BUSINESS leaders, economists and Mayor Boris Johnson demanded strong measures to boost growth yesterday, after figures revealed that the economy grew by an unspectacular 0.2 per cent in the second quarter of the year.
While statisticians partially blamed sluggish growth on one-off factors such as the royal wedding, a persistently weak economy could see the UK lose its treasured triple-A credit rating.
Chancellor George Osborne staked his reputation on Britain maintaining the gold-plated rating under his watch, prior to the general election last year.
Yet leading credit rating agency Moody’s warned last month that the UK would face a downgrade if weak growth thwarted Osborne’s pledge to reduce the huge annual deficit.
Borrowing from April to June hit £39.2bn, less than one per cent down on the same time last year.
“The British economy, as currently aligned, is incapable of delivering growth at anywhere near the levels required by the deficit reduction agenda,” warned Dr Tim Morgan of Tullett Prebon yesterday, launching its report “Avoiding Economic Armageddon”.
Responding to the report, the City’s MP Mark Field said: “As a matter of urgency we need to start implementing micro or supply side initiatives designed to free up small and medium size enterprises (SMEs).”
“We have to ‘think the unthinkable’ and cut the regulatory and taxation framework which hinders many SMEs,” Field said. His sentiments were echoed by leading business groups the Institute of Directors (IoD) and British Chambers of Commerce (BCC), while Risk Capital Partners chairman Luke Johnson told City A.M. that tax breaks should be given to start-up companies.
“Increasing the productive potential of the economy is more important than simply boosting consumption,” explained the BCC’s David Kern, proposing cuts to regulation.
“The chancellor is talking about getting rid of the 50p rate, but we want a firm commitment,” the IoD’s chief economist Graeme Leach told City A.M.
Liberal think tank Centre Forum’s chief economist Tim Leunig said a cut to the top rate would be “terrible politics” but endorsed other cuts to income tax. “Bringing forward the £10,000 tax allowance is the best option,” Leunig said.
Yet an aide to George Osborne yesterday played down suggestions of further tax cuts before the next Budget. Instead there will be “broader structural supply side reforms”. Tory Mayor Boris Johnson disagreed, however. “You’ve got to look at ways of stimulating growth now, and certainly I think you should look at [cutting] National Insurance,” Johnson said.
WHAT MEASURES COULD BE IN THE PLAN FOR GROWTH?
• Cut business rates: the coalition is reducing corporation tax, but Tory MP David Ruffley says it must come down to the OECD average of 18pc.
• Cut income tax: either by abolishing the 50p top rate or bringing forward higher tax free allowances.
• Slash regulation: the coalition’s Red Tape Challenge is asking firms to say which rules should be ended.
• Encourage enterprise: start-up firms and small businesses could be made exempt from some taxes and regulations.
• Liberalise the planning system, to boost construction and business.