In the wake of the government’s latest Budget announcement, British businesses are left questioning where the promised economic growth will materialise. Despite the Chancellor’s assurances, the Office for Budget Responsibility (OBR) has not revised its growth forecasts for the next five years, dampening hopes for a significant boost.
While businesses were relieved to avoid the kind of punitive measures seen in the previous Budget, such as a £25 billion hike in employer National Insurance contributions, the new policies appear to offer little tangible support. In fact, many sectors that were expected to receive special assistance, like high street retailers and the hospitality industry, are still facing rising costs due to increased business rates and labour expenses.
The 8.5% pay rise for 18-20 year olds on the national living wage, though a positive step for young workers, may have the unintended consequence of discouraging employers from taking on new staff. 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, fewer premises, lower growth.”
Furthermore, the cap on salary sacrifice arrangements could lead businesses and employees to reduce future pension contributions, pay rises, or investment in growth. One measure that did receive little attention but could prove important is the expansion of tax break schemes for investors in young, growing companies, such as the Enterprise Investment Scheme and Venture Capital Trusts.
The government has insisted that the economy is “already outperforming forecasts” and that the Budget is designed to drive growth “with billions of pounds in new capital spending, strong private investment and bold planning reform.” However, as the former chief economist of the Bank of England, Andy Haldane, noted, the “fiscal fandango” of speculation leading up to the Budget may have been a significant factor in growth stagnation.
Ultimately, businesses are seeking a clearer path to growth, one that provides stability and reduces the burden of taxation and regulation. As Steve Rigby, the boss of a large private company, said, “we just hope [the Budget] isn’t too catastrophic for business and we can get on with it.” For a government that has declared economic growth as its top priority, this Budget appears to have fallen short of delivering the necessary support and confidence.