Whether it was those brisk walks in the bracing air of the Swiss Alps or some can-do Donald Trump-style optimism wafting in from across the Atlantic, Rachel Reeves is now striking a more determined and upbeat tone when she talks about the UK economy. Doing the rounds of the Sunday television talk shows, the chancellor was at least partially back to promoting the growth agenda that had spearheaded her message to business, and voters, in the run-up to last year’s election.
And that new tone, or more accurately perhaps a return to the old tone, is not just to be noted but welcomed. Doom and gloom have their uses, and Reeves certainly used them to maximum political effect in the weeks before her first Budget. Warnings about the £22bn “black hole”, which she accused the previous Conservative government of bequeathing, coloured pretty much all her pronouncements, followed by alerts as to the difficult measures that would be needed to fill it. Other ministers took their cue.
Given the ubiquity and unanimity of these warnings, it is hardly surprising that the country took them to heart, as did business. This month’s growth indicator from the CBI was almost as pessimistic about prospects for improved private sector activity in the next three months as was the same survey one month ago, which itself was the most pessimistic for two years. And while it is important to recognise that such surveys reflect perception rather than necessarily the reality, perception counts for a great deal and has a tendency to imprint itself on the future.
Reeves’s best hope, and that of the country, must be that this pessimism reflects a lag before her new message starts to take effect. If not, she must take at least some of the blame. After all, it was she who set out before the election to reassure business that it had nothing to fear from a Labour government, only to see big national insurance rises imposed on employers and very old-Labour style concessions made to strong trade unions that were inevitably going to encourage others to ask for more.
Returning from Davos, Reeves is saying that it is time for the government to “get a grip” on economic problems in the UK, and that, having placed the focus so far on stability, she now intends to “go further and faster on growth” – an intention expected to be the theme of a major speech this week, which has been amply trailed over the weekend.
Measures she is expected to outline include a partial retreat on the taxation of non-doms, following the numbers who have left or signalled their intention to leave the UK; her promised simplification of the planning system to make it harder to challenge applications on environmental grounds, especially for major infrastructure; and the go-ahead for airport expansion, to include London airports such as Gatwick and Luton, but also the long-contested third runway for Heathrow.
While the anticipated green light for Heathrow expansion is already dominating many conversations, the third runway is perhaps the least likely project to come to fruition in the short term, given the certainty of multiple challenges and the complexity of the works needed. What it will highlight, however, is that Reeves is serious when she says, as she did last week, that the imperative of growth eclipses “net zero”, in a series of statements that were music to many, especially business-oriented, ears.
Such a blanket statement could prove divisive even within government, however, and needs to be applied with care. It should not exclude proper scrutiny for projects where there may be genuine environmental or climate concerns. Calling a halt to multimillion-pound tunnels designed to protect a non-endangered species of bat makes for an easy propaganda win. Dismissing environmental concerns about bigger airports near urban areas on the basis that planes are quieter and the fuel less polluting than in the past does not amount to a recommendation in itself. Making the cost of eco-friendlier rail travel more competitive with shorthaul air travel could be another approach.
Speaking at Davos, Reeves said that growth was the government’s top priority “because growth underpins everything else, whether that is improving our schools and hospitals or indeed being able to get to net zero”. But the government – a Labour government, it should be remembered, elected with a big majority – may need to be careful that, in its rush to spur growth, it neglects quality of life considerations at one end and the long-term danger of climate change at the other.
It must also recognise that its quest for growth has not been helped by mixed messaging, which has zigzagged between promises of growth during the election campaign through warnings about imprudent spending and now back to growth at what seems almost any cost. To be sure, the gloom may well have been overplayed to the point where it had its own adverse effect on the economy. And infrastructure projects, such as those eyed by the government, demand many years to make their mark.
Reeves was challenged on the BBC about the rout of millionaires from the UK, as she seems to forget that 1 per cent of the population pay 30 per cent of income tax revenue. The good news? She is starting to listen. The bad news? It is not enough.
So far, what she wants is to lessen the tax on money people bring in from abroad, but this isn’t the issue. Nothing has been said by her on trusts or inheritance tax or annual fees. The chancellor needs to understand the issue with people leaving is due to a sense of unfairness from taxing the offshore trusts and wealth that people have created, even before coming to live in the UK. There is a golden goose. She should not kill it.
The growth message will be credible only if it produces timely signs – even tentative signs – that it is having the desired effect in terms of encouraging business investment and lightening the public mood. Otherwise, it risks being discredited as so much whistling in the dark.
