Member Article

Room for supply side reforms in borrowing undershoot

PwC have suggested a one-off public borrowing undershoot of around £7bn in the current financial year.

The Economic Outlook report suggests the Government will fall short of its target for reducing the budget deficit and has called on ministers to streamline regulation to promote growth.

Uncertainties mean around a 60% probability that the structural current budget deficit will gradually fall over time and be eliminated in 2016/17.

Jonathan Greenaway, partner at PwC in the North East, said: “Risks around growth in our projections are significant at present given ongoing challenges in the Eurozone.

“We recommend that businesses stress test their plans and valuations against an alternative ‘double dip recession’ scenario.

“However, these risks should decrease if the difficult period of the next few months can be safely navigated, leading to progressively stronger growth in the UK economy in the second half of this year and beyond.

“We expect real consumer spending growth of around 0.7% in 2012 and 1.3% in 2013 as inflation falls back towards target, easing the squeeze on real household incomes that led to a fall in real consumer spending in 2011.

“Structural shifts towards online spending will continue to pose significant challenges for traditional high street retailers.

Jonathan went on to say net exports are expected to be the main driver of growth in 2012, and that the Olympics would also provide a temporary boost.

The report discusses how government policies can support long-term growth, through lightening regulation, tax reform, labour market interventions and focussing government spending on infrastructure, education and research.

PwC’s public finance projections suggest additional austerity measures are not needed, and this year’s Budget can instead focus on advancing this supply side reform agenda.

Jonathan added: “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.”

This was posted in Bdaily's Members' News section by Tom Keighley .