Boost in tax breaks propels economic growth: ALEX BRUMMER advocates for Reeves to intensify the UK's digital economy.
Britain's economy has been surprisingly robust, managing to withstand numerous setbacks since Labour took charge last year. The initial revelation of a £22 billion black hole in the national accounts signaled incoming taxes and brutal spending cuts. The prospect of taxing wealth led to the first wave of millionaires fleeing the country.
This was followed by a harsh blow to the labor market with the £40 billion tax-raising budget in October, which increased employers' National Insurance contributions, negatively impacting jobs, businesses, and consumer confidence. The budget also featured a misguided change in fiscal rules, leaving Chancellor Rachel Reeves with minimal wiggle room.
As economic output sagged in the second half of 2024, and bond rates reached concerning levels due to worries about Britain's spiraling borrowing and debt, Reeves found herself on a treadmill, requiring constant spending cuts or tax increases just to keep afloat.
The Government left itself in a tight fiscal corner, with little room for maneuver when the US began to backpedal on its commitments to Europe's defense. There was barely any room for unforeseen scenarios, such as the costly bailout of Scunthorpe's Chinese-owned blast furnaces.
remarkably, Britain's booming service sector helped drive expansion in the first quarter. The 0.7 percent surge in output means that, for a short while at least, the UK might have been the standout performer among the Group of Seven (G7) wealthiest nations.
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Most of the uncertainty since March is due to Donald Trump's tariffs. Thankfully, the Trump White House is more concerned with trade, where Britain is broadly balanced with the US, rather than services, which continue to thrive.
In March, services accounted for 0.4 percent of output, while industrial production dropped by 0.7 percent. If the stuck car, steel, and aluminum manufacturers finally get clarity on when Trump's punitive, reciprocal tariffs will be lifted, there is a possibility of a manufacturing recovery.
Meanwhile, Labour's optimistic rhetoric on housing and construction, with the promise to sweep planning controls away, has yet to produce a significant response.
Skills shortages, material scarcities, and the nation's trusted friend 'nimbyism' continue to keep the brakes on.
All the commercial surveys, which economy-watchers rely on, have suggested that Labour's repeated confidence-sapping moves, like the National Insurance contributions increase and zealotry over net-zero, would halt investment.
Remarkably, business investment has been booming, driven by transport (mainly aircraft), machinery, and plant.
Unless the data turns out to be a fluke, there's a tax lesson here. Labour's inheritance from Jeremy Hunt and the Tories was a 'full expensing' scheme that allows corporations to offset spending on plant and equipment against their tax bill. This could serve as a reminder to the Chancellor and the new Second Permanent Secretary of the Treasury, Jim O'Neil, to consider the power of tax breaks.
Imagine what might happen if Reeves used her June public spending review or October Budget to expand full expensing to the digital economy of software, coding, AI, intellectual property, and the digital economy. Building more houses is a noble goal, but the explosive growth of Silicon Valley, Israel's startup economy, and Britain's Cambridge-Oxford innovation hubs has been built on brainpower, computing, and IT. Extending full expensing to the cyber economy could prove a bigger draw for Big Tech to the UK, and an incentive to keep British tech in the country as opposed to shallow gestures, such as a commitment to self-regulation of freedom of content.
There's an opportunity for fresh supply-side thinking around the Cabinet table. Seize it!
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Here are three sentences that follow from the given text and contain the provided words:
- Despite the harsh budget measures and economic uncertainties, business investment has been booming, driven by sectors such as transport, machinery, and plant.
- In light of the looming US tariffs and the sensitive state of Britain's manufacturing sector, the "full expensing" scheme for corporations, implemented by the previous government, may be worth considering for digital sectors like software, coding, AI, and intellectual property.
- Moreover, the government could potentially sweeten the pot for foreign investments in Silicon Valley-like ventures by extending full expensing to the cyber economy, as an incentive for Big Tech companies to keep their operations in the UK.
