By William Schomberg, Sumanta Sen and Pasit Kongkunakornkul

LONDON (Reuters) – Britain’s national election, expected later this year, will take place against a backdrop of persistently slow economic growth, high public debt and little room to increase spending for whoever wins power unless they raise taxes.

Prime Minister Rishi Sunak promises voters that a recovery from a cost-of-living crisis is underway while the opposition Labour Party, which is far ahead in opinion polls, accuses his ruling Conservatives of overseeing 14 years of economic failure.

Below is a summary of some of the challenges facing the world’s sixth-biggest economy which appears to be emerging from a shallow recession but is still feeling the aftershocks of Brexit, the COVID pandemic and the energy price surge of 2022.

SLOW GROWTH

Britain’s economy has been sluggish since 2010, when the Conservatives entered government under former leader David Cameron, shortly after the 2007-09 global financial crisis.

What growth there has been recently has been helped by the impact of high flows of migration. Gross domestic product per person has not increased since early 2022.

Finance minister Jeremy Hunt points to data that shows Britain’s economy as a whole grew faster than Germany, France and Italy since 2010, albeit marginally.

But since the start of the coronavirus pandemic in early 2020, Britain’s economic performance has been the weakest among the Group of Seven (G7) economies with the exception of Germany.

WEAK PRODUCTIVITY

A big brake on the economy over the past 14 years has been Britain’s weak productivity growth.

Output per hour worked in similar countries has also increased only slowly since the global financial crisis. But low levels of business investment, Brexit barriers to trade, low public investment and problems with skills training have been cited as factors that have left Britain lagging its peers.

In 2022, British business investment was slightly lower than its level in 2016, a contrast with other G7 economies that experienced a 14% average increase during the period.

Both the main political parties are promising to improve productivity, with the Conservatives focusing on tax incentives for business investment announced by the government last year and Labour by promising to invest more in green technology.

HIT TO INCOMES

The poor productivity performance has contributed to British wages virtually flat-lining since the 2007-09 financial crisis when adjusted for inflation. Real household disposable income is on course to fall between one British national election and the next for the first time since at least the 1950s.

Over the past 20 years, inflation-adjusted wage growth for British workers has lagged behind that of most other G7 nations.

Middle-income people in Britain are 20% poorer than their peers in Germany and 9% poorer than those in France, according to a report published in December by the Resolution Foundation, the Centre for Economic Performance and the Nuffield Foundation.

PUBLIC SPENDING SQUEEZE AHEAD

Public spending surged in 2020 as the government responded to the COVID pandemic. It was also pushed up by subsidies to protect the economy from the surge in energy prices triggered by Russia’s invasion of Ukraine in 2022.

While higher as a share of economic output than in the United States, public spending in Britain is lower than in Germany and France, contributing to the strain on services such as health and education.

The current government’s fiscal plans rely on further cuts for many public services in the years ahead in order to make its recent tax cuts fit within its debt promises. Many budget experts say those spending cuts look unrealistic, given the strains already on public services.

FOCUS ON TAX TAKE

Britain’s tax burden has risen to its highest since World War Two but it remains lower than in other big European nations.

Sunak, under fire from within his Conservative Party over the size of the tax burden, has said he wants to build on recent cuts to national insurance rates while Labour says it will not raise the main rates of taxation. Those positions raise questions about how the next government can meet the challenges of improving public services and stabilising public finances.

HIGH DEBT LEVELS

Britain’s public debt levels, like those of many other countries, rocketed due to the massive costs of the COVID pandemic and the energy price surge. Projections from the International Monetary Fund show it will keep on rising as a share of GDP.

The IMF said this week that Britain, the United States, Italy and China “critically need to take policy action to address fundamental imbalances between spending and revenues”.

The Conservatives and Labour both promise to ensure that official forecasts show the debt burden falling at the end of a rolling five-year period – albeit using a slightly different measure to the IMF. Achieving lower debt levels looks tough given demands for more spending and the parties’ tax promises.

INACTIVITY PROBLEM

One way of giving the economy a growth boost, and getting more money flowing into the government’s coffers, would be to tackle the high number of people who are not working or looking for work in Britain. The country is the only one in the G7 where the share of working-age people outside the workforce remains higher than before the pandemic, slowing economic growth and boosting inflation.

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