The Autumn 2024 Growth Budget
In advance of Rachel Reeves presenting the new government’s first Budget next week, the Growth Commission has published a 14-point plan to get the UK economy growing again.
With both the Prime Minister and Chancellor focusing on the need to raise the rate of GDP per capita, The Autumn 2024 Growth Budget – released by the non-partisan group of leading international economists who form the Growth Commission – provides a timely analysis of some of the policies the government should be pursuing, as well as measures that ministers ought to avoid.
The plan, which the Commission experts calculate should boost GDP per capita by 2045 by 27.1%, has been prepared using the Growth Commission’s bespoke economic models, which take into account the dynamic impact of policy changes over time.
Among the key proposals included in The Autumn 2024 Growth Budget are:
- Enhancing the government’s proposals to make planning simpler by forcing authorities to give equal priority to growth
- Replacing Net Zero with Smart Net Zero, using cost benefit analysis to ensure realistic carbon prices before new environmental policies are adopted
- Making the labour market as flexible as in Australia by reducing restrictions and costs on employers
- Making the public sector more productive by setting clear productivity targets and reducing the power of public sector trade unions
- Cutting the most damaging taxes, including
- abolition of Inheritance Tax
- reducing the main rate of Corporation Tax back to 19% and in the long term to 15%
- ending the freezing of Income Tax allowances in 2025-26 and removing the economically damaging 60% – 70% marginal rate of tax on those earning more than £100,000 as their tax allowances are phased out
- abolition of the so-called ‘tourist tax’, i.e. the requirement for tourists to the UK to pay VAT on their purchases
- Reducing net migration to 150,000 a year
Each of these policies has been carefully analysed and costed and their impact on GDP per capita calculated. Not only will they boost growth in terms of GDP per capita, but they will also reduce borrowing as the growth and productivity gains in the public sector come through.
The Growth Budget also contains a ‘Not to do’ list of potential measures that have been floated in the media which Growth Commission modelling suggests would hinder the prospects for growth. These include:
- a two-percentage point rise in employers’ National Insurance contributions
- raising the rate of tax on capital gains to the same rates as income tax
- implementing a Carbon Border Adjustment Mechanism
- raising the minimum wage by 10%
- abolishing ‘non-dom’ status
While the Commission acknowledges that the government’s planning proposals should boost growth, its analysis of the cost of a range of other putative measures under discussion is that they would reduce GDP per capita by 2030-31 by 8.8% and by 2045-46 by 12.2%. In addition, they would lead to a genuine black hole in the public finances as a result of lost tax revenues – estimated to be £84 billion by 2030-31 and £134 billion by 2045-46.
The difference between pursuing the policies recommended by the Growth Commission and the policies on the ‘Not to do’ list is massive. The ‘Not to do’ policies would lead to growth in GDP per capita stagnating over the next five years. By 2045-46, GDP per capita (which is the main determinant of household incomes) would be £21,192 higher on Growth Commission policies (at 2023 prices) than on the ‘Not to do’ policies, a staggering 67% of today’s GDP per capita.
Shanker Singham, Chairman of the Growth Commission, said:
“The Prime Minister has said that economic growth, by which he means wealth creation, is ‘the number one priority’ of his government. We are delighted with that statement and the Growth Commission’s Autumn 2024 Growth Budget provides him with a suite of policies to deliver exactly that.
“While we have seen a recent marginal improvement in raw growth figures, the all-important measure of GDP per capita has been flatlining, with current estimates suggesting it fell by 0.8% in 2023 and is likely to have remained at that level during 2024. This explains why British households are feeling poorer today than they were a few years ago.
“Regrettably, with the notable exception of the government’s planning reforms, numerous policies that have been trailed in the media for possible inclusion in the Budget are likely on our modelling to reduce GDP per capita growth in the coming years.
“If the government is to deliver on its growth pledge, it urgently needs to focus on making the public sector more productive, cutting the most damaging taxes and repealing the most economically detrimental regulations which are contributing to the current economic stagnation.”
Douglas McWilliams, the former Co-Chairman of the Growth Commission who helped prepare today’s report, added:
“Trying to run an economy on sharply higher taxes on business and capital is like trying to run a car on no oil: the engine may run on for a few miles, but you know it will eventually seize up.
“The economy’s biggest current weakness is the declining productivity in the public sector. Without turning that around, any government will be in trouble, resulting in a combination of higher borrowing, higher taxes or slashing spending.”
The full impact on GDP per capita over the short-, medium- and long-term of the policies being recommended by the Growth Commission is set out in Table 1 of the report.
