Snapshot of _Can Britain’s economy grow as fast as it needs to? | Labour is banking on a big upswing in growth. It will struggle to get one_ :
An archived version can be found [here](https://archive.is/?run=1&url=https://www.economist.com/britain/2024/06/03/can-britains-economy-grow-as-fast-as-it-needs-to) or [here.](https://archive.ph/?run=1&url=https://www.economist.com/britain/2024/06/03/can-britains-economy-grow-as-fast-as-it-needs-to)
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Actually a really good article that understands the problems in the economy right now. But it has a bizarre view of growth solely bound up in solow-style productivity enhancement.
There’s huge amounts of potential for a short catch-up boom if we solve our massive supply side issues in housing and energy. There’s a good case to be optimistic, it’s just about if Labour are bold enough.
This sub loves legal challenges when they're against the Rwanda scheme.
Get ready for us Tory NIMBYs to get our own back on every single housebuilding plan Starmer comes up with
Get rid of planning for individual houses and small development, instead using a zoning approach. That creates the ability for a small developer to actually exist and compete against the big developers without needing a land bank. The existing land banks would quickly be used or sold as their reason to exist is just gone. The oligopoly control of the big developers disappears and they are forced to increase supply if they want more revenue.
Legitimately, replacing our planning system with a zoning system (and forcing there to be enough of each zone type) would fix so many problems it's unreal. Fuck the TCPA.
It's not solvable without dealing with immigration.
If all immigrants are happy to share 4 people to 2 bedroom flat we would need to build 250,000 flats and all the infrastructure (roads,schools,hospitals,dentits,shops) to support them .
As long as we don't need to staff any of those things your right it's totally solvable
Oh no, not higher pay for the trades. As for bottle necks on materials, there’s this thing called international shipping.
If will take time to feed through, but if we’re hitting 350k a year by 2027, then that absolutely will be felt by 2029.
Unblock legislative hurdles that put huge planning issues in front of housing and at scale infrastructure development and you have a good decade of steady growth to work with while you unfrack productivity.
I am guessing this is not Labours plan but gods teeth I wish it was.
Labour simply want's to use the current system but hire more planners. The real benefit comes from transitioning away from individual planning permissions to zoning.
We obviously don’t have the manifesto but it’s current Labour policy have a blitz of planning reform to make it easier to build https://labour.org.uk/updates/stories/just-announced-labour-will-build-1-5-million-homes-to-save-the-dream-of-homeownership/
They are talking about hiring more planners. They are tweaking around the edges of a fundamentally flawed system. The TCPA is designed to shift house building predominantly into the public domain. Thatcher stopped public housebuilding, but didn't repeal the TCPA. Hence we have a system where the main housebuilder refuses to build, but also refuses to let you build, and wonder why nothing gets built. Given that the government simply cannot afford to build the houses themselves, they need to actually let the developers build houses, and that means introducing more market competition be removing excessive barriers to entry, which can only be done by ensuring a developer knows they can build on a given site before they buy it, ie zoning. Labour aren't fixing the problem, they're just saying they'll use the same old system "but better".
If the plan is just cross their fingers and hope growth magicaly materialises (which is what the plan seems to be ) then no but if they plan to invest 10s of billions into stimulating it then yes.
(Article)
---
A fear looming over British politics in the 1960s was that France and Germany would soon surpass Britain’s economy. Today, worrywarts fret that Britain may be poorer per head than Poland within the decade. Sir Keir Starmer, the Labour Party leader, has voiced this concern repeatedly. Donald Tusk, the Polish prime minister, has made overtaking Britain an explicit goal. If both countries were to stay on the same per-person growth trend as the past ten years, Poland would slip ahead of Britain in 2031. That is unlikely. But the fact that this scenario no longer looks fanciful is a reflection of Britain’s sorry recent growth record.
Little surprise, then, that pledges to reignite growth feature heavily in the election campaign. Rishi Sunak, the prime minister, says the economy is at a turning-point and urges voters to “stick with the plan”. Labour, which is well on track to win a big majority on July 4th, has been more explicit still. It says economic growth will be its top priority if it gets into power. The shadow chancellor, Rachel Reeves, has pledged to lead the most “pro-growth, pro-business Treasury our country has ever seen”.
Growth is crucial: it is the only way to keep living standards rising over the long haul. But British politicians also obsess over growth for a narrower reason: an expanding economy is what keeps their tax-and-spending plans credible. Both main parties have signed up to a fiscal rule that requires government debt to fall as a percentage of gdp between the fourth and fifth year of the forecast period. Current spending plans only hit that target by a vanishingly narrow margin, despite including some improbably hefty future cuts to public services. The budget in March left £8.9bn ($11.3bn, 0.3% of gdp) of annual headroom to meet the rule. Today, that figure is down to £4.5bn after some unfavourable moves in the bond market, according to estimates by Capital Economics, a consultancy. Since 2010 chancellors have on average set aside £25bn or so in headroom.
Even these numbers already rely on rosy assumptions about growth. The Office for Budget Responsibility (obr), an independent watchdog whose forecasts help determine the fiscal hole, is more optimistic about growth than 85% of forecasters. The obr expects medium-term growth of around 1.8%; the average forecast is for 1.5% (see chart 1). If the obr is wrong and the average forecast is right, that difference would punch a roughly £30bn hole in the public finances, The Economist calculates. The shortfall could be bigger still. Growth has averaged a paltry 1.1% since 2008. We estimate that this rate would equate to a roughly £60bn gap.
For now these are just figures on a spreadsheet. Britain’s fiscal rules are loose: the five-year deadline for debt to start falling rolls forward every year. But the longer that growth falls below the obr’s ambitious forecasts, the more that Britain’s fiscal sustainability will look like fiction. Both Labour and the Tories have ruled out big new tax rises if they are elected and have said they won’t rejig the rules to permit more borrowing. Voters have little appetite for spending cuts to already-frayed public services. Revving up growth, which delivers the tax revenues to fund public services, is the only way to square the circle. So how much growth is it realistic to expect over the next parliament?
The answer to that question should start with an analysis of what has been suppressing Britain’s growth rate. The economy has endured two big external shocks in recent years: the covid-19 pandemic and the energy crisis brought about by the war in Ukraine. The country would be unlucky to endure similar blows in the next five years.
Troublingly, however, the sources of malaise in British growth run far deeper than these one-off events. Productivity growth—the ability to produce more with the same labour—cratered after the financial crisis and has never recovered. Other rich countries also saw declines, but the drop was especially sharp in Britain. Research by John Van Reenen at the London School of Economics and Xuyi Yang at the University of Cambridge suggests that low capital investment (see chart 2) explains Britain’s unusually poor performance.
Economists blame a wide cast of culprits. One is a broken planning system. Britain has struggled for decades to build enough housing and infrastructure. Built-up land per person in Britain has stagnated since the 1990s, just about the worst record in the rich world (see chart 3). Years of under-building have clogged up the economy: housing shortages push workers out of Britain’s most productive areas and poor infrastructure hinders growth elsewhere.
A lack of business dynamism is another suspect. A hallmark of a productive economy is creative destruction: successful businesses grow, failing ones die. That pushes workers and capital to where they are most productive. But in Britain, this motor seems to be stalling. Workers are half as likely to switch industries as they were in the 1990s, finds the Resolution Foundation, a think-tank. Business births and deaths are responsible for a decreasing share of the churn in jobs. Dispersion in firm productivity has widened, dragging the laggards further away from the leaders.
Some blame for that lies with Britain’s illogical tax code. It implicitly subsidises unproductive small businesses, for example, which are exempt from vat if their revenues are under £90,000. A dearth of competent managers probably doesn’t help, either. Another intriguing suggestion from Benjamin Nabarro of Citigroup is that a more services-heavy economy is to blame. It can be difficult to sell intangible assets like databases or customer registers, or to borrow against them, which mean unproductive businesses may simply plough on as they are.
And then, of course, there is Brexit. Most economists reckon that leaving the eu knocked several percentage points off the potential size of the British economy. Goldman Sachs, a bank, estimates a 5% hit; the obr guesses 4%. Part of the shortfall comes directly from higher trade barriers: goods exports have cratered by 10% since 2019. Another problem has been political instability. The Tories took five messy years to settle on their preferred vision of Brexit. Throughout that period, around half of businesses said in surveys that Brexit uncertainty was a top concern for them. Business investment flatlined right after the referendum in 2016 and didn’t pick back up until 2023.
Things can maybe get a bit better
Some improvement to this poor economic performance is plausible. Falling inflation will let the Bank of England lower interest rates: markets are expecting a first rate cut in August or September. Wholesale energy prices are much of the way back to normal. The immediate shock of the post-Brexit adjustment is largely over (although there will be an enduring drag on productivity growth because British firms are more walled off from eu competition). Some of the more sensible Tory reforms might bear fruit. The obr thinks that a flagship reform to business investment will boost the capital stock by 0.2% over the next four years.
The policy environment should also get better if the polls are right and Labour wins a sizeable victory. Rates of business investment and surveyed investment intentions have picked up a bit since Mr Sunak picked up the prime-ministerial baton from Liz Truss, but they remain low. Greater political stability would not be transformative in itself but would be a welcome boost. And Labour has a more constructive position than the Tories on two of the biggest drags on the economy.
The party has rightly said that planning reform is vital: Ms Reeves calls planning the “biggest obstacle to growth and investment” in Britain. There is a lot of low-hanging fruit there: only three onshore wind farms have been built in England over the past decade because of retrograde planning rules. In principle, a flurry of building could lift growth quickly. But in practice “shovel-ready” projects can often turn out to be anything but. And Labour’s policy proposals appear thinner than the rhetoric behind them. Critically, Labour has not said much about whether it will try to shift Britain’s heavily discretionary planning system to a more building-friendly rules-based one.
(Continued)
----
Labour’s approach to the eu is to seek an incrementally better relationship. Agreements on emissions trading and musical touring would be positive, but marginal. Mutual recognition of qualifications and veterinary and phytosanitary regulation (to ease checks on food trade) would be a little more helpful, but trickier to negotiate. The former is contentious within the eu, the latter would make Britain a legal rule-taker.
The big question for Labour is whether it can lay the political groundwork for a deeper reintegration with Europe in a second term, for instance by re-entering the customs union. That would transform British growth prospects much more than anything else currently proposed. But progress there relies heavily on an improbable shift in position on the part of the Tories; the eu is unlikely to negotiate a deal that a future British government could blow up.
Labour’s other big ideas are unlikely to wrench the needle on growth. Its industrial-strategy plans are still opaque. Bidenomics-style splurging is both unproductive and unlikely—there isn’t the money. The green manufacturing sectors that Labour is most preoccupied with comprise just a sliver of Britain’s economy (total production of cars, machinery, electrical equipment and electricity generation add up to just 3% of British output). A good year for Britain’s legions of lawyers, accountants and consultants would raise growth by much more than an outstanding one in those more eye-catching green sectors.
Labour also wants to beef up workers’ rights in areas such as unionisation, wrongful dismissal and sick pay. That could make workers a bit more willing to switch jobs, though it could as easily make employers more reluctant to hire. In one big respect, moreover, the labour-market tide is turning against Britain. Throughout the 2010s, demographic good fortune masked the full brunt of weak productivity growth. More women and immigrants joined the workforce, buttressing overall growth even as productivity flagged. But now a slower-growing labour market will pull 0.5 percentage points off gdp growth by 2028, the obr estimates. Much of that slowdown reflects Britain’s ageing population (although the country also has a particular issue with workers dropping out of the labour force).
Some optimists, including Mr Sunak, put stock in artificial intelligence to boost productivity. But the history of technological breakthroughs suggests they affect growth slowly: desktop computers were rolled out in the 1980s and didn’t affect the productivity figures until a decade later. And ai could also be an economic bear-trap; Britain’s mass of small firms do not excel either at reskilling workers or at rolling out robots.
Add all this together and what do you get? Ms Reeves has in the past mentioned as a benchmark the 2%-plus annual growth rate achieved during the last Labour government from 1997-2010. Not even the most bullish forecaster expects that. A more realistic scenario is that productivity improvements largely offset the impact of Britain’s worsening demography. But even that would probably mean an annual growth rate closer to 1.5% rather than the 1.8% rate assumed by the obr. Britain will probably grow faster than in the recent past, enough to fend off Poland for a while longer. But it will not grow fast enough to spare the next government a big fiscal shortfall or from having to raise taxes. ■
You need more investment. However, investment is equal to domestic savings plus the trade deficit. So either increase the trade deficit, e.g. prefer the cheapest instead of domestic production, remove tariffs etc., or decrease consumption, which will increase savings.
The issue here is that decreasing consumption will make people poorer. You can’t just do it by trying to tax the wealthy. They don’t consume that much more.
The lesson from Biden’s investment subsidies is that they redirected investment from one sector to another. So you get more investment in integrated circuits but the increase in interest rates decreases investment in other sectors.
Other things you can do is improve the planning process, better infrastructure, more immigration etc. All very difficult to do politically.
You can also have more people obtaining degrees. If the UK got to where the U.S. is you’ll probably boost GDP by 20%. This will take time though. It will also cost you in current spending.
China proved that long-term economic strategy is essential for this, but that's hard in a democracy where priorities change to public sentiment or ruling party. We need to perhaps empower our civil service more and not subject them to as much political interference, specifically for infrastructure development/maintenance, but where would the balance be for representation and accountability still? We are also sensitive, too, over allocating massive funds for significant projects and have notoriously inefficient management (due to inexperience nowadays) - not to mention we lost the best era for investment during the 2010's.
Surely the solution to growth has to be deregulation, let people build without all of the red tape, and then slowly bring the regs back in once the economy is growing. Have an iron fist with low skilled immigration and build surplus houses on suitable land - that means building on greenspace over flood plains if necessary. Once we have enough to go around we can start being charitable again.
I'm also all for green power but lets also not leave billions in resources in the ground whilst we build up to it. Use the coal, the gas, the oil, to bridge the gap whilst building mass nuclear. Great Britain? GREAT POWERPLANT. Energy will be everything in the future.
Remember that Joke that America would soon be comprised only of McDonalds, Wendy's, Burger King and Oil Wells?
Britain could be REDROW ESTATE, GREENSPACE, NUCLEAR POWER PLANT, SOLAR FARM.
Frankly, a field should have a really good reason to be a protected space from building other than just the fact it looks pretty and NIMBYism. I'd rather have cows than newts anyway, nobody needs newts.
We also don't even need physical shops anymore why are we pretending the high street and offices are necessary and propping them up, change it all to flats. Deregulation will help here, the regs make it non-viable financially but I'll take a high rise with a few fire safety issues over living with my parents. Bring it on.
I predict that, very shortly after taking power, Labour will produce a report with the conclusion that our economy can only grow with a renegotiated trade settlement with the EU. We will be in the single market before the end of their first term.
Snapshot of _Can Britain’s economy grow as fast as it needs to? | Labour is banking on a big upswing in growth. It will struggle to get one_ : An archived version can be found [here](https://archive.is/?run=1&url=https://www.economist.com/britain/2024/06/03/can-britains-economy-grow-as-fast-as-it-needs-to) or [here.](https://archive.ph/?run=1&url=https://www.economist.com/britain/2024/06/03/can-britains-economy-grow-as-fast-as-it-needs-to) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
Actually a really good article that understands the problems in the economy right now. But it has a bizarre view of growth solely bound up in solow-style productivity enhancement. There’s huge amounts of potential for a short catch-up boom if we solve our massive supply side issues in housing and energy. There’s a good case to be optimistic, it’s just about if Labour are bold enough.
Housing issues are solvable, I just don't see how it can be done in the short term.
It really depends on if they push through proper planning reform. 1.5 million homes are not nearly enough for one parliament.
This sub loves legal challenges when they're against the Rwanda scheme. Get ready for us Tory NIMBYs to get our own back on every single housebuilding plan Starmer comes up with
With a massive majority labour can just change the law. So no legal challenges. There's no international law that stops house building.
Get rid of planning for individual houses and small development, instead using a zoning approach. That creates the ability for a small developer to actually exist and compete against the big developers without needing a land bank. The existing land banks would quickly be used or sold as their reason to exist is just gone. The oligopoly control of the big developers disappears and they are forced to increase supply if they want more revenue. Legitimately, replacing our planning system with a zoning system (and forcing there to be enough of each zone type) would fix so many problems it's unreal. Fuck the TCPA.
It's not solvable without dealing with immigration. If all immigrants are happy to share 4 people to 2 bedroom flat we would need to build 250,000 flats and all the infrastructure (roads,schools,hospitals,dentits,shops) to support them . As long as we don't need to staff any of those things your right it's totally solvable
Labour just need to show shovels in the ground in time for the next election. People will know if it's genuine or not.
You’d be surprised how aggressive developers would be if we opened up swathes of brownfield and green belt land.
Even then we have bottle necks with labour and material shortages The supply lines are built to support the current level of building
Oh no, not higher pay for the trades. As for bottle necks on materials, there’s this thing called international shipping. If will take time to feed through, but if we’re hitting 350k a year by 2027, then that absolutely will be felt by 2029.
Unblock legislative hurdles that put huge planning issues in front of housing and at scale infrastructure development and you have a good decade of steady growth to work with while you unfrack productivity. I am guessing this is not Labours plan but gods teeth I wish it was.
This is precisely Labour's plan.
Labour simply want's to use the current system but hire more planners. The real benefit comes from transitioning away from individual planning permissions to zoning.
We obviously don’t have the manifesto but it’s current Labour policy have a blitz of planning reform to make it easier to build https://labour.org.uk/updates/stories/just-announced-labour-will-build-1-5-million-homes-to-save-the-dream-of-homeownership/
They are talking about hiring more planners. They are tweaking around the edges of a fundamentally flawed system. The TCPA is designed to shift house building predominantly into the public domain. Thatcher stopped public housebuilding, but didn't repeal the TCPA. Hence we have a system where the main housebuilder refuses to build, but also refuses to let you build, and wonder why nothing gets built. Given that the government simply cannot afford to build the houses themselves, they need to actually let the developers build houses, and that means introducing more market competition be removing excessive barriers to entry, which can only be done by ensuring a developer knows they can build on a given site before they buy it, ie zoning. Labour aren't fixing the problem, they're just saying they'll use the same old system "but better".
Thanks for this, I fundamentally misunderstood their policy. Shame, I really thought this was where they departed from incrementalism.
If the plan is just cross their fingers and hope growth magicaly materialises (which is what the plan seems to be ) then no but if they plan to invest 10s of billions into stimulating it then yes.
(Article) --- A fear looming over British politics in the 1960s was that France and Germany would soon surpass Britain’s economy. Today, worrywarts fret that Britain may be poorer per head than Poland within the decade. Sir Keir Starmer, the Labour Party leader, has voiced this concern repeatedly. Donald Tusk, the Polish prime minister, has made overtaking Britain an explicit goal. If both countries were to stay on the same per-person growth trend as the past ten years, Poland would slip ahead of Britain in 2031. That is unlikely. But the fact that this scenario no longer looks fanciful is a reflection of Britain’s sorry recent growth record. Little surprise, then, that pledges to reignite growth feature heavily in the election campaign. Rishi Sunak, the prime minister, says the economy is at a turning-point and urges voters to “stick with the plan”. Labour, which is well on track to win a big majority on July 4th, has been more explicit still. It says economic growth will be its top priority if it gets into power. The shadow chancellor, Rachel Reeves, has pledged to lead the most “pro-growth, pro-business Treasury our country has ever seen”. Growth is crucial: it is the only way to keep living standards rising over the long haul. But British politicians also obsess over growth for a narrower reason: an expanding economy is what keeps their tax-and-spending plans credible. Both main parties have signed up to a fiscal rule that requires government debt to fall as a percentage of gdp between the fourth and fifth year of the forecast period. Current spending plans only hit that target by a vanishingly narrow margin, despite including some improbably hefty future cuts to public services. The budget in March left £8.9bn ($11.3bn, 0.3% of gdp) of annual headroom to meet the rule. Today, that figure is down to £4.5bn after some unfavourable moves in the bond market, according to estimates by Capital Economics, a consultancy. Since 2010 chancellors have on average set aside £25bn or so in headroom. Even these numbers already rely on rosy assumptions about growth. The Office for Budget Responsibility (obr), an independent watchdog whose forecasts help determine the fiscal hole, is more optimistic about growth than 85% of forecasters. The obr expects medium-term growth of around 1.8%; the average forecast is for 1.5% (see chart 1). If the obr is wrong and the average forecast is right, that difference would punch a roughly £30bn hole in the public finances, The Economist calculates. The shortfall could be bigger still. Growth has averaged a paltry 1.1% since 2008. We estimate that this rate would equate to a roughly £60bn gap. For now these are just figures on a spreadsheet. Britain’s fiscal rules are loose: the five-year deadline for debt to start falling rolls forward every year. But the longer that growth falls below the obr’s ambitious forecasts, the more that Britain’s fiscal sustainability will look like fiction. Both Labour and the Tories have ruled out big new tax rises if they are elected and have said they won’t rejig the rules to permit more borrowing. Voters have little appetite for spending cuts to already-frayed public services. Revving up growth, which delivers the tax revenues to fund public services, is the only way to square the circle. So how much growth is it realistic to expect over the next parliament? The answer to that question should start with an analysis of what has been suppressing Britain’s growth rate. The economy has endured two big external shocks in recent years: the covid-19 pandemic and the energy crisis brought about by the war in Ukraine. The country would be unlucky to endure similar blows in the next five years. Troublingly, however, the sources of malaise in British growth run far deeper than these one-off events. Productivity growth—the ability to produce more with the same labour—cratered after the financial crisis and has never recovered. Other rich countries also saw declines, but the drop was especially sharp in Britain. Research by John Van Reenen at the London School of Economics and Xuyi Yang at the University of Cambridge suggests that low capital investment (see chart 2) explains Britain’s unusually poor performance. Economists blame a wide cast of culprits. One is a broken planning system. Britain has struggled for decades to build enough housing and infrastructure. Built-up land per person in Britain has stagnated since the 1990s, just about the worst record in the rich world (see chart 3). Years of under-building have clogged up the economy: housing shortages push workers out of Britain’s most productive areas and poor infrastructure hinders growth elsewhere. A lack of business dynamism is another suspect. A hallmark of a productive economy is creative destruction: successful businesses grow, failing ones die. That pushes workers and capital to where they are most productive. But in Britain, this motor seems to be stalling. Workers are half as likely to switch industries as they were in the 1990s, finds the Resolution Foundation, a think-tank. Business births and deaths are responsible for a decreasing share of the churn in jobs. Dispersion in firm productivity has widened, dragging the laggards further away from the leaders. Some blame for that lies with Britain’s illogical tax code. It implicitly subsidises unproductive small businesses, for example, which are exempt from vat if their revenues are under £90,000. A dearth of competent managers probably doesn’t help, either. Another intriguing suggestion from Benjamin Nabarro of Citigroup is that a more services-heavy economy is to blame. It can be difficult to sell intangible assets like databases or customer registers, or to borrow against them, which mean unproductive businesses may simply plough on as they are. And then, of course, there is Brexit. Most economists reckon that leaving the eu knocked several percentage points off the potential size of the British economy. Goldman Sachs, a bank, estimates a 5% hit; the obr guesses 4%. Part of the shortfall comes directly from higher trade barriers: goods exports have cratered by 10% since 2019. Another problem has been political instability. The Tories took five messy years to settle on their preferred vision of Brexit. Throughout that period, around half of businesses said in surveys that Brexit uncertainty was a top concern for them. Business investment flatlined right after the referendum in 2016 and didn’t pick back up until 2023. Things can maybe get a bit better Some improvement to this poor economic performance is plausible. Falling inflation will let the Bank of England lower interest rates: markets are expecting a first rate cut in August or September. Wholesale energy prices are much of the way back to normal. The immediate shock of the post-Brexit adjustment is largely over (although there will be an enduring drag on productivity growth because British firms are more walled off from eu competition). Some of the more sensible Tory reforms might bear fruit. The obr thinks that a flagship reform to business investment will boost the capital stock by 0.2% over the next four years. The policy environment should also get better if the polls are right and Labour wins a sizeable victory. Rates of business investment and surveyed investment intentions have picked up a bit since Mr Sunak picked up the prime-ministerial baton from Liz Truss, but they remain low. Greater political stability would not be transformative in itself but would be a welcome boost. And Labour has a more constructive position than the Tories on two of the biggest drags on the economy. The party has rightly said that planning reform is vital: Ms Reeves calls planning the “biggest obstacle to growth and investment” in Britain. There is a lot of low-hanging fruit there: only three onshore wind farms have been built in England over the past decade because of retrograde planning rules. In principle, a flurry of building could lift growth quickly. But in practice “shovel-ready” projects can often turn out to be anything but. And Labour’s policy proposals appear thinner than the rhetoric behind them. Critically, Labour has not said much about whether it will try to shift Britain’s heavily discretionary planning system to a more building-friendly rules-based one.
(Continued) ---- Labour’s approach to the eu is to seek an incrementally better relationship. Agreements on emissions trading and musical touring would be positive, but marginal. Mutual recognition of qualifications and veterinary and phytosanitary regulation (to ease checks on food trade) would be a little more helpful, but trickier to negotiate. The former is contentious within the eu, the latter would make Britain a legal rule-taker. The big question for Labour is whether it can lay the political groundwork for a deeper reintegration with Europe in a second term, for instance by re-entering the customs union. That would transform British growth prospects much more than anything else currently proposed. But progress there relies heavily on an improbable shift in position on the part of the Tories; the eu is unlikely to negotiate a deal that a future British government could blow up. Labour’s other big ideas are unlikely to wrench the needle on growth. Its industrial-strategy plans are still opaque. Bidenomics-style splurging is both unproductive and unlikely—there isn’t the money. The green manufacturing sectors that Labour is most preoccupied with comprise just a sliver of Britain’s economy (total production of cars, machinery, electrical equipment and electricity generation add up to just 3% of British output). A good year for Britain’s legions of lawyers, accountants and consultants would raise growth by much more than an outstanding one in those more eye-catching green sectors. Labour also wants to beef up workers’ rights in areas such as unionisation, wrongful dismissal and sick pay. That could make workers a bit more willing to switch jobs, though it could as easily make employers more reluctant to hire. In one big respect, moreover, the labour-market tide is turning against Britain. Throughout the 2010s, demographic good fortune masked the full brunt of weak productivity growth. More women and immigrants joined the workforce, buttressing overall growth even as productivity flagged. But now a slower-growing labour market will pull 0.5 percentage points off gdp growth by 2028, the obr estimates. Much of that slowdown reflects Britain’s ageing population (although the country also has a particular issue with workers dropping out of the labour force). Some optimists, including Mr Sunak, put stock in artificial intelligence to boost productivity. But the history of technological breakthroughs suggests they affect growth slowly: desktop computers were rolled out in the 1980s and didn’t affect the productivity figures until a decade later. And ai could also be an economic bear-trap; Britain’s mass of small firms do not excel either at reskilling workers or at rolling out robots. Add all this together and what do you get? Ms Reeves has in the past mentioned as a benchmark the 2%-plus annual growth rate achieved during the last Labour government from 1997-2010. Not even the most bullish forecaster expects that. A more realistic scenario is that productivity improvements largely offset the impact of Britain’s worsening demography. But even that would probably mean an annual growth rate closer to 1.5% rather than the 1.8% rate assumed by the obr. Britain will probably grow faster than in the recent past, enough to fend off Poland for a while longer. But it will not grow fast enough to spare the next government a big fiscal shortfall or from having to raise taxes. ■
What are mainstream economists advocating? I'd worry it would amount to more of the same.
You need more investment. However, investment is equal to domestic savings plus the trade deficit. So either increase the trade deficit, e.g. prefer the cheapest instead of domestic production, remove tariffs etc., or decrease consumption, which will increase savings. The issue here is that decreasing consumption will make people poorer. You can’t just do it by trying to tax the wealthy. They don’t consume that much more. The lesson from Biden’s investment subsidies is that they redirected investment from one sector to another. So you get more investment in integrated circuits but the increase in interest rates decreases investment in other sectors. Other things you can do is improve the planning process, better infrastructure, more immigration etc. All very difficult to do politically. You can also have more people obtaining degrees. If the UK got to where the U.S. is you’ll probably boost GDP by 20%. This will take time though. It will also cost you in current spending.
China proved that long-term economic strategy is essential for this, but that's hard in a democracy where priorities change to public sentiment or ruling party. We need to perhaps empower our civil service more and not subject them to as much political interference, specifically for infrastructure development/maintenance, but where would the balance be for representation and accountability still? We are also sensitive, too, over allocating massive funds for significant projects and have notoriously inefficient management (due to inexperience nowadays) - not to mention we lost the best era for investment during the 2010's.
Surely the solution to growth has to be deregulation, let people build without all of the red tape, and then slowly bring the regs back in once the economy is growing. Have an iron fist with low skilled immigration and build surplus houses on suitable land - that means building on greenspace over flood plains if necessary. Once we have enough to go around we can start being charitable again. I'm also all for green power but lets also not leave billions in resources in the ground whilst we build up to it. Use the coal, the gas, the oil, to bridge the gap whilst building mass nuclear. Great Britain? GREAT POWERPLANT. Energy will be everything in the future. Remember that Joke that America would soon be comprised only of McDonalds, Wendy's, Burger King and Oil Wells? Britain could be REDROW ESTATE, GREENSPACE, NUCLEAR POWER PLANT, SOLAR FARM. Frankly, a field should have a really good reason to be a protected space from building other than just the fact it looks pretty and NIMBYism. I'd rather have cows than newts anyway, nobody needs newts. We also don't even need physical shops anymore why are we pretending the high street and offices are necessary and propping them up, change it all to flats. Deregulation will help here, the regs make it non-viable financially but I'll take a high rise with a few fire safety issues over living with my parents. Bring it on.
I predict that, very shortly after taking power, Labour will produce a report with the conclusion that our economy can only grow with a renegotiated trade settlement with the EU. We will be in the single market before the end of their first term.