The Government’s economic strategy becomes more concrete

The Chancellor’s speech today provided some more detail on how the Government plans to boost growth. One can begin to discern the outlines of a growth strategy taking shape, and it is increasingly clear what this government wants to be known for: building things.

A concrete growth strategy

Life is never really this simple, but if Margaret Thatcher’s defining economic legacy was to privatise, Tony Blair’s was to invest in human capital, and David Cameron’s was to rein in public spending, then Reeves’ evolving approach is about construction—of roads, railways, reservoirs, homes, and thereby, she hopes, a stronger economy. Her growth strategy is becoming more concrete in both senses of the word.

The Chancellor’s speech listed reforms to the planning and planning systems, some of which we already knew something about, alongside approaches to specific infrastructure projects for both the Ox-Cam arc and our large and sometimes underperforming Northern English conurbations. The aim is to provide infrastructure, financing and connectivity and to streamline planning and regulatory barriers, which together should enable further investments by the private sector.

This is undoubtedly an important part of the solution to the UK’s longstanding growth problems, and chimes with a great deal of what we wrote in the Economy 2030 Inquiry. The UK’s economic growth has long been held back by low investment, in turn constrained by the planning system, poor infrastructure and a pension system that does not support the economy. Fixing this is perfectly consistent with – indeed necessary for – an economy that is increasingly ‘weightless’, creating value from intellectual as well as physical capital, and from services as well as goods.

To take a concrete (sorry) example, the latest OECD data suggest that the UK has seen no increase in the amount of built-up land per person since 1990. This is in stark contrast to every other G7 economy, which has seen substantial increases decade on decade. For example, over the same period, the amount of built-up land has increased by 24 per cent in France, 21 per cent in Germany, 23 per cent in the Netherlands, and 24 per cent in Italy. This has prevented businesses finding the right premises and people moving to the best jobs, holding back growth.

Lacking a Euro-vision

But while the domestic strategy is becoming clearer, one big question remains unanswered: what is the government’s plan for Britain’s relationship with Europe?

The Chancellor made much of an upcoming ‘reset’ of relations with the EU, but gave little away about how ambitious it might be or what form it might take. There are plenty of small but worthwhile reforms on the cards, from an agreement on animal and plant health to mutual recognition of professional qualifications, plus maybe chemicals, product standards and defence, with concomitantly small but worthwhile growth benefits. To really move the dial, the Government will have negotiate a much bigger reduction in trade frictions with our nearest, biggest trading partner – ideally a ‘UK protocol’ that effectively puts us back in the EU Customs Union and Single Market, but only for goods, much as Northern Ireland currently is and as Theresa May’s deal envisaged for the whole UK.

A busy few months ahead

One eye-catching announcement was to back a third runway at Heathrow. At the margin, this will both boost GDP growth (yay) and also make it harder to meet the UK’s Net Zero commitments (sad face). While it’s possible to get growth up and emissions down overall, we’ll need to see more detail on how the Government plans to do this. At the moment, it feels like the Chancellor has prioritised growth over climate.

Moreover, many key parts of the growth puzzle will be finalised over the next six months – the Trade Strategy, the Industrial Strategy, the Infrastructure Strategy and the Spending Review. Each of these will provide more detail in growth-critical policy areas.

At the same time, the Government has made binding promises on taxation, raised public expectations on public services, and will need to spend money to meet them and also address the UK’s looming poverty crisis. In the long run, faster growth will help with all these things. But in the here and now, they may compete with growth-friendly budget decisions.

So the next few months will be crucial to see how strategic the strategy really is. Proper strategic choices involve setting priorities and deciding tradeoffs, rather than just listing them. Such choices will necessarily leave some groups feeling disappointed or short-changed. That is hard for politicians to pull off.