What will the budget mean for economic growth? Experts give their view – The Conversation

UK Budget Analysis: A Report on Fiscal Policy and Sustainable Development Goal Alignment

Executive Summary

The UK government’s recent budget prioritises economic growth to improve public services and household finances amidst a forecast of below-average performance. The fiscal strategy focuses on significant revenue generation through indirect taxation to manage a national debt of £2.9 trillion. Key policy announcements concerning taxation, infrastructure, and transportation have direct implications for the UK’s progress towards several Sustainable Development Goals (SDGs). This report finds a notable tension between the government’s immediate fiscal consolidation measures and the long-term investment required to achieve sustainable growth, resilient infrastructure, and climate action targets as outlined in the SDGs.

Economic Policy and Sustainable Development Goal 8: Decent Work and Economic Growth

Taxation Strategy and its Impact on SDG 10: Reduced Inequalities

The budget implements substantial tax increases through indirect measures rather than adjustments to headline rates. This strategy has significant implications for income distribution and progress towards SDG 10 (Reduced Inequalities).

• Fiscal Drag: A prolonged freeze on income tax thresholds will pull more middle-income earners into higher tax bands as wages rise with inflation.
• National Insurance: The scope of National Insurance has been widened, notably through restrictions on pension salary-sacrifice schemes.
• Distributional Impact: While this approach is more weighted towards higher earners than a broad-based tax rise, it effectively reduces the take-home pay for many working people and may exacerbate inequalities for those on the threshold of higher tax bands.

Fiscal Constraints and Productivity Challenges

The budget’s measures are heavily influenced by the need to manage national debt and adhere to strict fiscal rules, which limits investment in key areas for sustainable development.

• Debt Burden: The UK’s national debt stands at £2.9 trillion, or 95% of GDP. Interest payments on this debt now exceed the entire education budget, diverting critical funds from public services essential for SDG 3 (Good Health and Well-being) and SDG 4 (Quality Education).
• Growth Forecasts: Despite a tax structure designed to be more supportive of business growth, economic forecasts remain weak.
• Productivity Gap: A critical factor limiting growth is the lack of government investment in skills and infrastructure. Achieving the objectives of SDG 8 (Decent Work and Economic Growth) requires a comprehensive strategy to boost productivity, which cannot be generated through tax reform alone.

Infrastructure, Industry, and Sustainable Communities: Aligning with SDGs 9 and 11

Commitments to Infrastructure and Housing

The budget reiterates commitments to national infrastructure and housing development, aligning with SDG 9 (Industry, Innovation and Infrastructure) and SDG 11 (Sustainable Cities and Communities).

1. Infrastructure Investment: There is a stated commitment to raising investment in critical sectors such as transport, energy, and digital development.
2. Housing Plan: The government aims to build 1.5 million new homes, supported by the recruitment of 350 additional planners. This initiative is intended to boost the construction industry and improve labour market mobility.
3. Economic Impact: Increased availability of affordable housing can facilitate worker relocation, boost regional productivity, and attract private investment, thereby supporting SDG 8 and reducing regional disparities in line with SDG 10.

Challenges in Implementation and Skills Development

The report identifies a significant risk in the gap between policy announcements and project delivery. To ensure these infrastructure goals are met, the following are required:

• Clear Targets and Ring-fenced Resources: Projects must have clearly defined targets and protected funding to avoid common delays.
• Skills and Training: There is a need for sufficient funding to support skills and training that align with long-term infrastructure priorities. The budget was noted to be lacking in detail on this front, which is a critical component for building the human capital necessary to achieve the goals of SDG 9.

Transportation Policy and Climate Action: Addressing SDGs 7, 11, and 13

Fiscal Measures for Vehicle Transition

The budget introduces significant changes to vehicle taxation to address falling revenue from traditional fuel duties and encourage a transition to sustainable transport, contributing to SDG 13 (Climate Action).

• Fuel Duty: The freeze on fuel duty rates will end in April 2027, with rates set to rise with inflation.
• Pay-Per-Mile Tax: A new pay-per-mile tax for electric and hybrid vehicles will be introduced from April 2028 to create a new, sustainable revenue stream.

Barriers to Equitable Electric Vehicle Adoption

While fiscally necessary, certain policy decisions may hinder an equitable transition to electric vehicles (EVs), impacting progress on multiple SDGs.

• Deterrent to Adoption: The pay-per-mile tax could discourage some consumers from switching to EVs, particularly those in rural areas who typically drive longer distances. This raises equity concerns relevant to SDG 10.
• Missed Opportunity on VAT: The government failed to cut VAT on public EV charging from 20% to the 5% rate applied to domestic electricity. This policy disproportionately penalises drivers without private parking, creating a significant barrier to EV adoption and undermining the goals of promoting SDG 7 (Affordable and Clean Energy) and building inclusive, Sustainable Cities and Communities (SDG 11).

Analysis of Sustainable Development Goals (SDGs) in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 7: Affordable and Clean Energy – The article discusses policies related to electric vehicles (EVs), fuel duty, and the cost of public charging, which are central to the transition to cleaner energy in transport.
• SDG 8: Decent Work and Economic Growth – The central theme of the article is the UK government’s focus on economic growth, productivity, job creation, and fiscal policy as means to improve living standards.
• SDG 9: Industry, Innovation and Infrastructure – The article explicitly mentions the need for investment in critical infrastructure, including transport, energy, digital development, roads, and power stations.
• SDG 11: Sustainable Cities and Communities – The government’s plan to build 1.5 million new and affordable homes is a key topic, directly addressing housing and urban development.
• SDG 13: Climate Action – Policies designed to encourage the switch from fossil fuel-powered cars to electric vehicles, such as changes to fuel duty and the introduction of a pay-per-mile tax for EVs, are direct climate change mitigation measures.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.
     
     The article opens by stating that “economic growth is its top priority” for the UK government. It discusses the Office for Budget Responsibility’s prediction for growth to be a “below-average 1.5%,” highlighting the national focus on improving this rate.
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
     
     The article identifies “weak productivity” as a chronic problem that bedevils the UK economy. It notes that “there is still no plan to raise productivity” and that government investment in skills and infrastructure is lacking, which are key drivers of productivity.

2. SDG 9: Industry, Innovation and Infrastructure

   • Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.
     
     The article mentions a “commitment to raising investment in critical infrastructure for sectors like transport, energy and digital development.” It also refers to investment spending on “building roads, power stations and houses” as crucial for economic growth.

3. SDG 11: Sustainable Cities and Communities

   • Target 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums.
     
     The article highlights the government’s “ambitious plan to build 1.5 million homes over this parliament.” It also specifies the goal of “building more affordable homes,” which directly aligns with this target.

4. SDG 7: Affordable and Clean Energy & SDG 13: Climate Action

   • Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix & Target 13.2: Integrate climate change measures into national policies, strategies and planning.
     
     The budget’s policies on vehicle taxation are a clear integration of climate and energy measures into national fiscal strategy. The discussion revolves around encouraging the “switch to electric vehicles” by adjusting fuel duty for traditional cars and introducing a “pay-per-mile tax for electric and hybrid vehicles.” These policies directly influence the energy mix in the transport sector and act as a climate mitigation strategy.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. For SDG 8 (Decent Work and Economic Growth)

   • Indicator 8.1.1: Annual growth rate of real GDP per capita.
     
     The article provides a specific figure for this indicator, stating the “Office for Budget Responsibility predicting growth this year to be a below-average 1.5%.” This is a direct measure of economic growth.
   • Indicator 8.2.1: Annual growth rate of real GDP per employed person.
     
     While no specific number is given, the article repeatedly mentions “weak productivity” and the lack of a “plan to raise productivity” as major economic challenges, implying that this is a key metric being monitored.

2. For SDG 9 (Industry, Innovation and Infrastructure)

   • Implied Indicator: Investment in infrastructure and workforce capacity.
     
     The article points to a commitment to employ an “extra 350 planners” to support housing and infrastructure development. This number serves as a specific indicator of the government’s investment in the human resources needed to deliver on infrastructure goals.

3. For SDG 11 (Sustainable Cities and Communities)

   • Indicator: Number of new housing units built.
     
     The article provides a very clear and measurable indicator: the government’s plan to build “1.5 million homes over this parliament.” Progress can be directly tracked against this numerical target.

4. For SDG 7 (Affordable and Clean Energy) & SDG 13 (Climate Action)

   • Indicator: Financial incentives and disincentives for clean energy adoption.
     
     The article mentions several quantifiable policy measures that act as indicators:
     • The introduction of a “pay-per-mile tax for electric and hybrid vehicles” from April 2028, which is projected to bring in “£1.1 billion by 2029.”
     • The disparity in VAT rates for EV charging: “20% to 5%, to match the VAT rate on domestic electricity.” This difference is a measurable barrier to equitable EV adoption.
     • The reintroduction of fuel duty increases from April 2027, which will rise “in line with inflation.”

4. SDGs, Targets, and Indicators Summary Table

Source: theconversation.com