Not a single measure in the government’s policy-packed Budget will change the growth forecast for the next five years – this was the devastating assessment of the government’s official forecaster, the Office for Budget Responsibility (OBR).
For a government that has declared economic development its top priority, this is certainly a disappointment.
What’s worse, although the OBR has upgraded its growth forecast for this year – it has been downgraded every year thereafter until 2030.
Although businesses were relieved, they were not as duped as in the previous budget – at which they were handed a £25 billion Employer National Insurance increase – in fact significant pro-business measures were lacking on the ground.
It’s no wonder many business leaders are asking: “Where is the growth?”
Even sectors mentioned as receiving special support – such as high street retailers and hospitality – stress that their cost of doing business is set to increase significantly due to higher business rates and labor costs.
The Government said it would calculate business rates for 750,000 high street retail and hospitality firms using a lower percentage of rateable value.
But many have also seen their rateable values rise and face the phasing out of the Covid-era 40% discount from April.
The net result is that, despite some transitional relief, many of them will see significant increases in their business rates bills.
The 8.5% increase in wages for 18-20 year olds over the National Living Wage is good news for young people in work and a boost for those who can’t find a job, but in addition to the 16.3% increase for the same group last year, it could put employers off hiring new people.
As one FTSE 100 boss told the BBC: “They are hurting the very people they are trying to help and it will mean fewer jobs, fewer hours, less premises, less development.”
Placing limits on salary sacrifice arrangements will impact both workers and businesses, who may reduce future pension contributions, salary increases or investment in growing their businesses.
One measure that has received little attention but could prove important is to expand the schemes that give tax breaks to investors in young companies – the Enterprise Investment Scheme and the Venture Capital Trust – and allow them to invest in companies that have grown larger.
The OBR gave the government some credit for this.
A Treasury spokesman said the economy was “already outperforming forecasts” and that it was driving growth “with billions of pounds in new capital spending, strong private investment and bold planning reforms”.
“This budget doubles down on our long-term plan to grow the economy and create good jobs,” he said.
The truth is that the ability of any government or chancellor to “unleash” growth is quite limited.
Most people just want to not be bothered with taxes and regulation and to be allowed to get on with their lives. In this respect, this budget is a big improvement compared to last year.
By leaving plenty of wiggle room in her tax and spending plans over the next five years, Rachel Reeves has made it less likely that we will need such surprise policies next year.
Stability can be a powerful fertilizer for growth.
Former Bank of England chief economist Andy Haldane may have added to this by saying that “fiscal fandango” – months of speculation before this year’s Budget – was the biggest reason for growth rates being flat for the second half of the year, but it certainly didn’t help.
Ahead of the budget, Steve Rigby, boss of large private company Rigby, told the BBC: “We hope (it) won’t be too devastating to the business and we can carry on.”
He says the test has been passed – but it’s a very low bar for a government desperate for growth.
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