The UK economy has been mired in low growth for years, a problem exacerbated since the 2008 global financial crisis. Despite a few short-term recoveries, average annual growth has been consistently weak, leading to stagnating living standards.
A striking indicator of this trend is that real wages in the UK are barely higher than they were 16 years ago, marking the worst run in at least a century. With this backdrop, something must change, and Rachel Reeves believes she has the solution: investment.
In her upcoming budget, Reeves is set to make a bold move, signalling a shift from previous fiscal strategies. Her focus on investment is expected to be the most significant budget move since the 2010 emergency budget by David Cameron and George Osborne. This budget will be crucial for setting Labour’s economic agenda after 14 years of Conservative-led governments, and it is equally important in halting the party’s slide in the polls.
The Chancellor’s plans include around £40 billion in fiscal tightening, largely funded by tax rises, including increases in capital gains tax and employers’ national insurance contributions. However, this will be balanced by a significant increase in public investment, with funds likely allocated to infrastructure projects such as railways, bridges, and green energy.
This budget could potentially be the largest in cash terms seen in three decades. Reeves plans to finance a £20 billion boost to public investment by adjusting fiscal rules, allowing the Office for Budget Responsibility (OBR) to factor in a wider range of government assets and liabilities in its financial forecasts.
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