The Office for Budget Responsibility warns of modest economic growth in the UK, citing Brexit, energy costs, and investment concerns. Meanwhile, Chancellor Jeremy Hunt’s recent tax cuts aim to alleviate financial pressures, against a backdrop of tax levels not seen since post-WWII.
The UK economic landscape continues to navigate challenges spurred by Brexit, with the Office for Budget Responsibility (OBR) offering a cautionary outlook. The OBR’s analysis suggests that the UK’s GDP will see modest growth of 0.8% this year, with hopes of a gradual increase to approximately 2% annually over the next four years. Factors such as trade barriers resulting from Brexit, energy price hikes, and subdued investment are highlighted as key contributors to economic strain. Despite a predicted surge in household consumption, trade with the EU is expected to face further challenges due to the full implementation of the Brexit Trade and Cooperation Agreement, potentially reducing the UK economy’s productivity by 4% over 15 years due to a 15% drop in import and export volumes. The government, however, appears to minimize the perceived negative economic impact of Brexit.
In parallel efforts to stimulate economic activity, Chancellor Jeremy Hunt announced significant tax reductions, with personal taxes cut by 2p in national insurance, marking the lowest personal tax levels since 1975. This measure is expected to provide financial relief to millions of employees and self-employed individuals, offering an increase of £450 annually for the average worker. Despite these cuts, concerns have been raised about the potential for fiscal drag as a consequence of freezing income tax thresholds, suggesting the gains from tax cuts might be counterbalanced over time. The cost of the national insurance cut is estimated by the OBR to be £10.5 billion annually, adjusting to £8.9 billion when considering indirect effects.
Furthermore, the UK’s tax landscape has undergone significant changes, reaching levels reminiscent of 1948 when the nation was recovering from World War II. Currently, taxes as a share of national income stand at 37.1%, reflecting a blend of recent tax cuts and increases. The budget’s inclusion of tax hikes on items like vaping, tobacco, and holiday home lets contrasts sharply with the post-war emphasis on income-tax concessions for the working class. Amid current fiscal strategies and potential voter reactions to lifestyle taxes and post-election spending cuts, echoes of austerity measures loom, drawing parallels to historical challenges and shifts in UK’s tax policy and economic priorities.
