Britain’s Chancellor of the Exchequer Jeremy Hunt attends the Britain’s Conservative Party annual conference in Manchester, Britain, on October 2, 2023. REUTERS/Hannah McKay/File Photo Acquire License Rights
LONDON, Nov 8 (Reuters) – British Finance Minister Jeremy Hunt must resist the temptation of tax cuts before the election and instead boost investment in areas such as infrastructure and skills to lift the economy out of another decade of doldrums, a think tank said .
Based on current trends, the inflation-adjusted incomes of the bottom 50% of the country’s workforce will not return to pre-COVID-19 crisis levels until the end of 2026, the National Institute for Economic and Social Research said on Wednesday.
The best way to boost the weak economy is to increase public investment to 3% of gross domestic product each year and create incentives for companies to invest more as well, it said.
Britain’s public investment is expected to be about 3% of GDP this year but will fall to about 2% in the coming years, a difference of about 30 billion pounds ($37 billion) a year.
“If the government has the financial flexibility to do it, then it should certainly do that. What we don’t want to see is tax waste before the election,” said Stephen Millard, deputy director of the NIESR.
Hunt warned MPs in his Conservative Party in his budget update speech on November 22 that he would not be able to significantly cut taxes as he focused on reducing high inflation.
But analysts say tax cuts are likely ahead of elections due in January 2025, with the Conservatives lagging far behind the opposition Labor Party in opinion polls.
Labor has promised to increase business investment and set up a national wealth fund to boost private investment. The government has unveiled reforms to encourage large pension funds to invest in infrastructure and is reportedly considering new investment incentives for companies.
Adrian Pabst, another deputy director of the NIESR, said the government should let regional and central governments work more closely together to boost long-term investments in infrastructure, skills, public housing and social welfare.
Increased public investment would encourage more private investment and improve Britain’s weak productivity growth, which is crucial to raising living standards in the long term, he said.
NIESR said it expects the UK economy to grow by a weak 0.6% and 0.5% in 2023 and 2024, before increasing to 1.0% in 2025 and 1.7% in 2028. rising, which is still below the average level before the 2008-2009 financial crisis.
But Hunt will likely have enough fiscal space to increase public investment, helped by the erosion of nominal debt from high inflation, Millard said.
NIESR forecasts suggest inflation will fall to 2% by the end of 2025, in line with Bank of England forecasts. NIESR said the BoE’s benchmark interest rate likely peaked at its current level of 5.25% and will stabilize between 3% and 3.5%.
($1 = 0.8133 pounds)
Author: William Schomberg, Editor: Andy Bruce
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