Spring Statement: What could the government do to stimulate growth in the economy

The Government will deliver its Spring Statement on 26 March. Whilst not intended to be a platform for major policy announcements, the changing political and economic landscape may leave the Chancellor with little or no choice.

It was Harold Wilson who famously said “a week is a long time in politics” following a seemingly never-ending series of crises during the 1960s. Fast forward 60 years, the six months following the Labour government’s first Budget in 14 years might to many of its ministers feel like a lifetime.

Just as businesses need to pivot to embrace the changing political and economic landscape, so too must government.

The Government in its Autumn Budget announced several wide-ranging policies including increased public spending on infrastructure projects, investment in the NHS and in climate change and the easing of planning restrictions for housing and infrastructure projects. The Government’s intention was to create jobs, enhance the efficiency of commerce and mobility, thereby stimulating economic growth.

But, at the same time, the Chancellor announced hard-hitting tax changes, with an increase in employers’ national insurance and the removal of inheritance tax reliefs for family-owned and farming businesses.

Its primary election manifesto mission to drive growth is yet to come to fruition. Government needs to look less at how it can squeeze businesses on tax and more at the incentives needed to change corporate behaviour that will drive growth.

There needs to be immediate short-term measures that will support entrepreneurship and innovation, and longer-term measures to ensure businesses and their founders choose to stay in the UK.

The tax landscape is the obvious place to start.

National Insurance

The Government should listen to the calls from businesses to defer the taxes it announced in its Autumn Statement, particularly the increase in employers’ national insurance. It is a tax on jobs and businesses have already responded by freezing all but essential recruitment or begun redundancy rounds.

Income tax rates

Additionally, a reduction in income tax rates could stimulate growth in the economy. Income tax rates were frozen in 2021 under the Conservative government and have remained untouched, creating a fiscal drag that has seen more and more people paying higher rates. It has been called the single largest tax increase in a generation.

Grants

Alongside tax, a programme of strong incentives is needed to better encourage innovation and to keep those innovators in the UK. The Innovate UK grant programme is a good start, but more is needed.

Tax breaks and grants for ideas and businesses that can or have the promise to improve productivity should be considered. That will involve working hand in glove with financial services institutions, family offices and private equity investors where they are seen more as a strategic asset, helping and providing the means for growth and innovation. 

Public services, infrastructure and house building

Next, investment in public services is vitally needed, particularly large infrastructure schemes. Promising noises are emerging from government, but action is, as yet, a long way off. Alongside infrastructure is housing. The government has promised to build 1.5m homes over the next five years, but a shortage of skilled tradespeople are leaving those targets in doubt.

Education and skills training

A national skills strategy is desperately needed. It should inform education, incentives for business to invest and train individuals with the skills they need, and a national debate on skilled immigration.

Businesses have been rightly nervous about making significant investment given recent economic and political uncertainty.

In a world where change is the new normal, happening at a pace unseen in decades, the landscape for innovation and growth needs to respond. In unusual times, business (and politics) as usual no longer cuts it. Fresh and radical thinking is needed. The Spring Statement would be the obvious place to start.

If you have any queries on the changes from the Autumn Budget announcement, please don’t hesitate to get in touch. Alternatively, you can access all our commentary on the Autumn Budget here and a summary of the changes here.