A Budget for Growth?

Over recent weeks, headlines have been focused on Rachel Reeves’ Budget. Journalists, commentators, academics and more will pour over her announcement tomorrow to give their take on what will be in store for public finances - and, of course, so will we.

So far, despite all the noise and outrage on manifesto commitments, the contours of this budget have not come as a great surprise. Both the Prime Minister and the Chancellor have been steadfast in their commitment to ending austerity and growing the economy through greater investment. As Keir Starmer outlined yesterday, to do so he must raise taxes.

Our pre-Budget polling found that the public is largely signed up to this approach. 50% believe that the Government must make “difficult decisions” to control public spending, rising to 67% of Labour voters – and almost 7 in 10 agree the state of the country’s finances is either “somewhat” or “very bad”. The public seems to agree that the Government needs to take potentially unpopular measures to get a grip on the economy.

A lack of infrastructure and poor public services are two areas that the Government has emphasised as key drags on the UK’s economic prospects. It is looking to find the money to fix both – without spooking the markets. As we saw in 2022, increasing borrowing without oversight, a credible plan and balancing the books can cause devastating economic shocks. The apparent favour of the International Monetary Fund and Office for Budget Responsibility on the change in direction should give cause for reassurance on this front.

We shouldn’t just be watching how the Government manages to raise the money; we should be watching how it decides to spend it. The Good Growth Foundation will be keeping a keen eye on how closely it links the Budget to developing the Industrial Strategy and whether it will be able to overcome the short-termism of the Treasury when it comes to spending on public services. We will also be asking if the public actually buys into the solutions. Currently, our polling suggests that 48% of people agree the Government should spend more to invest in infrastructure, but there is clear division over whether doing the same for green energy is the right move.

The clock is ticking for the government to start to deliver improvements. Our polling shows that already a third of the public blames them for the state of the economy – and the increase on employer’s national insurance contributions will be a tough pill to swallow for many businesses, especially SMEs and people-focused employers. Business sentiment isn’t always logical, and to achieve the mission for growth, it’s important that private sector decision-makers don’t become defensive with investment.

Politically, a majority of the country either support or are neutral on increasing taxes on business, regardless of whether it hurts the country’s growth prospects. And practically, if each worker costs more, this change could push forward investment in productivity and technology. Seen in the context of the Employment Rights Bill, a significant increase in the minimum wage, and the new Growth and Skills Levy to increase upskilling - these are a combined set of changes which raise the floor on conditions, increase security and push improved output per worker. 

This budget isn’t pro-growth or anti-growth. It is likely to be a step on the journey to achieving growth of a particular type, growth that may finally address the era of insecurity in which we live.

Read more about our pre-budget polling in The Mirror, here.