The Growth Budget 2023

UK Households £26,000 with Growth Budget

• The new long term forecast shows, with unchanged policies, UK GDP per capita growth is likely to
• remain only 1% for 20 years, whilst hitting a record high tax burden
• Growth Budget would put the country back on track with policy proposals across planning, net zero
• and infrastructure, tax and spending that can boost GDP by 23% by 2043
• Additional GDP growth of 23% puts, on average, £11,300 more in every person’s pocket and £26,000 per household by 2044
• Growth Budget would deliver £377 in additional GDP per capita in 2024, £990 in 2025 and £1,870 in 2026.
• The Growth Commission will host a Growth Budget event at 11am on the 14th of November, to attend the event please contact Lucy@growth-commission.com

Tuesday, 14th November 2023 – The Growth Commission has published its Growth Budget providing a new dynamic economic analysis of the UK economy and its prospects ahead of the Government‘s Autumn Statement.

The Growth Budget lays out a 20-year economic forecast as well as a set of growth focussed policies alongside analysis of their long-term impact on GDP and GDP per capita. The Growth Budget forecasts: GDP per capita growth stagnating at an average of 1% over the next twenty years on unchanged policiesGap between US and UK household income to rise to 68.5% by 2044, or £76,800, up from 55% in 2022.Fiscal drag and unanticipated inflation mean that the tax burden is likely to rise to a high (excluding war time) of 42.3% of GDP by 2027/28, vs. 38.9% in 2021/22, equivalent to a 9p rise in income tax.Both the deficit and borrowing are forecast to fall but the long-term borrowing profile may not be sustainable, given the high tax burden and sluggish growth in living standards that is projected. Douglas McWilliams, Co-Chairman of the Growth Commission and Deputy Chair of the CEBR, commented on the report:

“Short-term decision making has delivered stagnation. We cannot ignore this and we can’t sustain it. We can see twenty years of stagnation with a record tax burden. Something will have to give, whether it is employees resisting falling living standards or markets refusing to buy more and more debt. We need policies to be genuinely long-term in their ambition and aggressively target growth. Today we have suggested a plan that can reverse the trend to stagnation, that can make a huge impact to our economy and people’s lives. Governments, of any political persuasion, need to be bold in targeting growth whether that is in supply side reform, productivity raising or reducing taxation.”

Shanker Singham,

“The Growth Commission‘s work shows that the UK does not have to remain on the currently projected economic track. We can and must change this trajectory so that the British people can see their incomes rise and their quality of life improve.Our economic models show that the supply side and regulatory reforms are at least as important if not more important to generate growth than tax and fiscal choices. We have identified those areas where the UK is a poor performer and worked out what would happen if that performance was improved to the level of the best performing country. What we have found is that significant potential for economic growth is still on the table. Far from being an optional extra, regulatory reform can yield significant growth opportunities that are much higher than many economists had hitherto thought.“

The Growth Budget policy proposals

This dismal outlook is not predetermined. The Growth Budget has used its new economic model to analyse the long-term growth impact of a series of policy proposals.The proposals together, could deliver a 23.4% boost to UK GDP by 2044 above the current forecast. The additional growth plus the impacts of the policies recommended will move the Government finances into surplus and bring down debt as a share of GDP to 60%by 2044. The list of initial policy proposals have been outlined in brief below. Further detail on the proposals and their impact over time on GDP per capita and GDP have been modelled and provided. There is further information on each proposal in the report.

Supply-side and Regulatory Reforms

By delivering targeted supply side reforms, we can unblock the economic arteries of the UK and deliver consistent growth. Proposals to address this include: 

1. Housing and Planning – 6.4% GDP Growth or £3,091 GDP per capita by 2044
   Reforming planning rules generally in line with the Australian system to increase rates of house building, and enhance competition in hospitality and retail and make building easier.Time limiting planning permissions – if you don’t use it you lose it. Sharing the gains of planning up lift resulting from rezoning agricultural land to housing. Zone based planning with a presumption that applications in line with the zoning will be accepted. More expenditure on social housing. Cut the time for approving large nationally important transport and energy projects by 75%
2. Energy and Smart Green – 2.2% GDP Growth or£1,063 GDP per capita by 2044
   Cutting energy costs to boost UK competitiveness – UK household electricity costs are among the highest in the world and more than double those in both US and France. Implementing the proposals already made by the CMA for increased competition in energy supply. Removing net zero levies. Approving nuclear power stations. Ending bans on fracking and on North sea development. Improving competition in the energy market. Making interconnection rules more competitive. Increasing generation through North Sea oil and gas leases.
3. The Labour Market – 2.7% GDP Growth or £1,304 GDP per capita by 2044.
   Enhancing Labour market flexibility to ease the pressure on business, including:Improving the labour force participation rate by making welfare encourage people to work. Eliminating restrictions on overtime work by deleting the EU Working Time Directive from the UK statute book. Adjusting the minimum wage level
4. Infrastructure investment – 1.4% GDP Growth or £676 GDP per capita by 2044.
   Delivering better transport connections to reduce costs for businesses and consumers,including: Cancelling Great British Railways and introducing on rail competition to reduce prices Financing new road building, eventually through user pricing administered by an independent authority
5. Public Sector Productivity – 4.4% GDP Growth or £2,125 GDP per capita by 2044.
   Spending in the public sector has risen dramatically since the onset of Covid but without the productivity improvements or taxpayer satisfaction to match. Proposals to address this include:  Reversing the post-Covid fall in public sector productivity. Modernising public services through technology.
6. Welfare – 1.6% GDP Growth or £773 GDP per capita by 2044.
   Rising welfare bills and crumbling infrastructure are causing increased spending and higher taxes. Proposals to address this include:Introducing more stringent requirements for welfare and benefits as well as more support to help people back into workMore state investment in energy, transport and housing to crowd in the private sector
7. Tax reform – 4.7% GDP Growth or £2,270 GDP per capita by 2044.
   Improving the UK’s tax competitiveness to better attract investment and spending, spurring growth. Proposals to address this include:Cutting the main rate of corporation tax from 25% to 19% and then in the long-term reduce it to 15%Unfreezing tax allowances in 2024-25. Phasing out the high marginal 60% rate of tax as the allowances are themselves phased out before 2030. Abolishing the so-called ‘tourist tax’,the requirement for tourists to pay VAT on their purchases. Studying the implications of inheritance tax and stamp duties on revenue receipts and,if necessary, abolishing them
   

Media enquiries
Please direct any media or information enquiries to media@growth-commission.com Woolf Thomson Jones+44 (0) 7376 392 693

Notes for Editors

• *Dynamic Modelling: Dynamic modelling tries to estimate the behavioural consequences of policy changes. Static modelling mainly ignores such changes.
• The Growth Commission [Link]: The Growth Commission investigates how low-growth economies can be transformed into high-growth economies. We look at impacts on growth of various factors, including demographics, size of government, tax rates, market distortions, trade policy, competition policy, housing policy and other factors.
• Mailing List: [Link]