The UK Budget and growth – an adland view

I was asked for my view on the impact of the long awaited UK Budget – the first from the new Labour Government. This is an important fiscal event in the UK becuase it sets out the tax, spend and borrowing regime for the year ahead. And while it was a couple of weeks ago, the conversation is still very much alive because this budget attempts to achieve something (namely kickstarting the lacklustre UK economy). As a result there are winners and losers. Much of the focus in adland has been on the increase in taxation on businesses like ad agencies and clients, but in a typically myopic way not on the lives of the people that actually matter – the customers of our clients. This piece attempts to put the record straight.

Good things are supposed to come to those who wait, and in the case of the Budget, the waiting was longer than it takes to watch both Dune movies back to back. We did the waiting, so is it any good?

Some acronyms like the IMF say ‘yes’, and others like the OBR say, ‘not so much’. So, let’s take an adland view of the budget.

There is only one way that this industry should judge the Chancellor’s plans: are they good for growth? Black holes need to be filled, children must be rescued from poverty, and our public services need life support. But we can only do that with a growing economy.

A lot of old nonsense is talked about growth, but it’s no use inventing new technologies, implementing innovation, hiring new staff, building new production facilities, or opening new outlets if people can’t buy what you have to offer. Indeed, as economist Steve Keen reminds us, new investment and employment are far more likely to result from businesses having more customers than having more profit.

It is people that drive growth, not products. And the secret to a prosperous economy is very simple – a lot of people with a little more money. On that measure, we should see the budget as necessary but not sufficient. Despite being described as the most dramatic economic event in recent years with tax, spending and investment all up, it’s actually rather timid.

Nothing has happened to taxes on earned income – Income tax and Employee National Insurance. There is to be no reduction on the historically high tax burden on the grafters in this country – the customers of our clients. Reducing fiscal drag will be welcomed, as tax thresholds are upgraded in line with inflation, but this only starts in 2028. As for removing the financial burden of childcare to improve productivity and early years outcomes, we have free breakfast clubs and funding for the previous government’s extension of childcare hours but no radical reshaping of how we support working parents.

Taxes on unearned income have the power to free up accumulated wealth and recycle it back into the economy to fuel growth, but we have seen very little movement here and certainly nothing close to equalising the taxation of earned and unearned income. The top rate of Capital Gains Tax rises from 20% to just 24% and there is not the slightest whiff of a proper wealth tax.

That said the increase in the minimum wage to just shy of the real living wage is incredibly significant, representing a 16% raise for younger people. There is no doubt that this will have a material effect on spending with our clients though it benefits the less well-off, who tend not to be their most valuable customers.

Public services are to get more money but not much. Health is promised £25.2bn more but at £6 per person per week this will only be enough to stop the rot from getting worse. This is a shame because spending on health is a powerful spur to the economy given it is such a large employer and better health outcomes get people back into work. Housing gets a bit, but this won’t combat the asset inflation that prices people out of better homes or homes full stop. And it’s a similar picture across many public services with an average uptick of 1.5%. Education does of course benefit a little from closing the VAT loophole on Private Schools.

Changing fiscal rules so that Capex investment is treated differently to debt used to fund operational deficits, is long overdue. This will enable direct State investment in growth categories like aerospace, life sciences and biotechnology alongside the creation of Great British Energy. This is a Government acting in a muscular way to prime industries upon which the Nation’s future depends with the benefits on employment and balance of trade that they entail.

All of which leaves the National Insurance elephant on the table – the Employer’s one. It’s hard to estimate the impact of the increase to 15% on people’s wages and employment. Employer groups and the Office of Budget Responsibility take a dim view over the mid-term. But the reality may be very different over the longer term and frankly, it’s hard to see an alternative source for such a significant chunk of revenue – £25bn over the lifetime of the forecast. This appears to have been the least bad option for the Chancellor, especially without doing more on capital gains, accumulated wealth and inheritance.

This is a budget that does offer a little hope to the customers we serve, but I suspect few people will notice much change in their income beyond those on the minimum wage. It makes careful choices and hammers public services less than we were fearing. But we are not out of the economic shit by a long way, and we will have to wait even longer to see whether this Government delivers the growth they have promised time and time again.

Image courtesy of Chris Boland