(Bloomberg) -- Labour’s current policies would only get Britain halfway to becoming the fastest-growing economy in the Group of Seven, suggesting more is needed to fulfill Prime Minister Keir Starmer’s key promise to voters.
That’s according to the Resolution Foundation, which said in a report published Thursday that government plans to boost infrastructure investment and housebuilding do not go far enough to close the gap with the best-performing economy — the US.
Labour swept to power in July on a pledge to lift the UK from a laggard to the top of G-7 growth league table by 2029 to boost living standards and fix public services. That would require per-capita growth to accelerate from the 1% currently forecast by the International Monetary Fund to 1.5%, according to the Resolution Foundation.
“The Government will need to be even more ambitious in other areas – from resetting relations with the EU to getting its labor market reforms right, and stepping up investment – if it wants Britain to enjoy the strongest growth in the G-7,” said Emily Fry, senior economist at the think tank.
Labour has already ruled out re-joining the European customs union or the single market. Yet current policies to unilaterally adopt some EU rules are set to have limited impact on growth. Instead, aligning even closer with the EU on things like goods regulation could add as much as 0.6 percentage point of GDP by 2035, the report said.
“The impact could be significant should the government negotiate an expansive deal although not as large as revisiting the government’s red lines, such as a Customs Union which works in tandem with regulatory barriers.”
The government faces the challenge of boosting growth with little money to spend. Chancellor of the Exchequer Rachel Reeves is getting ready to announce big tax rises in her budget on Oct. 30 to meet what she claimed was £22 billion ($29.1 billion) of unfunded and undisclosed spending commitments left by the previous government.
A major obstacle is the rise in worklessness due to ill-health. The Institute for Public Policy has estimated the surge in economic inactivity is costing the UK £5 billion ($6.6 billion) a year in lost tax receipts.
In an analysis published Thursday, the Institute for Fiscal Studies estimated around 3.9 million working-age people in the UK claimed health-related benefits in 2023-24, a 38% increase from pre-pandemic levels. Those numbers have grown faster for young people, while mental health-related claims have become more prevalent across all age groups.
The UK is an outlier among developed economies, most of which saw health-related claims flatline or even fall over the period, the IFS said. If recent trends continue, the UK could become one of the highest spenders on the benefits among comparable countries.
The cost-of-living crisis and the pandemic shock might have disproportionately impacted the UK due to barriers to accessing National Health Service treatment or low employment support, according to Eduin Latimer, a research economist at the IFS.
“Government policy direction must prioritize supporting health and creating opportunity for people, and not become a short-term cost-cutting exercise,” said Sharlene McGee, policy manager at The Health Foundation, which funded the analysis along with the Joseph Rowntree Foundation.
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