Will the upcoming budget drive confidence?
Growth, growth, growth. That is the mantra emanating from the new government. Layered on to the narrative that all there is to build on is the dismal inheritance left by the last government.
Yet, as the chart above shows, the UK has been holding its own against most of its European peers when it comes to growth – actual and forecast – even before we have experienced the new government’s plans.
Of the larger European countries, Spain is motoring ahead – albeit starting from a somewhat lower base. Some months ago, I was in a round table discussion focused on Spain. The country’s outperformance was well documented and talked about. Towards the end, I asked for the group’s view as to what policy or other initiatives people thought were driving such outperformance. There was total silence around the table. Nobody had any idea. So, sadly, no lessons to be learned there.
The UK government has a plan:
- Bringing government debt under control through a combination of tax rises and controlling expenditure
- Possibly changing the fiscal rules to allow increased investment to build the country’s balance sheet
- A clear industrial strategy put on a statutory basis intended to eliminate the ‘yes-we-will-no-we-won’t’ see-saw around industrial strategy that we have seen over the last years
- Attracting increased foreign direct investment starting with what seems to have been a reasonably successful UK investment summit
- Reducing the planning and regulatory burden that has slowed down much needed investment and made infrastructure costs in the UK a multiple of those seen in other countries
It feels like a good plan. The next challenge is delivery.
The approach taken by the government is more considered than the growth-focused Truss-Kwarteng ‘mini-budget’ that was rushed out while ignoring the need to bring institutions like the OBR on side. This government is not making those same mistakes.
Of course, the first big test will be the mood set by the upcoming budget. Will it be seen, overall, as an investment friendly budget? Or will tax increases fall in areas that will make private investment less appealing?
The first 100 days of the government have been anything but upbeat. The mood has been stern and generally negative, none of which is conducive to releasing the country’s animal spirits.
The budget presents a chance to start changing that mood helped by the fact that increased workplace regulation that pushes up business costs has been got out of the way before the budget.
To change the mood music, the Chancellor must navigate a difficult and narrow path. As well as the actual content, much will depend on the tone the Chancellor will adopt and the skill with which the overall budget is presented. We wish her well in that difficult task.
The Labour party is no longer in opposition. It’s time to move on from blaming those on the opposite side of the house, shed the doom and gloom, and stride out with a confident and upbeat message that the government is in charge and can execute a sensible plan for growth.
Roll on October 30th.
