Among the many dismal aspects of Rachel Reeves’s Budget, the growth forecast was the most disappointing.
In spite of a big investment in public services, output is projected to dip sharply after a brief renaissance this year and next.
The outlook is even more uncertain now given the threat of tit-for-tat trade barriers across the globe, should Donald Trump pursue plans for higher tariffs.
As the Bank of England’s monetary hardliner Catherine Mann notes, the move away from free trade to a more fragmented world threatens higher costs, prices and interest rates.
The turbulent background and Britain’s already disappointing expansion prospects make the growth theme of last night’s Mansion House speeches all the more important.
Credit must go to the Chancellor for seeking to move the national dialogue on from the £40billion tax shock in the Budget and tractor protests at Westminster.
There are two core City themes to Reeves’s growth strategy. One is the shake-up to the pensions industry, which has been so poor in backing Britain.
Too often, asset managers would rather sell their holdings to hedge fund and private equity rather than force change in underperforming enterprise.
It takes activists such as Nelson Peltz at Unilever, Elliott at Anglo-American, Cevian at Aviva and more recently Smith & Nephew (as first reported in The Mail on Sunday) to unlock change and growth.
If Reeves can encourage more adventurous management of mega-funds, carved out of local authority and defined contribution schemes, then that will be a huge plus.
Similarly, the Chancellor is embracing a wide-ranging reform agenda for the Square Mile and Britain’s leading edge financial services industry.
The essential point is that the barn door was closed too firmly after the great financial crisis and it is now time to loosen the hinges.
There are countless stories from top bank and insurance executives as to how relatively low level, but critical, job appointees have been held up by bureaucracy at the City enforcer, the Financial Services Authority. Speeding up processes shouldn’t mean weakening protection.
Reeves also appears to recognise how fintech – where the UK is a European leader – can underpin the City. She has given the nod to this with a proposal to issue the first digital gilts. Bitcoin’s explosive price growth has exposed the need for digital assets which have real value.
Improving the pensions and financial services architecture is important. Firefighting through the great financial crisis, the pandemic and Russia’s war on Ukraine left little government and City bandwidth for change. Rushing reform would be a mistake.
Nevertheless, the series of reviews of every aspect of the proposed reforms, followed by market research and consultations, mean that it could be ages before any of this is done.
Where is Elon Musk when one needs him? It was good to see the Chancellor and the governor of the Bank of England, Andrew Bailey, both batting for growth at the Mansion House.
The country needs to see fiscal and monetary policy working in the same direction.
Indeed, lower mortgage and borrowing costs would bring quicker, early benefits to the housing market than seeking to override the planning departments of local authorities.
Deputy Prime Minister Angela Rayner already is at war over her plans to take charge of a new garden village in Kent.
What Britain needs is speedier and bolder decision-making. Bailey records the doubts raised over investment in Crossrail which came in late and over budget.
But what a difference it has made to London infrastructure and development close to the stations. He points out that AI is a real opportunity for growth.
As an economic historian, he recognises that, as with the invention of electricity, it can take a long time for the benefits to be seen in productivity and output.
What we do know from the Silicon Valley and Israel experience is that bolstering R&D tax incentives and spend galvanises innovation and entrepreneurship. Mending the financial infrastructure will help but it is a very slow burn.
If some of the billions falling into the black hole of the NHS had been directed at R&D and bolstering the UK’s enviable science base, growth could be unlocked at pace.
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