The United Kingdom is the 5th largest economy in the world,1
with structural economic
strengths ranging from flexibly regulated labour and product markets, a commitment to
property rights and the rule of law, and the soft power that derives from our cultural exports.
The UK has world-leading financial and professional services sectors, life sciences and creative
industries, and elite world-leading universities.
3.2 However, average UK real wage growth has been broadly stagnant for 15 years,2
due in
large part to poor productivity growth. In the twenty years up to the Global Financial Crisis, the
UK’s average annual growth rate was 2.5%; whereas from 2011 to 2019 – the years between
the recessions brought about by the Global Financial Crisis and COVID-19 pandemic –
average
growth was just 2%.3
The size of the state has also increased, as people’s reliance on state
support has grown and the population has aged.
3.3 Against this challenging backdrop, our policy priority must be to unleash growth across the
UK: the only sustainable way to raise living standards and fund vital public services.
3.4 The government has successfully boosted growth in the past. Privatisation and liberalisation
of financial services and labour markets in the 70s and 80s, and the increased openness and
reforms to competition in the 90s and early 00s, contributed towards faster growth. Through
bold supply-side reforms, government can facilitate dynamic markets and allow the private
sector to generate long-term prosperity.
3.5 Economic growth is the government’s central mission. The government’s aim is to achieve
a trend growth rate of 2.5%. This will not be easy: it will take a concentrated effort, using every
tool at government’s disposal and requiring each policy and initiative to be measured against a
defining test of whether it helps or hinders growth.
3.6 To do this, the government must cut taxes, streamline the public sector, and liberate the
private sector, by making Britain the place for:
• investment: creating the right conditions and removing barriers to the flow of private
capital – whether taxes or regulation
• skilled employment: helping the unemployed into work and those in jobs secure
better paid work
• infrastructure: accelerating the construction of vital infrastructure projects by liberalising the
planning system and streamlining consultation and approval requirements
• home ownership: getting the housing market moving
• enterprise: cutting red tape and freeing business to grow and invest.
1 Using 2021 estimate of GDP in US dollars, current prices, IMF World Economic Outlook Database:
April 2022
2 Real Average weekly earnings using consumer price inflation (seasonally adjusted), Office for National Statistics, September 2022
3 Average of annual real GDP growth from 1988 to 2007 inclusive and 2011 to 2019 inclusive, Office for National Statistics, 2022
16 The Growth Plan 2022
3.7 The Growth Plan announces an ambitious legislative programme of supply-side reforms.
It also takes steps to deliver a more pro-growth tax system and the government will conduct a
review to identify where it can go further to make the tax system simpler, better for families and
more pro-growth. The Chancellor will report on this next year.
Increasing private sector investment
3.8 The UK has long underinvested compared to peer nations. UK investment was 10% in 2019,
compared to the OECD average of 14%,4
and business investment remains nearly 6% lower than
pre-pandemic levels.5
Weak investment is estimated to be responsible for around half of the
productivity gap to France and Germany.
3.9 A competitive business tax system supports investment, innovation and economic growth
in the UK. Since 2010, successive cuts have been made to the main rate of Corporation Tax,
reducing it from 28% in 2010 to 19% in April 2017. This has resulted in UK having a headline
Corporation Tax rate which is significantly lower than the rest of the G7. The government has
committed to cancel the increase in the main rate of Corporation Tax to 25% that was due to
take effect from April 2023, keeping the rate at 19%.
3.10 In line with this, the scheduled change to the rate of the Bank Corporation Tax Surcharge
will also be cancelled, keeping the combined rate of tax on profits paid by banks and building
societies at 27%. The increase in the Surcharge allowance to £100 million will go ahead as
planned, ensuring that the tax system is supportive of growth within the UK banking market,
promoting competition to the benefit of consumers.
3.11 To further support businesses to invest and grow, the government will make permanent
the temporary £1 million level of the Annual Investment Allowance (AIA), which was due to
expire after 31 March 2023. This will support business investment, provide businesses with more
stability and make tax simpler for any business investing between £200,000 and £1 million in
plant and machinery. This means businesses can deduct 100% of the costs of qualifying plant
and machinery up to £1 million in the first year.
3.12 The government is supporting companies to raise money and attract talent by
increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and
Company Share Option Plan (CSOP). The government remains supportive of the Enterprise
Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending
them in the future.
3.13
In 2021 the government launched a review of the Research and Development (R&D)
tax reliefs. Several reforms have since been announced, including bringing pure mathematics
research within scope of the reliefs, including data and cloud computing as new qualifying costs
and refocussing the reliefs towards innovation in the UK. The government will continue the
review, with any further reforms announced as usual at a fiscal event.
3.14 The Growth Plan will also help unlock billions of pounds of investment into scaling up the
UK’s science and technology firms, by:
• bringing forward draft regulations to reform the pensions regulatory charge cap, giving
defined contribution pension schemes the clarity and flexibility to invest in the UK’s most
innovative businesses and productive assets creating opportunities to deliver higher
returns for savers
4 Market sector gross fixed capital formation as a % of GDP, OECD database, HMT calculations
5 GDP first quarterly estimate, Office for National Statistics, August 2022
The Growth Plan 2022 17
• introducing the Long-Term Investment for Technology & Science (LIFTS) competition,
providing up to £500 million to support new funds designed to catalyse investment from
pensions schemes and other investors into the UK’s pioneering science and technology
businesses. This will unlock billions of pounds of additional investment into
UK scale-ups over time.
These measures will help our highest-potential, innovative businesses accelerate their growth
while allowing UK savers to benefit from higher potential returns.
3.15 The financial services sector will be at the heart of the government’s programme for
driving growth across the whole economy. Later this autumn the government will bring forward
an ambitious deregulatory package to unleash the potential of the UK financial services sector.
This will include the government plan for repealing EU law for financial services and replacing it
with rules tailor made for the UK, and scrapping EU rules from Solvency II to free up billions of
pounds for investment.
3.16 The government is focused on delivering high quality regulation that supports economic
growth. The Growth Plan announces that the Prudential Regulation Authority will scrap poorly
designed EU rules that limit variable pay for senior bankers, which undermine growth and hinder
financial stability
