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Where is Britain's growth plan?' by John Springford
The government will have to confront vested interests and raise investment to boost growth. A strategy founded on trade deals with faroff countries and deregulation won’t work. Britain’s economy is weak, but there is a strange lack of urgency in Westminster about the problem. Unlike most other advanced economies, economic output has still not returned to its pre-pandemic level. The Office of Budget Responsibility (OBR), the government’s independent fiscal watchdog, forecasts that living standards will not reach their 2019 level till 2027-28. But, in the run-up to an election that is likely to take place next year, neither the government nor the opposition Labour Party are setting out bold strategies to fix the UK’s economic problems.
pursued growth at all costs, and the markets reacted badly. Neither party wants to appear reckless during a period of high inflation and tightening borrowing conditions. Another reason is that Britain’s first-past-the-post electoral system means a small number of floating voters in marginal constituencies determines the outcome. On average, those voters are older and more likely to own a house so they are less affected by weak growth than younger people. They are also more socially conservative, and more likely to support Brexit, so both parties are downplaying the economic consequences of leaving the EU.
Finance minister Jeremy Hunt announced his budget on March 16th. His goal was to raise labour supply through more hours of free childcare, back-to-work policies, and pension changes to give older professionals more incentives to remain in work. However, this would only increase potential output by 0.2 per cent, according to the OBR. Meanwhile, Hunt plans to cut public investment by £15 billion relative to spending plans set out two years ago. Labour’s own economic plan is vague, promising to “secure the highest sustained growth in the G7”, but without much detail on how to achieve that goal.
There are many reasons for the UK’s economic doldrums. The country has been hit by a succession of crises since 2008. The financial crisis exposed an indebted economy with a large and globalised banking sector. Successive Conservative-led governments then failed to take advantage of low interest rates to invest in infrastructure and skills. Brexit has reduced the supply capacity of the economy by introducing barriers to trade and depressing investment, which had been recovering before 2016. The pandemic exposed the risks of an underfunded healthcare system. Britain consumes more gas per capita than most European countries, after years of underinvestment in alternatives and in energy efficiency, so it was in a weaker position when Putin invaded Ukraine.
What explains the lack of urgency? One obvious reason is that former prime minister Liz Truss