What should a pro-growth Budget look like?

At the end of his Autumn Budget, Chancellor Rishi Sunak said his goal is to reduce taxes.

He wants “this to be a society that rewards energy, ingenuity and inventiveness. A society that rewards work…That is my mission over the remainder of this Parliament,” he added.

After another tax and spend Budget, these may seem like hollow words to many.

But, if the Chancellor wants to make good on his promise, what should that Budget include? There are three main areas he should address.

First, he’ll need a relentless focus on economic growth and productivity.

As the Centre for Policy Studies director Robert Colvile warns, unless the UK has a “ferocious concentration on growth, the bill to pay for our ageing population will outpace our ability to pay for it”.

To supercharge growth, the Chancellor will need to tackle the UK’s persistently low productivity.

One of the causes of this low productivity is the lack of business investment in technology and equipment.

The super-deduction, which allows businesses to write off 120% of their spending on new productivity-enhancing equipment, is a sensible idea.

But the measure will end in 2023, at which point the Office of Budget Responsibility projects investment to drop.

So, to protect investment and boost productivity, the Chancellor should instead make the super-deduction permanent and allow firms to write-off all investments in plants and machinery.

Second, the Chancellor should prioritise meaningful tax cuts, as noted by IEA Director General Mark Littlewood.

Archaic business rates, corporation tax increases and the new Health and Social Care Levy threaten the UK’s international tax competitiveness, which will discourage business investment in the UK.

So, in his next Budget, the Chancellor should aim to fundamentally reform business rates, moving instead to a business land tax. He should also reverse the proposed corporation tax increases.

Last, now the UK has left the EU, the Chancellor should take the opportunity to remove unnecessary regulation.

He might start by scrapping occupational licensing rules that now govern myriad jobs from teachers to racehorse trainers and gas engineers. Scrapping such laws would help speed up the post-Covid recovery, as IEA Editorial and Research Fellow Professor Len Shackleton argues.

A global study by OECD shows that occupational regulation increases prices and lowers employment while failing to improve the perceived quality of services. What’s more, the OECD argues that productivity could be significantly enhanced by liberalising occupational rules.

In addressing these three areas in a future Budget, the Chancellor will boost growth and realise his mission of creating a society that rewards “energy, ingenuity and inventiveness”.