, premises for the hubs need to be found, at which changes often need to be made to ensure accessibility and security. There has been criticism as services have not yet started in previously-announced locations other than Rochford and Cambuslang, in Scotland.

Ron Delnevo, a business consultant with extensive experience in the ATM industry, said: “the promised hubs don’t even scratch the surface in terms of satisfying the banking needs of the UK”.

Mark Aldred, from banking technology company Auriga, said: “As we go into a cost of living crisis that’s hitting households and businesses alike, these shared hubs are good on paper but could go further and faster.”

A spokesperson for the Financial Conduct Authority said: “Firms need to pick up the pace and deliver more banking hubs. We expect this to be done as a priority.

“Banks and building societies must treat their customers fairly and provide alternatives to branches where needed. Banking hubs are one of a range of tools they can use to ensure communities have easy access to bank services and cash.”

Other location will see the installation of withdrawal and deposit machines in libraries and community centres. This is to include Ilfracombe in North Devon, alongside Swanley and Faversham, both in Kent, Holywood in County Down, Shanklin on the Isle of Wight, Atherstone in Warwickshire, Billericay and Dunmow, both in Essex, Bourne in Lincolnshire, Holyhead on Anglesey, Swanage in Dorset, and Wallingford in Oxfordshire.