AUS
NZ
UK
CA
USA
IND
Highlights:
- Think-tank warns UK Budget proposals could create an £80 billion economic shortfall.
- GDP per capita could drop by 8.8% by 2030-31 due to proposed tax-raising measures.
- The Commission suggests scrapping inheritance tax and reducing corporation tax to stimulate growth.
An economic think-tank established by former UK Prime Minister Liz Truss has warned that proposals being considered by the current Chancellor Rachel Reeves could result in an economic “black hole” exceeding £80 billion. The Growth Commission, formed after Truss's departure from office following her 2022 Budget that triggered financial instability, has raised concerns about the potential consequences of rumoured tax-raising measures in the upcoming Budget.
The Commission’s economists have calculated that if the government moves forward with these policies, the UK’s GDP could see a significant decline by 2030-31. Their pre-Budget report suggests that while some government planning proposals may encourage growth, other potential measures under discussion could reduce GDP per capita by 8.8% by 2030-31, and by 12.2% by 2045-46.
Among the policies causing concern are a proposed two-percentage-point rise in employers' National Insurance contributions, increasing capital gains tax to align with income tax rates, implementing a Carbon Border Adjustment Mechanism, raising the minimum wage by 10%, and abolishing non-dom status. According to the think-tank, if these policies are implemented together, they could result in a loss of £84 billion in tax revenues by 2030-31 and £134 billion by 2045-46.
In a worst-case scenario where all the proposed measures are adopted, the Commission predicts GDP per capita would fall to £29,012 by 2030, compared to £32,800 without such policy changes. These projections have led the Commission to caution the government about the potential impact on economic growth and tax revenue.
Shanker Singham, chairman of the Growth Commission, highlighted the risks, stating, “Regrettably, with the notable exception of the Government’s planning reforms, numerous policies that have been trailed in the media for possible inclusion in the Budget are likely on our modelling to reduce GDP per capita growth in the coming years." He emphasized the need for the government to focus on public sector productivity, reducing harmful taxes, and repealing damaging regulations to address the country’s current economic challenges.
The Growth Commission has instead suggested alternative policies to boost UK growth, including abolishing inheritance tax, lifting the freeze on income tax thresholds, and reducing corporation tax from 25% to 19%.
