By Maximilian Clarke
Government policy should focus on long-term growth through supply-side reforms to boost the UK economy- through lightening regulation, tax reform, labour market interventions and focussing government spending on areas which benefit business over the longer-term - infrastructure, education and research.
These are the headline findings of PwC’s latest UK Economic Outlook, published today (Thursday). The ‘Big Four’ auditor forecasts a £7bn net drop in government borrowing which, in the face of muted economic performance, suggest deficit reduction is plan is working and that the government must instead focus on long-term growth friendly policies.
Since PwC’s public finance projections suggest that additional austerity measures are not needed over and above those already announced, this year’s Budget can instead focus on advancing this supply side reform agenda. Reductions in business regulation could be pushed harder and faster, and made more relevant to business. The tax reform agenda would be strengthened if changes to the corporate tax system were complemented by a renewed programme of reform of personal taxes, expenditure taxes and environmental taxation. There is scope for a bolder and more radical approach to addressing the problem of youth employment. And the government’s supply-side agenda can be made more coherent and better communicated to the business community.
"Supply-side reforms need to take over from the emphasis on demand stimulus we have seen since the financial crisis. Supply-side policies supported growth in the UK in the 1980s and the 1990s, and we need a stronger focus on them now. That means simplifying and streamlining regulation so we have a good business climate here in the UK - for small companies and new start-ups as well as large multinationals.
"Also, businesses and individuals need more reassurance that the tax regime will reward wealth creation over the longer term. Though the Chancellor has limited room for manoeuvre, he can set out more clearly his medium-term plans for getting personal tax rates down and restructuring environmental and spending taxes to help achieve this. The government's programme of measures to address youth unemployment could also be strengthened.”
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