The seven growth tests every Budget must pass
The next Budget will inevitably contain difficult fiscal choices. But before any measure is announced, ministers should be required to answer a far simpler question: What business behaviour is this designed to change, says David Bharier
When Rachel Reeves stood at the despatch box on 30 October 2024 to deliver her first Budget, an employer National Insurance rise designed to repair the public finances was always going to knock business confidence. But few could have predicted quite how long the aftershock would last.
By early 2025, the British Chambers of Commerce (BCC) Quarterly Economic Survey – the UK’s largest independent survey of business sentiment – had recorded confidence at its lowest level since the aftermath of the 2022 mini-Budget, with taxation concern jumping from 48 per cent to 63 per cent in a single quarter. Nearly two years on, it has not recovered. The latest data shows the proportion of firms increasing investment – now just 17 per cent – has fallen to its lowest level since the pandemic.
But this grinding down of sentiment is not simply about one tax measure. It is a wider issue about the way policy has been designed for the best part of two decades: announced with ambition, evaluated on political impact, and rarely tested against the single question that matters: what business behaviour is it trying to change?
Growth happens when firms make decisions: to hire, invest, export, innovate, or train. Yet too few are judged on whether they actually alter any of those decisions.
In a new report, Delivering Growth: From Ambition to Action, Andy Haldane and I argue that every measure that could affect growth should be subjected to a simple Growth Delivery Test (GDT) before it’s announced.
The test has seven parts. One, behavioural impact: Which firm behaviour is this intended to change? Two, target group: Which firms? Frontier, movable middle or long tail? Three, transmission route: How will firms hear about, understand and use it? Four, friction: Does it reduce or increase complexity, cost or uncertainty? Five, fiscal realism: Is it deliverable within constrained public finances? Six, evidence: What is the evidence that it will affect growth? Seven, measurement: How will we know if firms acted differently?
The purpose is simple – move policy discussion towards outcomes. Pass all seven and the policy is ready. Fail one and it needs redesign. Fail two or more and it is unlikely to positively change firm behaviour at all.
Applied to the 2024 employer NICs rise, the diagnosis is stark. The measure was a revenue-raiser, not a growth policy. It had no behavioural target for firms at all. But behaviour changed anyway. For a mid-sized firm with 50 people, their employer NICs bill would have gone up by around 50 per cent since the increase. Ironically, it does score well for transmission: a direct P&L line, delivered through payroll software.
The feedback signal came within a quarter: investment intentions weakened, tax concern surged in BCC data, and thousands of firms cited employment costs as the top constraint on growth. It was a powerful behavioural signal, but in the opposite direction for growth.
Full expensing, made permanent in 2023, provides a useful contrast. Allowing firms to knock the entire cost of new equipment from corporation tax, it identified a specific behaviour – get firms to increase investment in plant and machinery – and rewarded it directly. It targeted firms considering capital expenditure, transmitted through a channel finance directors and accountants understood – corporation tax – and created a measurable outcome that could be tracked through business investment data.
The OBR judged it to be effective and in a 2024 BCC survey, 18 per cent of firms said they would increase investment as a direct result of the allowance, rising to 24 per cent of manufacturers. Judged against the GDT, it had a clear behavioural objective, transmission route, and feedback signal.
The same logic applies beyond the tax system. Programmes such as Start Up Loans work for similar reasons. They identify a specific behavioural obstacle, target firms facing it, and measure whether decisions change as a result. Different type of policy but same delivery principle.
Where the growth delivery test points
The next Chancellor inherits a business community that has become increasingly jaded by policy noise. Two decades of strategies, launches, reshuffles, and rebrands have left many SMEs disengaged from government agendas altogether. What is needed is a cleaner test to stop the churn.
Consistent programmes with defined behavioural targets, identifiable user groups and measurable outcomes make the strongest case for continued backing. The evidence increasingly suggests that delivery matters more than scale, and that targeted interventions often outperform broader initiatives that attempt to reach everyone and end up changing little, or indeed end up doing damage.
But many of the biggest policy decisions of the last two decades – from tax rises to Brexit – have failed basic questions. They identified no specific business decision to influence; they targeted no defined group of firms; they transmitted through channels businesses barely engage with; they have often simply increased the cost base; and they establish no meaningful feedback loop to determine whether anything positive has occurred.
The next Budget will inevitably contain difficult fiscal choices. But before any measure is announced, ministers should be required to answer a far simpler question: What business behaviour is this designed to change? Until that test is being applied, the BCC’s surveys are likely to show the same pattern quarter after quarter.
David Bharier is deputy director, economics & insights at the British Chambers of Commerce