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The chancellor will need to spend an extra £20bn by the end of the parliament to maintain public investment at its present levels.

Rachel Reeves has promised to unveil a “budget for investment” next week, while reversing the “years of underinvestment” overseen by the previous Conservative government.

However, this would involve taking on billions of pounds of fresh debt if, as is widely expected, the government chooses to borrow more to invest.

Under plans inherited by the previous government, public investment as a share of national income (excluding student loans) was due to hit 2.1% of GDP at the end of this financial year before falling sharply during the rest of the parliament.

In its manifesto, Labour outlined an extra £5bn of investment plans.

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However, this is not sufficient to reverse the downward trend and would see public investment as a share of GDP settle at 1.6% by the end of the parliament.

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Earlier this month, the government also pledged an additional £22bn for carbon capture but said it would be delivered over a 25-year timeline, so it has not been included in the analysis.

In order to maintain public investment as a share of national income at its 25-year average of 1.7% of GDP, the government would have to borrow an extra £10bn.

It would involve an additional £20bn to maintain it at its present levels (2.1% of GDP), according to economists at the Institute for Fiscal Studies (IFS).

What counts as investment?

Government investment can be wide-ranging.

It includes building new schools, buying new NHS equipment and spending on building new roads and railways. Britain has a shaky track record when it comes to delivering these types of projects.

Low comparative investment

Analysis by the Institute for Public Policy Research (IPPR) thinktank shows that public investment in the UK remains below average within the G7 club of advanced economies public investment.

Dr George Dibb, associate director at IPPR, said: “The UK has had chronically low levels of public investment since the 1970s, this has left us with crumbling infrastructure, out-of-date technology in our public services and undermined the foundations of our economy.

“Compared to other G7 economies we’ve never even been average.”

“Rachel Reeves has the chance to turn this around, however she needs to grapple with severe cuts to public investment locked in by the previous government,” he added.

The picture is even worse when business investment is included in the analysis – Britain languishes at the bottom of the table.

The chancellor said she is prepared to borrow more to fund this type of investment spending, something she believes is a critical part of her mission to deliver more economic growth.

In her conference speech in September, she said: “We find ourselves at the very bottom of the G7 league table for economy-wide investment as a share of our GDP. And we must change that.”

Reeves tweaked her self-imposed fiscal rules – which required debt to be falling as a share of GDP by the fifth year of the parliament – in order to manage this extra borrowing.

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How to invest more

Economists have long argued that the current system prevents governments from making long-term investments that could grow the economy.

Ms Reeves is expected to use a new measure of debt, “public sector net financial liabilities”.

This is a wider measure of the state balance sheet which takes into account the government’s assets – such as hospitals, schools and its student loan book – as well as its liabilities and effectively creates more room for borrowing by reclassifying some debt as assets.

This gives a broader view of the government’s fiscal position and could unlock more than £50bn in additional headroom, giving the chancellor sufficient space to overturn the downward trend in public investment.

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However, this change would not impact the government’s ability to service its debt and economists have warned the chancellor against using up all of that extra headroom in case it triggers a perverse reaction in the bond markets.

With public sector net debt at its highest level relative to GDP since the early 1960s, the IFS said that such a move could trigger a buyer’s strike in the bond markets.

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US-listed Ulta Beauty swoops on high street chain Space NK

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US-listed Ulta Beauty swoops on high street chain Space NK

A New York-listed company with a valuation of more than $21bn is to snap up Space NK, the British high street beauty chain.

Sky News has learnt that Ulta Beauty, which operates close to 1,500 stores, is on the verge of a deal to buy Space NK from existing owner Manzanita Capital.

Ulta Beauty is understood to have registered an acquisition vehicle at Companies House in recent weeks.

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The exact price being paid by Ulta was unclear on Thursday morning, although one source said it was likely to be well in excess of £300m.

Manzanita Capital, a private investment firm, engaged bankers at Raymond James to oversee an auction in April 2024.

The firm has owned Space NK for more than 20 years.

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Manzanita has also owned the French perfume house Diptyque and Susanne Kaufmann, an Austrian luxury skincare brand.

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Founded in 1993 by Nicky Kinnaird, Space NK – which is named after her initials – trades from dozens of stores and employs more than 1,000 people.

It specialises in high-end skincare and cosmetics products.

Manzanita previously explored a sale of Space NK in 2018, hiring Goldman Sachs to handle a strategic review, but opted not to proceed with a deal.

None of Ulta, Manzanita, Space NK and Raymond James could be reached for comment.

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Royal Mail to scrap second-class post on Saturdays and some weekdays

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Royal Mail to scrap second-class post on Saturdays and some weekdays

Royal Mail is to be allowed to scrap Saturday second-class stamp deliveries, under a series of reforms proposed by the communications regulator.

From 28 July, Royal Mail will also be allowed to deliver second-class letters on alternate weekdays, Ofcom said.

The post will still be delivered within three working days of collection from Monday to Friday.

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The proposals had already been raised by Ofcom after a consultation was announced in 2024, and the scale back was proposed early this year.

Royal Mail had repeatedly failed to meet the so-called universal service obligation to deliver post within set periods of time.

Those delivery targets are now being revised downwards.

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Rather than having to have 93% of first-class mail delivered the next day, 90% will be legally allowed.

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The sale of Royal Mail was approved in December

The target for second-class mail deliveries will be lowered from 98.5% to arrive within three working days to 95%.

A review of stamp prices has also been announced by Ofcom amid concerns over affordability, with a consultation set to be launched next year.

It’s good news for Royal Mail and its new owner, the Czech billionaire Daniel Kretinsky. Ofcom estimates the changes will bring savings of between £250m and £425m.

A welcome change?

Unsurprisingly, the company welcomed the announcement.

“It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable universal service,” said Martin Seidenberg, the group chief executive of Royal Mail’s parent company, International Distribution Services.

“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”

Citizens Advice, however, doubted whether services would improve as a result of the changes.

“Today, Ofcom missed a major opportunity to bring about meaningful change,” said Tom MacInnes, the director of policy at Citizens Advice.

“Pushing ahead with plans to slash services and relax delivery targets in the name of savings won’t automatically make letter deliveries more reliable or improve standards.”

Acknowledging long delays “where letters have taken weeks to arrive”, Ofcom said it set Royal Mail new enforceable targets so 99% of mail has to be delivered no more than two days late.

Changing habits

Less than a third of letters are sent now than 20 years ago, and it is forecast to fall to about a fifth of the letters previously sent.

According to Ofcom research, people want reliability and affordability more than speedy delivery.

Royal Mail has been loss-making in recent years as revenues fell.

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In response to Ofcom’s changes, a government spokesperson said: “The public expects a well-run postal service, with letters arriving on time across the country without it costing the earth. With the way people use postal services having changed, it’s right the regulator has looked at this.

“We now need Royal Mail to work with unions and posties to deliver a service that people expect, and this includes maintaining the principle of one price to send a letter anywhere in the UK”.

Ofcom said it has told Royal Mail to hold regular meetings with consumer bodies and industry groups to hear their experiences implementing the changes.

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A pub a day to close this year, industry body warns as it calls for cut to tax burden

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A pub a day to close this year, industry body warns as it calls for cut to tax burden

An industry body has warned that the equivalent of more than one pub a day is set to close across Great Britain this year.

According to the British Beer and Pub Association (BBPA), an estimated 378 venues will shut down across England, Wales and Scotland.

This would amount to more than 5,600 direct job losses, the industry body warns. It has called for a reduction in the cumulative tax and regulatory burden for the hospitality sector – including cutting business rates and beer duty.

The body – representing members that brew 90% of British beer and own more than 20,000 pubs – said such measures would slow the rate at which bars are closing.

BBPA chief executive Emma McClarkin said that while pubs are trading well, “most of the money that goes into the till goes straight back out in bills and taxes”.

“For many, it’s impossible to make a profit, which all too often leads to pubs turning off the lights for the last time,” she said.

“When a pub closes, it puts people out of a job, deprives communities of their heart and soul, and hurts the local economy.”

She urged the government to “proceed with meaningful business rates reform, mitigate these eye-watering new employment and EPR (extended producer responsibility) costs, and cut beer duty”.

“We’re not asking for special treatment, we just want the sector’s rich potential unleashed,” she added.

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The government has said it plans to reform the current business rates system, saying in March that an interim report on the measure would be published this summer.

From April, relief on property tax – that came in following the COVID-19 pandemic – was cut from 75% to 40%, leading to higher bills for hospitality, retail and leisure businesses.

The rate of employer National Insurance Contributions also rose from 13.8% to 15% that month, and the wage threshold was lowered from £9,100 to £5,000, under measures announced by Rachel Reeves in the October budget.

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