Loading
SPEAK TO theGDPYour browser does not support the element. world’s financiers assembled at Davos this week, and Britain rarely comes up. When it does, the mood is hardly complimentary. One banker remarks on how many millionaires have recently left the country. Another financial executive says that Brexit has shrunk the investor base. Others raise a comment by Ray Dalio, a billionaire, who warned on January 21st of a “debt death spiral” in Britain if public spending is not reined in.That left Rachel Reeves, Britain’s chancellor, with an uphill task when she arrived at the Swiss alpine town to court investors at the annual meeting of the World Economic Forum. She met a raft of Wall Street bosses, asset managers and pension funds in an effort to convince them that Britain really is open for business, and that she is single-mindedly focused on growth. We asked her what all that really meant. (Listen to our interview with Ms Reeves in the .)Britain, she says, faces “a long-standing supply-side issue”. Demand is not the problem, but “there are too many things holding back investment”. What is needed is “an active supply-side approach, to improve the productive capacity of our country”. By that logic, the government’s job is to remove barriers to investment, making space for the private sector to direct capital to productive uses. That emphasis on deregulation marks a shift for Ms Reeves, who in opposition took inspiration from Bidenomics—a more heavy-handed approach where private investment is guided, and sometimes subsidised, by the state.The diagnosis, then, was clear. What about the remedy? Britain’s economy is in dreadful shape. Growth has been feeble for nearly two decades, a slowdown that has worsened recently (see chart 1). On the campaign trail, Ms Reeves said that investment would perk up under her more stable stewardship. But there has been no economic growth at all since she took over as chancellor last summer. Will she be bold enough to turn things around?“Britain is going for growth,” she says. “I don’t think what we’re doing on planning, on regulation, on capital-markets reform is timid.” But the Davos set’s indifference to her agenda is telling. Many bigwigs say they haven’t seen enough to persuade them to give Britain another look. The government has struggled to sell a confident story about its plans.Ms Reeves’s most consequential choices so far came in her budget in October, which raised taxes by roughly £40bn ($49bn, 1.5% of ) and spending by £70bn annually, ramping up borrowing to fill the gap. Notably absent was a growth agenda; she left the clunky structure of Britain’s tax system untouched and picked employers’ national insurance, a fairly inefficient and distortive tax, as her main revenue-raiser. Ms Reeves contends that righting the ship was itself a growth strategy: “Returning stability to the public finances is absolutely essential for stability, and stability is absolutely essential for economic growth.” Still, at her moment of maximum political opportunity, she passed up on an all-out push for growth.The one part of the budget that did reflect “a more active supply-side approach” was the way Ms Reeves targeted the rise in employers’ national insurance, hitting the lowest-paid jobs hardest (see chart 2). Was that a deliberate strategy to deter employers from hiring cheaply and nudge them to invest more in human and physical capital instead? Her main economic adviser, John Van Reenen, has spent much of his academic career working on underinvestment and Britain’s long tail of low-productivity firms. But Ms Reeves denies that this was her motivation. “I wouldn’t put it quite like that,” she says. “We needed to raise revenue.”Only now is her government laying out more of its plans for boosting growth. The centrepiece is reforming Britain’s planning system to make it easier to build. “The planning stuff that we’re doing is massive,” she says. She and her colleagues have already waved through totemic projects that were gummed up under the Tories, including a vast solar farm in Suffolk and a flagship Marks & Spencer store on London’s Oxford street. She seems poised to back at Heathrow, Gatwick and Luton.But saying “yes”, even repeatedly, is not the same as wholesale reform. That, Ms Reeves promises, will come in a new planning bill due to be introduced in Parliament in the next month or two. Some details have already been trailed, like “brownfield passports” to speed up approvals on already-developed sites, and reforms to the green belt, which prevents building around big cities. The real test will be whether the new rules manage to encourage construction in and around those cities, where the economic benefit will be highest.Another part of Ms Reeves’s agenda is a rethink of regulation. The government has taken a consultative approach, asking regulatory bodies to suggest ideas for how to boost growth. Pressed on whether that isn’t rather like asking children to come up with ideas for how they could work harder, Ms Reeves says that the regulators should put forward ideas and leave the government to decide. She points to the departure of Marcus Bokkerink, the chair of the Competition and Markets Authority, on January 21st as proof of her seriousness. The competition regulator has been relatively trigger-happy about holding up mergers in recent years. But the lack of ideas and direction from the top is a worry.Then there is the labour force. One in ten working-age Britons are now receiving health-related benefits, up from 7.5% in 2019. The chancellor acknowledges that this is a concern, and that more claimants need to be moved off benefits into work. New proposals are coming, she promises. In the meantime, the plan is to work with local authorities to better target job support—a worthy but small-bore approach.The problem, says one executive at an asset-management firm, is that the chancellor lacks a narrative: a bumper sticker that shows why Britain is a place to do business. One striking contrast is with the flurry of activity since Donald Trump began his second term. Next to that, Labour’s method in office looks sluggish, even though a British government—especially one with a big majority in Parliament—has a freer hand to act than an American president. There is plenty of , both at home and in overseas trade, including with Europe. But time is ticking, and the competition for investment is heating up.
