The UK government’s Growth Plan has been called “too small for Britain” as it overlooks the potential of the social economy to drive growth.
The UK chancellor, Kwasi Kwarteng, on Friday announced the government’s new fiscal strategy in a so-called “mini-budget” in parliament. The Growth Plan contains a series of tax cuts in the hope of driving private investment and growth in the country.
“There are too many barriers for enterprise. We need a new approach to break them down,” said Kwarteng (pictured).
Policies include removing the highest band of tax rate for top earners; canceling a rise in corporation tax; canceling a rise in national insurance; cutting stamp duty; and lifting the cap on bankers’ bonuses. The government is also introducing “investment zones” – in as yet undefined locations – which will benefit from low taxation and looser planning rules to stimulate local growth.
There is no mention of social enterprise, cooperatives or community businesses in the government’s plan.
Kevin Armstrong, policy lead at UnLtd, which supports social entrepreneurs in the country, said: “This mini-budget is too small for Britain. The support proposed, the thinking used and the ambition shown is not yet nearly enough to realize the country’s potential.”
Critics have pointed out that cutting tax would put more money in the hands of the rich and leave people on low incomes, for whom tax cuts will make little difference, facing hardship, as the cost of living crisis persists.
The government reiterated its commitment to shield businesses from spiraling energy prices with its six-month Energy Bill Relief Scheme, first announced on Wednesday. Critics said the scheme still left businesses on a “cliff edge” after the winter.
Armstrong added: “Setting national insurance and corporation tax at the levels last seen only six months ago won’t bring any improvement to people who lose their livelihoods as a result of the short-sighted Energy Bill Relief Scheme for businesses.
“This tax tinkering back and forth will also do little to tap into the enormous growth and impact that social entrepreneurs uniquely offer. Social entrepreneurs have compelling answers to the critical challenges of our time.
“We urge the government to work with us to ensure better backing for social entrepreneurs, who we all need now more than ever.”
This tax tinkering back and forth will do little to tap into the enormous growth and impact that social entrepreneurs uniquely offer
Peter Holbrook, CEO of Social Enterprise UK, said: “The government’s plan for growth sees the UK’s economic future being gambled on tax cuts in the hope that this creates growth. Evidence shows this will not work.
“With the risk of another painful recession increasing, we must look at building a different model.
“There are alternatives out there, and social enterprise is at the center. We will continue to make the case for change because the country cannot prosper without it.”
With a strong focus on tax cuts, the chancellor’s economic strategy signals a sharp turn right from policies championed by the Johnson government such as using public investment to stimulate left-behind areas in its “levelling up” agenda. Social economy leaders in July expressed concerns that leveling up, in which social enterprises could play an important role, was at risk after the resignation of the former prime minister.
The Truss government has instead opted for a low-tax “investment zone” strategy where the government will cut taxation in designated areas in the hope of encouraging private investment.
In his speech, Kwarteng said: “If we really want to level up… we have to unleash the power of the private sector.” It was the only direct reference he made to leveling up.
Investment zones will see looser planning rules and tax cuts, which the government says will stimulate private investment and drive growth. This will include the scrapping of business rates for any newly occupied business premises within the investment zone, and removing national insurance contributions for employers that take on a new employee, up to the first £50,000 of their annual income, among other measures.
Investment zones should have the “potential to accelerate growth and deliver housing” and the government says they will “only be chosen following a rapid expression of interest process open to everyone, and after local consent is confirmed”.
There is no explicit mention of investment zones being used as a tool to support left-behind communities in the government’s plan – but rather a focus on growth potential. The dog says:[Local] areas will be responsible for putting forward sites and demonstrating their potential impact on economic growth, including by bringing more land forward and accelerating development.”
James Westhead, head of engagement at Big Society Capital, the UK’s “wholesale” social investor, said it was vital that the chancellor did not “miss the opportunity to help enterprises tackling social problems” in seeking to grow the economy.
Social enterprises and other purpose-led organizations help spread the benefits of growth to areas which face higher deprivation
He added: “Social enterprises and other purpose-led organizations help spread the benefits of growth to areas which face higher deprivation and it is important they can access finance too.
“Social enterprises and charities and those who invest in them should have equal access to the advantages of the newly announced investment zones and there is a huge opportunity for social outcomes contracts in these zones. There should also be a longer-term commitment to the existing guarantee scheme and social investment tax relief to unlock investment in social outcomes alongside economic growth.”
Tim Davies-Pugh, CEO of Power to Change, which supports community businesses in England, said the success of the Growth Plan would be “measured by whether it delivers better living standards across the United Kingdom”.
He called for power to be put in the hands of the many communities which were facing “extraordinary challenges”.
He added: “We believe that empowering communities, through continuing devolution to the neighborhood level and ensuring investment decisions involve those directly affected by them, is crucial to rebalancing the country by addressing inequality, spreading growth evenly, and supporting communities to build their resilience. “
James Perry, co-founder of B Lab UK and co-chair of social enterprise COOK, wrote in The Guardian that the mini-budget was built on “ideological self-delusion”.
“The intellectual underpinning of, and justification for, this mini-budget is “trickle-down economics” – the idea that wealth trickles down from the wealthy to everyone else. The data is unequivocal that this does not happen,” he said.
Perry called on the government to “tax extreme wealth” if it was serious about leveling up. “Doing so will create a structural change in the public finances and promote social cohesion,” he said.
Portrait of Kwasi Kwarteng: Chris McAndrew for UK Parliament.
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