“Growth will be our single defining mission.” This was what Keir Starmer said in opposition. He was – and still is – right. Today’s speech by Rachel Reeves shows that the Chancellor is determined to turn the economy around after a decade of stagnation. But the UK’s challenge isn’t just more growth – it’s better growth.
Before the 2008 financial crisis – during the “great moderation” – the UK had an impressive growth record, catching up with its European neighbours. But the truth is, too often, even this growth (and it has got worse since) failed to deliver what we need from it.
This is because the UK’s growth model has become increasingly focused on a small number of sectors – predominantly in the south-east – and has therefore failed to deliver good jobs and higher pay for everyone across the country.
The discontent created by this model was just about containable the last time Labour was in office through state redistribution and cheap private credit. But in the years since the financial crisis, lower growth, austerity and, most recently, inflation, have proved politically toxic. Recall the woman in Newcastle who, when confronted with the risk that Brexit might hit the UK’s GDP, shouted: “That’s your bloody GDP. Not ours.”
And yet, faced with the pressure to deliver quick results, and the recent (overhyped) bond market wobbles, it is understandable that the government might be tempted to default back to the UK’s tried and tested methods. Some elements of today’s growth speech by the Chancellor lent into this: approval (in principle) for a third runway at Heathrow and investment in east-west rail between Oxford and Cambridge.
These changes will deliver more growth. But if Reeves wants to chart a course out of our broken economic model, towards a new and better one, this will have to be just the start. After all, what we really need is “good” growth, which is both fairer and greener.
This isn’t news to the Chancellor. In her Mais lecture last March, she rightly argued that “a model based on the pursuit of narrow-based, narrowly shared growth – with ever-diminishing returns – cannot produce adequate returns in growth and living standards, and nor can it command democratic consent”.
Reeves reiterated these arguments today. And her speech included some positive steps such as a commitment that the new National Wealth Fund will work with mayors to drive investment in the north and a review of the Treasury Green Book to achieve the same end.
But in the months ahead these statements of intent must be backed up with real substance. Without this, the divide that exists between the north and south – which is larger than that between East and West Germany, once separated by the Berlin Wall – will remain (or even grow).
The core mission of this government’s growth strategy should be replicating the success of places such as Greater Manchester, which has seen above-average GDP growth in recent years, across the rest of the Midlands and the north. To do this, the government should put the upcoming industrial strategy at the centre of its growth strategy: building new strengths in areas such as green manufacturing, AI and technology, and life sciences.
These plans should be backed up by real investment in those sectors, and the infrastructure they need, across the country. Such a strategy would put as much focus on transport investment in the Midlands and north, as Heathrow, Oxford and Cambridge in the south. Alongside devolution to our big cities, planning reform to accelerate building, and an ambitious skills policy (currently missing) to provide the workers needed, this could be genuinely transformative.
But these changes will not deliver faster, fairer growth overnight. Anything or anyone who promises “sugar rush” growth should be regarded with suspicion. The only solution to long-term structural stagnation is long-term structural reform.
Reeves must rise above the panic and the negativity. It is premature to panic about growth. There has only been one (provisional) monthly GDP measure since last October’s Budget, much of the scheduled public investment is still to take effect and planning reform is only just starting.
Impatience has too often driven short-termism in British policy, which we can ill afford to replicate this time round. We have had 11 industrial strategies in 14 years. No wonder so little has changed, and businesses and markets don’t believe it when the government says that this time will be different.
Similarly, Reeves must brush off moans from those who argue that her pro-growth announcements will be cancelled out by new regulation, such as the government’s workers’ rights agenda. If the goal is shared growth, felt by people up and down the country, these reforms are vital – and most business leaders agree.
Labour is right to reassure markets and businesses with a pro-growth story. But ultimately, the end goal should be clear. The government shouldn’t be satisfied until the infamous Brexit heckler, and millions of others around the country, are shouting: “That’s our GDP, not just yours.”
[See also: The costs of Labour’s growth boosterism]
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