By the end of this Parliament, it is forecast that we will see a decline in real GDP, stagnating living standards, and significant drops in private investment and private consumption.
The public will be asked to pay £40 billion more in taxes, much of which will come from destructive tax rises like increases to Employer National Insurance Contributions and increases to Capital Gains Tax. These will reduce investment, reduce job creation, and – combined with new employment regulations and increases to the minimum wage – will make Britain a worse place to do business.
- Two estimates from the Office for Budget Responsibility (OBR) show that labour supply would be hampered by a loss of 50,000 hours average time equivalents; and employee real wages taking 76% of the hit from this increase in Employer NI Contributions.
Other taxes are set to increase, such as Stamp Duty, Inheritance Tax, and the Energy Profits Levy, which is accelerating the rapid decline of the North Sea oil and gas economy, one of Britain’s most important national assets.
At a time when economic dynamism is needed most, the Office for Budget Responsibility is predicting a lost decade. Medium term growth estimates are falling, and the size of the state and the tax burden are expected to rise to record levels.
By 2029, the state is expected to account for 44% of Britain’s GDP. This is unprecedented in peacetime, and it is highly unlikely it is possible to pay for this through taxation alone. The loosening of fiscal rules shows the reality of how this will be paid for: more borrowing. Ultimately, this always leads to increasing inflation and forcing up interest rates.
- As predicted by the Growth Commission in its Autumn 2024 Growth Budget, markets’ response to this announcement has been negative. UK bond yields have increased to 4.4%, more than any other major economy, and equity markets have fallen by 0.6%. This will likely further exacerbate the debt problem as the debt-to-GDP ratio continues to rise.
The building blocks of prosperity include low taxes, cheap energy, and a lightly regulated economy which allows entrepreneurs to build businesses how they please.
- As Shanker Singham, author of the Growth Budget says: “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.”
The only way to fund Britain’s public services is through economic growth and government efficiency. While the public sector might enjoy a sugar rush of money in the short term, in the long term it is British taxpayers, and the whole country, who will lose out.
About the authors
Fred de Fossard: Director of Strategy
Fred leads the Institute’s parliamentary and legislative work. He is responsible for research on British prosperity, encompassing Brexit opportunities, regulatory and government reform, and economic growth. This includes a long-term legislative agenda required to return the United Kingdom to growth, aided by his expertise in parliamentary and constitutional affairs.
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