Undoubtedly a word that has been said arguably more than any other since last years election is that of growth. Unfortunately despite it being shouted by nearly every cabinet minister and Labour party activist it appears that they haven’t managed to find any. Unfortunately whilst you can say Beetlejuice three times and he will appear, economic growth does not work like that.
Taking a look at the economic growth forecasts it is quite miserable reading for the Chancellor –
Bank of England: The Bank has revised its 2025 GDP growth projection down from 1.5% to 0.75%, reflecting concerns over economic challenges.
International Monetary Fund (IMF): The IMF anticipates a 1.6% growth in the UK’s GDP for 2025, slightly up from its previous forecast of 1.5%.
Organisation for Economic Co-operation and Development (OECD): The OECD has increased its UK GDP growth forecast for 2025 from 1.2% to 1.7%, attributing this adjustment to increased public spending announced in the Autumn Budget.
Morgan Stanley: Morgan Stanley forecasts a 0.9% GDP growth for the UK in 2025, a reduction from its earlier estimate of 1.3%, citing a slowdown in the economy and signs of labor market weakness.
Whilst as a country we can certainly hope for the higher estimates it does seem likely that the ‘Budget For Growth’ put forward by the Chancellor in October of last year has not achieved its primary goal. I suspect that the fall in growth forecasts wasn’t helped by the persistent talking down of the economy in the run up to the budget which is hardly going to inspire businesses to part with their cold hard cash and invest.
Looking at what the Chancellor can do, there are slim pickings given the ironclad fiscal rules she has tied herself up in. The tax raid last October was supposed to be a one-off but it does appear that in the spring statement, if she wants to maintain the level of promised spending she will have to raise taxes again. Where the tax hammer will fall is hard to predict given the promise to not add to the tax burden of working people.
The obvious and stealthiest way to bolster the Treasury coffers is to retain the current tax thresholds as they are long past 2029. This will mean more people falling into higher tax brackets and it can be technically claimed that taxes haven’t been raised. It is hard to envision the Chancellor looking to tax businesses even more given the reaction to the last national insurance hike although it is one of the few avenues she has to consider. She has already gone after pensions so it seems unlikely that will be revisited again although reducing the amount of tax free cash on offer and lowering the amount of tax relief available to high earners contributing would be an easy, but unpopular, revenue raiser.
Another area to consider is to look at scrapping some of the net zero targets. This will give a bit of breathing space to energy intensive industries and also give consumers a few more pounds in their pocket. Whilst it wouldn’t be popular with Ed Milliband it would certainly give businesses a reason to consider putting more investment into the UK.
Unfortunately much of the above is simply tinkering around the edges and whilst a few billion could be raised here and there it is unlikely to make any meaningful difference which leads us back to growth, the remedy for almost all economic maladies. All in all I do not envy the Chancellors current position, running a low growth economy with very little wiggle room. Here’s hoping she can pull a rabbit out of the hat and offer a less taxing budget come October 2025.