The Great Recession, rising inflation, labor shortages and evaporating business confidence provided the backdrop for Jeremy Hunt’s autumn statement this week.
As the government goes back to the drawing board after Liz Truss botched mini budgetMost of the problems facing the British economy under his leadership are still big worries for company bosses or have been magnified.
However, business leaders worry that the chancellor’s tax and spending update on Thursday will do more than stop the rot. Beyond balancing the books, industry leaders aren’t betting on major tax or spending announcements to help spur economic growth.
The story goes that the chancellor thinks that Britain needs to take drugs before any conversation about economic growth can begin. After the disaster of the mini budget, restoring faith in the financial market and tackling inflation is the only game in town. Then, and only then, can the road to prosperity be considered.
“I’m under no illusions that there’s a tough road ahead,” Hunt said last week. “To achieve long-term, sustainable growth, we must arrest inflation, balance the books and reduce debt. There is no other way.”
However, industry captains are anxious to think that more can be done next week to support the company. Rather than this fatalistic approach, why are there no steps in the government’s power to at least soften the edges of the recession?
“You can chew gum and walk at the same time,” said one business leader.
Hunt is expected to use his autumn statement speech to outline tax rises and spending cuts totaling £60bn, including at least £35bn in cuts to public services.
Corporation Tax, one of the biggest open revenue raisers for the government, is expected to rise from next April. This had been planned by Rishi Sunak during his tenure as chancellor (before Truss’ failed attempt to cancel the upgrade). However, another element of Sunak’s old plan is now expected to drop.
The prime minister has considered giving companies billions of pounds in tax breaks, by offering them relief on the cost of productivity-boosting capital investment.
This will help to soften the blow of the headline corporate tax hike, while taking a carrot-and-stick approach to business investment.
However, it is concerned about the mini-budget’s damage to UK credibility with global investors that these plans have been quietly abandoned. Under one proposal outlined by Sunak, it could cost more than £11bn a year.
With tax and spending support seemingly off the table, company bosses are looking to Hunt to announce “free” measures that could help businesses. In the face of severe labor shortages, rising costs and a weaker economy, companies pushing in particular for the relaxation of immigration rules. Looser planning rules and closer ties with the EU to minimize trade disruptions are also on his wish list.
Whether the business will get so much from Sunak and its chancellor is another matter. Immigration, planning and the EU are totemic issues for the Conservatives: it could prove difficult for the prime minister to change them without backing down.
With the government being punched by its own party, and fears of a further market reaction to the mini-budget, business leaders are worried that there will be little positive action to prop up Britain’s sinking economy. For millions of businesses struggling as economic growth slows, that will spell the end of the next few years.
However, the company is demanding more than just an austerity reboot. “The autumn statement should learn the lessons of the 2010s: fiscal sustainability and growth trend raise both immediate priorities,” said Alpesh Paleja, lead economist at the CBI lobby group.
“In addition to guaranteeing the market and protecting the most vulnerable, the government must protect capital spending and investment allowances to encourage private sector growth.”