Looming recession, soaring inflation, worker shortages and evaporating business confidence provide a fairly sobering backdrop for Jeremy Hunt’s autumn statement this week.
As the government goes back to the drawing board after Liz Truss’s botched mini-budget, most of the problems that Britain’s economy faced under her leadership are either still a big worry for company bosses or have been amplified.
However, business leaders worry that the chancellor’s tax and spending update on Thursday will do little more than stop the rot. Beyond balancing the books, industry leaders aren’t betting on any major tax or spending announcements to help reboot economic growth.
The story goes that the chancellor thinks Britain must take its medicine before any conversation about economic growth can start. After the disaster of the mini-budget, restoring faith in financial markets and tackling inflation is the only game in town. Then, and only then, can a path to prosperity be considered.
“I am under no illusion that there is a tough road ahead,” Hunt said last week. “To achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”
However, worried captains of industry think more could be done next week to support companies. Rather than this fatalist approach, could there not be steps within the government’s power to at least soften the edges of the recession?
“You can chew gum and walk at the same time,” one business chief remarked.
Hunt is expected to use his autumn statement speech to outline tax rises and spending cuts totalling £60bn, including at least £35bn in cuts to public services.
Corporation tax, one of the biggest revenue raisers open to the government, is expected to rise from next April. This had been planned by Rishi Sunak during his time as chancellor (before Truss’s failed bid to cancel that increase). However, another element of Sunak’s old plans is now expected to be dropped.
The prime minister had been considering giving companies billions of pounds in tax breaks, by offering them relief on the cost of any productivity-boosting capital investments.
This would have helped to soften the blow of the headline corporation tax rise, while taking a carrot-and-stick approach to business investment.
However, such is the concern over the damage the mini-budget did to Britain’s credibility with global investors that this plan is quietly being abandoned. Under one proposal outlined by Sunak, it could have cost more than £11bn a year.
With tax and spending support probably off the table, company bosses are looking for Hunt to announce “cost-free” measures that could give businesses some help. In the face of severe labour shortages, rising costs and a weaker economy, firms are pushing in particular for a relaxation of immigration rules. Looser planning rules and closer ties to the EU to minimise trade disruption are also on their wishlist.
Whether businesses will get much at all 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 boxed in by its own party, and fearful of a rerun of the markets’ reaction to the mini-budget, business leaders worry there will be little positive action to buoy Britain’s sinking economy. For millions of businesses struggling as economic growth falters, it will spell a tough few years ahead.
However, companies are demanding more than just an austerity reboot. “The autumn statement must learn the lessons of the 2010s: fiscal sustainability and lifting trend growth are both immediate priorities,” said Alpesh Paleja, lead economist at the CBI lobby group.
“Alongside reassuring markets and protecting the most vulnerable, the government should safeguard capital spending and investment allowances to drive private sector growth.”
