Tue, Dec 06, 2022 page11

• UK faces lost decade without growth plan, CBI says

  • Bloomberg
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  The British economy faces a decade of lost growth unless the government takes action on investment tax relief, the Northern Ireland protocol and a shrinking workforce, the Confederation of British Industry (CBI) said.

  In its latest forecast, the CBI said the UK has already fallen into a “short and shallow” recession that could leave business investment 9 percent below 2019 levels and productivity 2 percent below its pre-pandemic trend at the end of 2024.

  CBI director-general Tony Danker said the UK seems to be retreating from priorities raised by British Prime Minister Rishi Sunak at his Mais Lecture in February, when he was chancellor of the exchequer, and is now removing incentives to invest and innovate, abandoning any agenda for growth.

  

  People carry shopping bags as they walk past Christmas-themed shop displays on Regent Street in London on Sunday.

  Photo: Reuters

  “Britain is in stagflation — with rocketing inflation, negative growth, falling productivity and business investment,” Danker said. “Firms see potential growth opportunities, but a lack of ‘reasons to believe’ are causing them to pause investing in 2023. Government can change this. We will see a lost decade of growth if action isn’t taken.”

  The bleak outlook accompanied its forecast for the economy to shrink 0.4 percent next year as a cost of living crisis hammers household spending and interest rates rise to 4 percent.

  GDP is expected to recover in 2024 with growth of 1.6 percent, it said.

  Unemployment in the CBI’s outlook would rise by about 500,000 to 5 percent next year from 3.6 percent, while inflation, currently at 11.1 percent, would squeeze household incomes throughout next year and remain above target at 2.6 percent at the end of 2024.

  The CBI expects the UK to suffer the second-worst recession of major economies after Germany.

  Persistent weak productivity and business investment “doesn’t bode well for the country’s potential to grow,” it said.

  Danker said the government can take action to restore confidence among businesses and boost growth, chiefly through a massive tax break on investment.

  The corporation tax super-

  deduction expires in April, and the tax rate rises 6 percentage points to 25 percent.

  The CBI has called for the replacement of the super-deduction with full-expensing, under which every penny invested in plant and machinery can be deducted from taxable profits.

  It would cost ￡10 billion (US$12.27 billion) in the first year, but have no fiscal cost in the longer term, CBI chief economist Rain Newton-Smith said.

  The tax break would unlock an extra ￡50 billion in capital investment a year by the end of the decade and add a quarter of a percentage point to the sustainable UK growth rate, the CBI said.

  Danker said that time is running out.

  Last month’s fiscal statement, at which British Chancellor of the Exchequer Jeremy Hunt announced ￡55 billion of savings to repair the public finances, is necessary to ensure economic stability, Danker said, but added that “the country does not have a plan for growth.”

  A plan needs to be built around boosting productivity and increasing the labor supply, he said.

  The UK is the only major advanced economy with fewer people in work than before the pandemic.

  “We have higher levels of long-term sick than other countries, and our healthcare system is obviously under strain,” Danker said. “That’s a particular British circumstance that needs a particularly British response.”

  “We’ve talked to government about providing incentives for occupational health, private or otherwise, to get workers back into work. At the moment, the government is relying on the NHS. I don’t think that’s credible, given the state of the NHS,” he said.

  Fixing the Northern Ireland Protocol, the controversial post-Brexit arrangement governing trade at the border between Northern Ireland and the Republic of Ireland, which remains the main source of tension with the EU, would boost growth by bringing the UK closer to the EU, Danker said.

  “Once we resolve the protocol, then you start to open up all the other opportunities areas,” he said.
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