Rathbones’ Oliver Jones: Spring budget – fix three major structural problems facing UK economy

by | Feb 29, 2024

Oliver Jones, head of asset allocation at Rathbones Investment Management, looks at key issues which he believes should be addressed in the forthcoming budget.

The shadow of the impending general election will loom over this Spring Budget, which is almost certain to be the final ‘fiscal event’ of this Parliament.

In an ideal world, we want to see much clearer focus from whoever is Chancellor following the election on three major structural problems facing the UK economy, as we see them. While the UK’s shallow ‘technical’ recession in the second half of 2023 is likely to end early in 2024, these problems will probably keep growth slow thereafter if left unaddressed.

  • The first is the state of the health service, which is still struggling in the wake of the pandemic and urgently needs addressing. The number of people in England on NHS waiting lists has increased by more than three million since 2019, with one in eight people in the country now waiting for treatment. The economic effects of this are clear – the number of would-be workers out of the labour force due to long-term sickness has jumped by three-quarters of a million. 
  • The second is housing supply and the cost of accommodation. Measures like the 99% mortgages reportedly under consideration by the Chancellor are potentially counterproductive, only serving to increase demand for housing. The pledge to reform the planning system in the 2023 Autumn Statement was much more encouraging, but now we need to hear more about the specifics and see evidence of tangible progress. 
  • The third is the weakness of business investment, which has been much worse in the UK than its peers during the years of uncertainty which have followed the 2016 Brexit referendum. Last Autumn’s decision to make the ‘full expensing’ of businesses’ capital investment permanent was a positive step in this regard, but more could be done. Stability in policymaking and relations with the EU should help, as would public investment in infrastructure, which can complement private investment.

As for the specific measures due to be announced by the Chancellor (or promised by his opposite number), we wouldn’t pay too much attention to any headline-grabbing pre-election announcements about tax cuts. Both parties’ commitment to strict fiscal rules following the Truss-Kwarteng ‘mini-budget’ debacle has limited their ability to deliver really consequential giveaways, and markets are inclined to view unfunded tax cuts dimly with inflation still too high. At the 2023 Autumn Statement, headline tax cuts were simply offset by less visible de facto increases elsewhere, and something similar might happen this time too.

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