This is part of techUK's Digital Economy blog series, where we deep dive into defining trends across the tech sector.
All political parties say they have the answer to economic growth. But how can next Chancellor, whoever that is, deliver growth with such limited room for manoeuvre?
Since the global financial crisis, the UK has experienced slower economic growth compared to international counterparts. Factors including low productivity and weak business investment have contributed to this.
The main UK political parties launched their manifestos in the week of 10 June, each claiming that their policies will spur much needed economic growth. Such growth will act as a lynchpin for their promises on taxation and spending - and to reduce debt as a share of national income.
But promises come within the context of constrained public finances.
The IFS have said that the state of public finances casts a shadow over the election and say that either tax increases or services cuts are needed to fund manifesto commitments.
This comes as UK public debt currently exceeds £2 trillion, about 98% of GDP, or equivalent to around £37,900 per person. Britain also faces highest tax burden since WWII after public spending increased during the Covid-19 pandemic and energy cost crisis in 2022.
Ultimately, the next Chancellor faces tough spending choices and the challenge of managing debt whilst supporting economic growth and ensuring any tax changes do not deter business investment. Striking a balance between fiscal responsibility and investment will be crucial.
So, what are the main political parties saying on growth and tax?
Labour - promise to deliver economic stability through ‘securonomics', centered around economic stability, investment and reform. This will drive economic security and industry resilience in an uncertain world.
- On taxes, ‘keep taxes as low as possible'. To do so, no income tax or NI rises for five years, no new additional tax rises beyond those already announced (e.g., VAT on private schools). Plan to replace the business rates system and introduce a business tax roadmap within 6 months of being elected.
- To fund commitments, plan to raise around £8.5 billion in its manifesto and £3.5 billion in borrowing (within fiscal rules). Revenue raised VAT and business rates on private schools, a windfall tax on oil and gas, closing non-dom tax loopholes, and efficiency savings from department spending plans.
- On fiscal rules, will implement fiscal lock requiring significant and permanent tax/spending changes to be accompanied by a full OBR forecast.
Conservatives - claim the current plan ‘to secure a strong economy' is working and inflation is now coming down. A lag on growth can be attributed to the pandemic and war in Ukraine causing a surge in energy costs.
- On taxes, abolish NI for self-employed, 2p cut in employees' NI and a plan to cut NI when affordable. Promise of no VAT increase and no rise in income tax. Protection for pensioners with Triple lock plus and continue to ease the burden of business rates for certain sectors.
- To fund commitments, unveiled a ‘tax-cutting manifesto' of £17 billion to overturn the 20-point deficit. Among other measures, will raise £6 billion from tackling tax avoidance, cutting the welfare bill by £12 billion per year and reducing the number of civil servants, saving £4 billion.
- On fiscal rules, will stick to current fiscal rules. So, have public sector debt falling and for public sector borrowing to be below 3% of GDP in the fifth year of the forecast.
Liberal Democrats - advocate for a fair deal on the economy and a revitalised industrial strategy.
- On taxes, no VAT, income tax or NI increases. Want to put an extra £27 billion into day-to-day public spending targeted at health, education and defence.
- To fund commitments, propose reversing tax cuts for banks, implementing a windfall tax on oil and gas companies, introducing a Digital Services tax on online social media/tech companies and reforming capital gains tax.
- On fiscal rules, will ensure all fiscal events are accompanied by independent forecasts from the OBR.
Unlock growth by backing the UK tech sector
Despite tight fiscal conditions, investing in the tech sector can yield substantial returns. The key is policies and solutions that are practical and cost-effective.
techUK has set out our ideas for the next government to foster growth for the tech sector, tackle structural barriers, and leverage emerging technologies like AI and quantum computing. Collaboration is essential to address economic challenges and unlock future growth.
Some of our key growth recommendations include:
- Reforming the Apprenticeship Levy and launching a Digital Skills Toolkit 2.0, ensuring the UK can attract, train and re-train talent.
- Planning reform to enable digital (data centres) infrastructure to be built at speed, supporting increasing demand for AI and compute power.
- A plan for digital adoption by 2030, including reducing the tax gap by committing to Making Tax Digital timelines and expanding Made Smarter to sectors other than manufacturing.
- Fix the R&D Tax Credit - extend the credit to include capital expenditure and deliver a longer-term strategy to incentivise investment in the UK.
- An AI strategy fit for the mid 2020s to keep up with fast moving regulatory changes and technology development.
- Support a pro-growth and smart regulatory system by leverage the regulator's growth duty and publishing a ‘State of the Regulator's' report.
You can read more on our recommendations for the next government via our Seven Tech Priorities or UK Tech Plan.
Representing over 1000 tech sector members, we hear firsthand about the immense and untapped growth potential.
Indeed, digital technology has the potential to grow the economy by over £413 billion by 2040, equivalent to around 19% of the entire UK economy. Strategic decisions and decisive action to support tech businesses will deliver sustainable economic growth and enable delivery of public services.
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