A looming recession, rising inflation, labor shortages and evaporating business confidence set a rather dismal backdrop for Jeremy Hunt’s autumn statement this week.
As the government returns to the drawing board after Liz Truss’ failed mini-budget, most of the problems that plagued the British economy under her leadership are either still a major concern for company bosses or have intensified.
But business leaders are worried that the chancellor’s tax and spending update on Thursday will do little more than stop the rot. Beyond balancing the books, industry leaders are not betting on major tax or spending announcements to help restart economic growth.
The story goes that the chancellor believes Britain needs to take its own medicine before any talk of economic growth begins. After the mini-budget debacle, restoring faith in financial markets and tackling inflation is the only game in town. Then, and only then, can the path to prosperity be considered.
“I’m under no illusions that there’s a tough road ahead of me,” Hunt said last week. “To achieve long-term, sustainable growth, we need to contain inflation, balance the books and get the debt down. There is no other way.”
But worried industry captains believe more could be done next week to support companies. Instead of this doomsday approach, couldn’t there be steps within the government’s power to at least soften the edges of recession?
“You can chew gum and walk at the same time,” remarked one business executive.
Hunt is expected to use his autumn statement to outline tax rises and spending cuts totaling £60bn, including at least £35bn in cuts to public services.
Corporation tax, one of the biggest revenue generators open to the government, is expected to rise from next April. This had been designed by Rishi Sunak during his time as chancellor (before Truss’ failed attempt to cancel this increase). However, another element of Sunak’s old plans is now expected to be scrapped.
The prime minister was considering giving companies billions of pounds in tax breaks, offering them relief from the cost of any productivity-boosting capital investment.
This would have helped to soften the blow of a rise in basic corporate tax, while taking a carrot and stick approach to business investment.
However, such is the concern over the damage the mini-budget has done to Britain’s credibility with global investors that the plan is being quietly abandoned. Under a proposal outlined by Sunak, it could cost more than £11bn a year.
With tax and spending support likely off the table, company bosses are looking to Hunt to announce “no-cost” measures that could help businesses. In the face of severe labor shortages, rising costs and a weaker economy, businesses are pushing hard to loosen immigration rules. Looser planning rules and closer ties with the EU to minimize trade disruption are also on their wish list.
Whether business will get much from Sunak and his chancellor is another matter. Immigration, planning and the EU are totemic issues for the Conservatives: it could prove difficult for the prime minister to tweak them without a backlash.
With the government hemmed in by its own party and fearing a repeat of the markets’ backlash to the mini-budget, business leaders worry there will be little positive action to shore up Britain’s sagging economy. For millions of businesses struggling as economic growth falters, there will be tough years ahead.
But companies require more than just an austerity reboot. “The autumn statement must learn the lessons of the 2010s: fiscal sustainability and lifting growth are both immediate priorities,” said Alpesh Paleja, chief economist at the CBI lobby group.
“Along with safeguarding markets and protecting the most vulnerable, the government should protect capital expenditure and investment allowances to promote private sector growth.”