00:00Well, let's talk to Sam Miley, Managing Economist and Forecasting Lead at the UK Economic Consultancy, the Centre for Economics and Business Research.
00:09Sam, welcome. What is the UK's problem with productivity?
00:14Well, the UK has faced a puzzle when it comes to productivity for some time, largely since the global financial crisis.
00:23Productivity growth has been weak. There are many possible drivers of this, including regulatory changes, weak human capital,
00:34so an inadequate transfer of knowledge improvements to the economy, and also the taxation structure of the economy.
00:45All of this creates a perfect storm for quite weak productivity growth for the UK.
00:50Well, the days are ticking down to the budget. What are the UK government's options to fill this larger-than-expected black hole?
01:00Well, the Chancellor does have several options on the table.
01:05The first would be to raise taxes, but she's already ruled out doing so across several of the key options that would have been available there.
01:15So, in that sense, she may need to look to raise revenue from a number of smaller taxes or focus on more stealthy measures,
01:25such as freezing allowances and the bans at which different tax rates apply.
01:32Away from tax, she could also cut spending, which is another likely option.
01:37But there, she'd also faced difficulty from her own party.
01:41For instance, earlier this year, there was an attempt to cut the UK's welfare spending,
01:48but that was ultimately paused due to backlash from the Chancellor's own colleagues in her party.
01:54Is there any way to avoid breaking the government's manifesto promise?
01:59This is the promise it made before coming to power during the election campaign.
02:04Is there any way to avoid breaking those promises not to raise taxes?
02:09I think the way for the Chancellor to do this would be to focus on more stealth taxes,
02:18which would mean that she's not technically raising taxes on working people, as she promised in the manifesto,
02:26but it's instead raising revenue by broader economic dynamics,
02:32such as bringing more people into higher tax brackets as earnings growth increases.
02:39Traditionally around the world, these are called wealth taxes, aren't they?
02:43And many economists are critical of their efficiency in bringing in more money.
02:52Well, wealth taxes are a relatively controversial option for fiscal policymakers.
02:59The criticism of them tends to be that taxing wealth creation distorts incentives
03:05and putting a further fiscal burden on high net worth individuals who tend to be wealth creators
03:14and disproportionately support the economy would be a poor decision
03:18because those people could simply leave the economy or otherwise restructure their affairs.
03:25So it could well be that the consequences of implementing a wealth tax are actually negative
03:31or at least not as strong as they might appear to be on paper.
03:35Sam, you can't go without distributing some cheer for the Finance Minister, Rachel Reeves.
03:40I mean, surely the decline in interest rates means that the money paid on government debt drops, doesn't it?
03:47Well, government debt servicing costs in the UK are really high at the moment,
03:54so I would actually cite that as a negative factor around the state of the UK economy at present.
04:02Nevertheless, I do agree that the picture isn't entirely negative for the UK right now.
04:08Growth this year could come in much faster than the last couple of years
04:13and indeed fall only just short of historical averages.
04:17So the Chancellor could at least succeed this year in her pledge to boost the growth outlook.
04:23Sam, good to see you. Thanks so much for coming on the programme.
04:25Sam Miley from the Centre for Economics and Business Research.
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