![\"Ian](\"https:\/\/i0.wp.com\/magazine.dailybusinessgroup.co.uk\/wp_mag14\/wp-content\/uploads\/2025\/09\/Ian-Ritchie-1.png?resize=300%2C201&ssl=1\")
<\/figure>\n<\/div>\nMinisters need to reverse self-inflicted damage to the economy, says IAN RITCHIE<\/h4>\n
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When the current UK government overwhelmingly won last year\u2019s general election it was on a manifesto which identified five key priorities or missions. The first and most important was to \u201ckickstart economic growth\u201d which it defined as \u201cto secure the highest sustained growth in the G7 \u2013 with good jobs and productivity growth in every part of the country making everyone, not just a few, better off.\u201d<\/p>\n
It\u2019s a very appropriate priority for a centre-left party for it is only by achieving a healthy level of economic growth that we can afford the nation that we want: a strong economy with good jobs and good wages; an efficient and effective health service; support for those who need it through illness or disability; a civil and peaceful society; and the ability to defend our nation from attack.<\/p>\n
At the top of the manifesto, Labour actually wrote \u201cfor too long, Britain has been held back by governments that, because they lack a relentless focus on long-term ends, are buffeted about by events.\u201d <\/p>\n
So it is puzzling that the government\u2019s subsequent actions have been dominated by short term measures, many of which have had the explicit effect of damaging long term productivity growth.<\/p>\n
In my business career we often identified specific priorities to guide our decisions and steer our progress.\u00a0 So, when we planned a new initiative, we measured it up against our identified priority goal \u2013 if it helped to achieve it, we went ahead, but if it damaged our ability to reach our goal we decided on another course.<\/p>\n
Which makes it even more puzzling that in her first budget, the Chancellor substantially raised employer\u2019s National Insurance, a heavy tax on employment, which made it much more difficult for employers to maintain or grow their workforce.<\/p>\n
And her second recent budget continued to further damage the prospects for economic growth by freezing the thresholds for income tax and national insurance for a further three years, meaning people will pay more tax as they are dragged into higher rates. <\/p>\n
Most badly affected will be those middle managers on over \u00a352,000 per year who will be taxed harder than those on \u00a3100,000 or more. Tax on dividends, property and savings were also increased by 2%<\/p>\n
The capital gains tax relief on Employment Ownership Trusts (EOT), which has been an attractive option for young technology companies, has been reduced from 100% to 50%, and the rate of tax relief on those investing in Venture Capital Trusts (VCT), a key sector which invests in ambitious growth businesses, is to be reduced from 30% to 20%.<\/p>\n
The OECD, an independent organisation of the world\u2019s richest 38 countries has concluded that the budget will constrain the UK economy for several years. The \u00a326 billion of tax rises set out in the Chancellor\u2019s programme will act as a \u201cheadwind to the economy\u201d, the rate of inflation will stay the largest in the G7, and unemployment will remain in a post-pandemic high of 5%.<\/p>\n
The Institute for Fiscal Studies (IFS) said the Budget showed \u201cno real appetite for using tax reform to boost growth\u201d. The CBI said the \u201cgovernment\u2019s growth mission is currently stalled.\u201d The National Institute of Economic and Social Research (NIESR) stated that the Budget \u201clocks in a high-tax, high-debt steady state in a world of low productivity growth and higher interest rates\u201d and that the Budget demonstrated a \u201cnotable lack of economic vision beyond clearing fiscal hurdles\u201d.<\/p>\n
Alongside the budget, the government published a thin document called Entrepreneurship in the UK <\/em>which set out its policies to encourage the economic benefits of innovation. You can always tell when a government is giving a matter little priority by the way such publications are presented \u2013 this one is a plain 26 pages of text with no illustrations, charts or diagrams.<\/p>\n There are several failures in the UK economic climate that are obvious to all: UK companies have very low levels of investment in R&D and capital compared to competitive economies; schemes such as EIS and VCT support early stage companies but there is a chronic lack of \u2018scale up\u2019 funding for growth companies.<\/p>\n On top of that bank lending to companies in the UK is much lower than elsewhere; our pension funds tend to be small and historically avoid investing in UK technology, and our stock market favours banks and mining and is generally unwelcome to technology growth businesses. <\/p>\n The result is that most of our high growth businesses don\u2019t manage to grow and are snapped up by well capitalised multinationals.<\/p>\n Of course, a major contributor to our recent poor growth record is down to the elephant in the room \u2013 Brexit. And in particular the restrictions placed on free trade by no longer being part of the customs union.<\/p>\n It is estimated that UK\u2019s GDP is 6% to 8% poorer that it would have been if we had not left the European Union after the Brexit vote. Investment has been reduced by 12% to 18%, employment by 3% to 4%, and productivity by 3% to 4%.\u00a0<\/p>\n Erecting trade barriers to our largest and closest market is largely accepted as a disastrous decision, which could be relatively easily resolved by rejoining the EU customs union.<\/p>\n Those who voted to leave were mostly worried about the increasing political union of the EU rather than our ability to trade freely. The leaders of our current government overwhelmingly believe that Brexit was a massive act of self-harm.\u00a0<\/p>\n If, as the government states, growth is really our top priority, it should restore open trade with our closest and largest market and join the EU\u2019s customs union.<\/p>\n >Latest Daily Business news<\/strong><\/p>\nLike this:<\/h3>\n