Jeremy Hunt plans to deregulate key industries to grow the UK economy after only just dodging recession

Jeremy Hunt is drawing up plans to boost the economy through changes to regulations after confirmation that the UK only narrowly dodged recession last year.

The Chancellor has ruled out cutting taxes or increasing state spending in order to stimulate GDP, warning that doing so would only destabilise the economy again.

Britain’s GDP shrank by 0.5 per cent in December, according to the Office for National Statistics (ONS), but over the fourth quarter of 2022 the economy was flat. That means that the country escaped a recession, usually defined as two consecutive quarters of negative growth.

Most forecasters expect the UK’s economy to shrink over the course of this year thanks to consumers’ reduced spending power as a result of soaring energy prices and general inflation.

Mr Hunt said that despite the weakness of the economy, he was not willing to cut taxes or step up the support available to vulnerable households to help them pay their bills. He told ITV News: “I think the way to be straight with people is to say the public finances haven’t changed dramatically since the Autumn Statement, which is only three months ago.”

The Chancellor added: “We need to stick to our plan to bring down inflation. But we do think that if we do that, we have tremendously exciting prospects as a country because of our strengths in all the industries of the future, but to get to that point, we need to stick to our plan.”

His Budget on 15 March is unlikely to contain major changes to taxation or public spending. Instead, Mr Hunt is set to unveil a series of regulatory reforms which he hopes will lay a foundation for long-term growth.

Sir Patrick Vallance, the Government’s chief scientific adviser, has started to submit results from an ongoing review of how digital technology, life sciences and green industries are regulated which is designed to foster innovation and encourage start-ups, i understands. Potential changes to the law – including the repeal of EU legislation which is deemed to be outdated – will be announced in the coming months, along with a suite of reforms encouraging older people to return to the workforce and changes to the childcare system.

Labour’s shadow Chancellor, Rachel Reeves, said: “I hope today’s numbers are a wake-up call to the Government because the economy now is just flatlining along the bottom. We’re the only major G7 economy that is still smaller than it was before the pandemic – and zero growth is not a success.

“The Government now urgently need to put in place a real plan for economic growth, as well as tackling the cost of living crisis that is affecting so many families and pensioners right now.”

Chancellor’s options to boost growth

Cut taxes

The favoured growth-boosting measure among many Conservative MPs is to cut taxes in order to stimulate short-term growth. But most of the immediate benefits would go to wealthier people, who pay disproportionately more tax, and it is highly uncertain how much effect the move would have on GDP. There is also a risk that increasing the spending power of better-off consumers would merely stoke inflation.

Raise spending

Targeted help for the most vulnerable households, particularly on energy bills, would help bolster consumer confidence and could stop Britain falling into recession this year. There is still a danger that this could drive up inflation, and it would also increase Government borrowing in a way that would undermine Jeremy Hunt’s promise to balance the books.

Ease labour shortages

Many businesses, particularly in the hospitality industry, have found themselves short of workers in the wake of Brexit and the pandemic. Helping those who want to work but cannot, for example because they are unable to afford childcare, might help this – as would encouraging those who have left the workforce to return, perhaps by offering favourable tax or benefits treatment to certain groups.

Reform planning

Many policy wonks across the political spectrum believe the single biggest economic boost possible would come from liberalising existing planning laws for both homes and infrastructure. This would reduce the cost of housing and make it easier for people to move to find work, while also helping green tech industries expand; but residents of areas which would see major development as a result may object. Michael Gove has promised to explore options for increasing the pace of housebuilding.

Deregulation

As the Government moves to review or repeal all legislation originally derived from the EU, some believe there is a major opportunity to reduce the regulatory burden on businesses. This would boost growth if it encouraged smaller firms to develop more quickly and attracted multinationals to the UK, although it may increase the risk of consumer exploitation and financial crises.