Our growth problem won’t be fixed by tax cuts unless we get people back to work
Growth is not simply a product of tax cuts, but of looking at policies across the board which could boost our economic output and keep our workforce strong, writes Neil Carberry
The future labour market is clearly on the prime minister’s mind. And it is “the people stuff” we need to worry about, for without a sustainable workforce, we cannot hope to boost economic growth. If we fail to address the very serious challenges ahead our national GDP could miss out on up to £39bn every year from 2024. This figure is just short of the entire current defence budget, or two whole Elizabeth Lines.
Chancellor Jeremy Hunt is under pressure from his backbenchers and some businesses to offer tax cuts at the upcoming budget in spite of his insistence that we cannot afford it until our economy starts to grow again.
That growth is the problem is not a new diagnosis. Liz Truss knew it and Rishi Sunak is all too aware of the pressure slow growth puts on the public finances. Their remedies were radically different – cut taxes in the hope of firing innovation, or maintain the course and make growth-driving investments – but the problem is the same.
There are lesser-considered, but equally as effective levers for growth. As controversial as it will be to Tory backbenchers, tax cuts cannot tackle everything. Growth has to be front of mind at each department across the government, from immigration to skills. There are too many policies that deeply affect growth, which are run as if they do not.
Take childcare reform as an example. The exorbitant cost means many parents are trading down in their jobs for flexibility, curtailing their future career progressions or even stepping back completely. When families do their budgets, staying in their current job simply is often not the rational choice, even if it is the best thing in the long run. This puts a further squeeze on the workforce. Keeping parents in higher paid jobs is an investment in both growth and the tax take. It pays for itself over years.
The City, high streets, hospitality, the health service and the exchequer cannot afford for skilled people to step back from important roles.
Of course, the solutions do not lie solely with the government. As bosses, we need to be asking what more we can do to keep parents in work. With acute labour shortages, retention matters more than ever. This ramifications of flexible workplace policies does not just help parents contribute to the economy and their careers, but for carers as well, who shoulder significant burdens.
But – as in so many cases – businesses need government at our back. For example, the government could increase the financial contribution to the tax-free childcare scheme so that for every £8 parents put in, the government puts in £4, double their current contribution.
When we talk about growth, we can’t just talk about tax. We need to talk about care, about skills, transport and immigration. Too little of our current thinking is driven by the impact made by the “non-economic” departments. For the new business secretary Kemi Badenoch to deliver she is going to have to be backed by these other departments. For the last decade, the voice of the business secretary has been shrinking – it is time for that process to reverse.
The pandemic threw the weaknesses in our labour market into sharp relief, but these underlying issues have been with us for years. It is time to address them. Only growth can get the government out of the economic hole it is in – it is time for it to be a priority for every department.