2025 Spring Statement Briefing: Proposals for Rachel Reeves’ urgent consideration

The country is facing the triple whammy of a growth crisis, a fiscal crisis and an exports crisis and the government should take immediate action on a number of fronts if the UK is to escape continued economic stagnation, the Growth Commission reports today. They also conclude that a comprehensive trade deal with the U.S. should be a ‘no brainer’ as they deliver their latest recommendations ahead of Rachel Reeves’ Spring Statement on Wednesday.

Against the backdrop of two successive quarters of falling GDP per capita – the best measure of whether living standards are improving and the yardstick against which Sir Keir Starmer has said his government’s economic success should be judged – the non-partisan group of leading international economists who form the Growth Commission have produced a raft of recommendations for the Chancellor’s urgent consideration.

They find:

• There is a growth crisis: Since June of last year, the data we have suggests GDP has decreased by 0.1% and over the same period growth in GDP per capita has been negative
• There is a fiscal crisis: in the four months of new data since the Office for Budget Responsibility issued its last forecast in October 2024, the combination of revenue shortfalls and spending overruns has amounted to £12.8 billion
• There is an exports crisis: Since the end of 2022, UK export volumes have fallen by 4.6% and seem to be on a continuing falling trend

Their recommendations to the government highlighted as priorities in their Spring Statement Briefing include:

Taxation

Tax changes to encourage talented and wealthy people to work and invest in the UK would likely have a disproportionately beneficial impact and stem the exodus of millionaires from the UK, which is significantly hitting tax revenues. We suggest the government should:

• Unfreeze income tax allowances, end the punitive marginal rates on those earning more than £100,000 as tax allowances are phased out and end the high marginal rates of combined tax and benefit withdrawal in middle income ranges for families with children
• Scrap plans to abolish non-dom status
• Bring the corporation tax rate into line with the proposed U.S. tax rate of 21%
• Increase capital recovery allowances to more completely reflect the full cost of plant, equipment and structures
• Abolish the so-called ‘tourist tax’, whereby tourists to the UK are required to pay VAT on their purchases

Regulatory reform

• Abandon the Employment Rights Bill which will impede labour market flexibility and make it harder to hire people
• Repeal the 2008 Climate Change Act which is much of the reason why the UK has the most expensive energy in the world
• Do not apply a Carbon Border Adjustment Mechanism which would be another growth-killing measure
• Repeal the Town and Country Planning Act and eradicate the major historic impediments to planning
• Scrap the establishment of Great British Railways and Great British Energy which risk crowding out private sector investment

Public spending

• Eliminate certain public arm’s length bodies which often work to preserve the status quo and are not independent from those they seek to regulate
• Act to reverse the fall in public sector productivity
• Reduce the welfare bill, in particular by seeking to understand and reverse the recent rise in the number of claimants of disability benefits
• Look at hastening the pace at which the retirement age is set to rise

Trade

At a time when the U.S. is actively looking at imposing tariffs on trading partners, we have modelled the likely impact of two possible scenarios: one, in which there is no trade deal with the U.S., which in turn imposes 25% tariffs while the UK undertakes a regulatory dynamic alignment reset with the EU; and a second where there is a U.S.-UK trade deal, no U.S. tariffs on the UK and resulting regulatory reforms:

Scenario 1: EU ‘reset’ involving dynamic alignment and a 25% U.S. tariff

Cebr estimate:  -1.125%
NIESR estimate: -3.75%
EU reset allowing certain SPS products to move into the EU: +1.0%
Impact of Anti-Competitive EU regulation (includes CBAM): -6.6%
Total: -6.725% to -9.35%

Scenario 2

EU reset using mutual recognition etc.: +0.5%
Trade benefits of U.S. deal: +0.9%
Regulatory reforms from US deal and from diverging from EU rules
through pro-competitive regulation: +6.5%
Total: +7.9%

The economic benefits of the second scenario on GDP are stark, which is why we conclude that achieving a good U.S. trade deal must become a UK priority.

Shanker Singham, Chairman of the Growth Commission, said:

“Last October the Growth Commission warned the Chancellor against pursuing a range of growth-killing measures that she was expected to include in her first Budget. It is now clear the wheels of the British economy run the risk of grinding to a halt. Urgent action is now required if ministers are to halt the decline in living standards over which they are now presiding.

“Perhaps most important at this juncture is our recommendation that the UK government sign a comprehensive trade deal with the United States. Frankly this is a no-brainer because it would mean the UK not being hit by tariffs from the new U.S. administration and would ensure that the UK’s regulatory autonomy and independent trade policy are not restricted, which would be the result of dynamic alignment with EU regulations.

“The UK once again must become an attractive place for wealth-creators and entrepreneurs to do business, otherwise the government is going to be relying on an ever smaller pool of net contributors to the tax system to oil the wheels of the state. That is simply not sustainable. As well as tax decreases, we recommend the non-dom decision be reversed.

“Importantly, a number of the pro-growth measures we are recommending in the sphere of regulatory reform are cost-free, such as scrapping the costly Employment Rights Bill and eradicating the major historic impediments in our 1940s-inspired planning system. There are many ways of tackling climate change, but the Climate Change Act of 2008 has proven to be the most costly in the world to ordinary households. We can do better.”