The Chancellor should use the Budget this week to address the UK’s growing investment gap, which was nearly £50 billion last year, says the Trades Union Congress (TUC) in its Budget submission published yesterday (17 March 2014).
The Chancellor came into office promising to boost investment and rebalance the economy, an aim the TUC says it fully supports. But according to an economic report published alongside its Budget submission, the TUC says investment has actually fallen as a share of GDP since mid-2010, while the gap between planned and actual investment levels continues to rise.
The gap between current investment levels (14.5 per cent of GDP) and those originally forecast by the Office for Budget Responsibility (17.8 per cent) has grown to £12.4 billion a quarter – an annualised gap of almost £50 billion. This investment gap has held back the UK economy and, unless addressed, could cause permanent damage to its economic prospects, warns the TUC.
The TUC Budget submission argues that whilst the UK has a long track record of poor investment, the recent fall is a direct result of government policy. Capital spending is down 50 per cent on the levels inherited by the previous government, while successive cuts in corporation tax have failed to spur business investment.
The fact that the UK Guarantees scheme – which provides £50 billion worth of funding guarantees to infrastructure projects – is less than half the value of Help to Buy (the £130 billion government guarantee scheme for housing deposits) perfectly illustrates the government’s failure to back the infrastructure projects that are needed throughout the UK, says the TUC.
The TUC Budget submission calls for a number of changes to boost investment, including:
- Increasing the scope of the UK Guarantees scheme to match the scale of Help to Buy (which could also be scaled back by being limited to first-time buyers)
- Bringing forward infrastructure projects scheduled for the next Parliament so projects could start in the next year or two
- Cancelling scheduled cuts to corporation tax and reinvesting the money into capital allowances to promote business investment.
TUC General Secretary Frances O’Grady said: “For decades our economy has suffered from over-consumption and under-investment.
“The Chancellor promised to address this failure but instead has presided over a growing investment gap that has held back growth and which risks causing permanent economic damage. He has the chance to put things right next week.
“George Osborne can start to undo the damage caused by slashing capital spending by giving greater financial guarantees to infrastructure projects. This should encourage firms to crack on with the construction of much-needed homes, schools and transport routes.
“The Chancellor should also admit that the billions given away in corporation tax cuts have failed to spur investment. Future cuts should be cancelled and reinvested in more generous capital allowances.
“After four years of ineffective initiatives, now is the time to start making good on the government’s promise to rebalance the economy.”
With working people still suffering the longest real wage squeeze in over a century, the TUC Budget submission also calls on the Chancellor to halt the squeeze on working families and encourage firms to give their staff a pay rise.
If the Chancellor really wants to help working families, the TUC argues, he should abandon shifting the personal allowance and higher rate tax thresholds – which are expensive ways to provide minimal financial gains – and instead reverse cuts to tax credits and universal credit that are hitting working families on low and middle incomes.
He should also widen the remit of the Low Pay Commission by asking it to look at the reasons behind the growth of low paid jobs, as well as reforming procurement arrangements so that public contractors are encouraged to pay a living wage, says the TUC.
Frances O’Grady continued: “The Chancellor has made Britain’s living standards crisis even worse for working families by cutting vital tax credits and child benefit at the same time as time as wages have shrunk in real terms.
“He has shown contempt for public sector workers by prolonging their wage squeeze even as the economy recovers. Damaging welfare cuts are also adding to the financial woes of hard-pressed working families and must be reversed.
“The one thing guaranteed to cheer working people would be a bigger salary. The Chancellor must do all he can this week to encourage firms to give Britain a pay rise. One way of doing this would be to encourage greater take-up of the living wage.”
* The full TUC 2014 Budget submission is available at www.tuc.org.uk/sites/default/files/2014%20Budget%20Submission.pdf