Unlock Digent Editor FREE
Roula Khalaf, editor of FT, chooses her favorite stories this weekly newsletter.
The writer is a former Minister of Treasury
Chancellor Rachel Reeves has clearly tried to change the story of the British economy and the ability of Starmer's government to help strengthen her. That was necessary. The negative mood in the background after the hope before the elections and immediately afterwards increased, relapsed after the October budget for recurring disappointment, low expectations and dismay in the obvious lack of narration.
The United Kingdom has re -entered the period of almost zero economic growth. The hit of business confidence, induced by the budget, was enhanced by concerns about the growing global bond yield and the restrictions that these places impose the ability of the government to spend and borrow it.
In her speech, Reeves acknowledged business costs of growing national insurance – and tried to explain again that she felt that it was necessary to get the finances under control. But as she turned to talk about the offer side, the picture became much more promising.
I think this focus on the offer side is correct. First, because a large part of the demand will be determined by the Bank of England: if interest rates are reduced in the way a lot of prognosis, it should be an important driver. So Reeves wouldn't want to take steps to compensate for this possibility – last but not least, because it would probably help reduce revenues from British bonds.
Secondly, because ministers eagerly told anyone who listened, the government is limited by its own fiscal rules, the first of which limits current expenses. If he wants to avoid further tax increases, he will have to stick to them – or something close.
The third – and this is particularly important – the problem of the United Kingdom has returned to the financial crisis in 2008 and was previously the offer of the offer. Namely our deplorable productivity and our weak private and public investments. Since the crisis, the average growth of 1.5 % was almost completely driven by a very strong growth of labor. The growth of productivity remained extremely weak. If we are to have stronger growth, while we are less susceptible to inflation, we need more investment and more productivity-it is really so simple.
Reeves must therefore ensure that the government 10 -year -old infrastructure strategy It is now the center.
The Chancellor correctly talked about excessive regulation, blocks of planning approval and insufficient obligation for investment projects increasing growth. She promised support for large scattering projects to solve the persistent delays and obstacles to infrastructure, including the OX-CAM project, support for the third track in Heathrow and a number of programs in the north of England.
It was missing the framework. In her narration, there was no place for institutions that would be essential for providing transparent, highly multipling investments-and they are not in operation yet. However, this emphasis will be necessary if the government is to install confidence in investors.
Chancellors always like to announce large investments in attention, albeit as Expansion HeathrowThey are controversial. Very often, however, they are not accompanied by fresh government capital and are announced on the basis of “trust us” in terms of real and lasting benefits.
In this, Reeves is no exception. The Economics Frontier's research quoted, suggesting that the third runway would have positive multipliers outside the London region – it should become part of the framework for each main initiative. However, this must be done systematically, especially because the government will have to observe its second fiscal rule and borrow. Without such a framework, it does not have to “trust us” that it does not have to obtain such a positive answer from a gilded or stock market.
The new National Infrastructure Transformation Authority will not be established in April. However, this entity, along with the National Audit Office and others, will be absolutely essential for the encouragement of business, inside and outside the United Kingdom to increase the growth potential of the economy by investment. I am surprised that the Chancellor has decided to talk about it: it actually adds and supports the growing of the treasury division promised by Reeves and Sir Keir Starmer.
In this spirit, I hope that Reeves will seize Nista to be completely transparent about investment projects that will have positive multipliers. Because it is also a way for indirectly increasing the demand party of the economy and releases longer -term animal spirits in business and consumers.
