Chancellor Jeremy Hunt set out the UK government’s fiscal strategy to encourage economic growth. UK budgets seem to come around rather rapidly and perhaps too rapidly. In an ideal world, a Budget should involve a statement regarding the current state of the UK economy and then there should be some minor alterations in national fiscal strategy. These minor alterations should act as nudges that seek to align the national economy, and linked welfare system, to some agreed overarching vision.
For the UK, an overarching national vision is something that has been absent from political debate for over three decades. The outcome is that every budget is an attempt to reset the agenda to ensure some form of future prosperity or as a response to some national emergency, for example a pandemic. Budgets that seek to set out a new agenda should be the exception and the majority of Budgets should be based around strategic but rather minor adjustments.
One hopes that this Budget does catalyse economic growth rather than seeing growth vanish away as job makers replace people with machines or decide to invest in countries that are more supportive of business.John Bryson, Professor of Enterprise & Economic Geography - Birmingham Business School
Central to this Budget is a concern with transforming the wider framework conditions that support economic activity with a focus on trying to accelerate growth. This is meant to be a Budget for Growth, but what type of growth? Is this going to be sustainable growth, green growth, inclusive growth or even some form of responsible growth? There are many different types of growth. It is unclear what type of economic growth this budget is trying to facilitate, and perhaps the focus is on any type of growth being better than economic decline or stagnation.
Politics is an exercise in prioritization based on trade-offs. There is only so much funding available and so many competing priorities. Each budget is the outcome of a struggle between HM Treasury and other departments of government and sitting at the centre of this struggle are a set of assumptions regarding economic growth and welfare provision. Each budget reflects a set of choices, and the outcome is that some groups will win, and others lose. A good example, is the emphasis placed in this Budget on energy including extending the 5p cut to fuel duty on petrol and diesel for another year and providing government subsidies to limit household energy bills for a further three months. This is about reducing pressures on household finance, but at what cost? The most controversial perhaps is the extension of the fuel duty cut as this does not support clean economic growth.
The UK economy suffers from an interesting structural problem in that the country is close to full employment, and yet there is limited economic growth. Economic growth is being held back by too many companies finding it impossible to recruit employees. There is also a productivity gap, a skills gap, and an energy crisis. All these reflect longer-term problems, for example, with the educational system and with the configuration of the energy infrastructure system. All these gaps, reflect three decades of missed opportunities for UK governments to develop and apply a longer-term vision that would support some form of more sustainable economic future.
The March 2023 budget suffers from rather too many contradictions. On the one hand, this is a budget that tries to encourage people to become job takers. Thus, additional support is provided for childcare to support working parents, and this is combined with the scrapping of the lifetime allowance on tax-free pensions. Both measures are an attempt to encourage increased labour market participation. On the other hand, corporation tax will increase from 19% to 25%, but companies can deduct investments in new machines and technology. This tax rise does not encourage innovative job makers to create new employment opportunities. It will encourage companies to replace people with machines and might lead to disruptive innovation with perverse consequences. It is important to remember, that the UK economy is dominated by service firms and many of these firms do not need to make substantial investments in new machinery and technology.
There needs to be a debate on what type of growth is good growth and what measures should be put in place by government to encourage a shift towards a UK economy that is inclusive, vibrant, innovative and sustainable. This Budget does acknowledge that there are some underlying structural problems with the UK economy. Nevertheless, this Budget is another attempt to apply a patch to a longer-term problem rather than an attempt to develop a longer-lasting solution.
This Budget does rather remind me of Lewis Carroll’s ‘The Hunting of the Snark’ poem. Jeremy Hunt, like all UK politicians, is hunting for solutions that would facilitate some form of economic growth. The danger is that conflicting priorities will result in perverse consequences with the outcome being that growth is simultaneously encouraged and discouraged. Conflicting priorities that cut across this Budget might mean that some growth occurs, but that the UK economy continues to underperform with the result being reflected in a reduced tax take that then limits expenditure on public services.