Britain needs bold decision-making to unleash growth boosters, says ALEX BRUMMER
Of the many gloomy aspects of Rachel Reeves’ budget, the growth forecast was the most disappointing.
Despite major investments in public services, output is expected to fall sharply after a brief renaissance this year and next.
The outlook is now even more uncertain given the threat of trade barriers around the world should Donald Trump pursue plans for higher tariffs.
As Catherine Mann, the Bank of England’s monetary hardliner, notes, the shift from free trade to a more fragmented world threatens higher costs, prices and interest rates.
Changes: Chancellor Rachel Reeves plans a shake-up of the pensions sector and a reform agenda for the Square Mile and Britain’s leading financial services sector
Britain’s turbulent backdrop and already disappointing expansion prospects make the growth theme of last night’s Mansion House speeches all the more important.
Credit goes to the Chancellor, who is trying to continue the national dialogue after the £40 billion tax shock in the Budget and protests in Westminster.
There are two core themes for the city in Reeves’ growth strategy. One of these is the shake-up in the pensions sector, which has done such a poor job of supporting Britain.
Too often, asset managers prefer to sell their assets to hedge funds and private equity rather than force changes in underperforming companies.
It takes activists like Nelson Peltz at Unilever, Elliott at Anglo-American, Cevian at Aviva and more recently Smith & Nephew (as first reported in The Mail on Sunday) to unleash change and growth.
If Reeves can encourage more adventurous management of mega funds, separate from local government and defined contribution schemes, that will be a huge plus.
Similarly, the Chancellor is embracing a broad reform agenda for the Square Mile and Britain’s leading financial services sector.
The essential point is that the barn door has been closed too tightly after the great financial crisis and now it is time to loosen the hinges.
There are countless stories from top executives of banks and insurers about how relatively low-level, but crucial, functions are being held up by the bureaucracy at the city’s enforcement agency, the Financial Services Authority. Speeding up processes should not mean weakening protection.
Reeves also seems to recognize how fintech – where Britain is a European leader – can support the city. She has given a nod to this with a proposal to issue the first digital government bonds. Bitcoin’s explosive price growth has exposed the need for digital assets with real value.
Improving the architecture of pensions and financial services is important. The firefighting during the great financial crisis, the pandemic and the Russian war against Ukraine left little room for change in the government and the city. Hasty reforms would be a mistake.
Nevertheless, the series of reviews of every aspect of the proposed reforms, followed by market research and consultations, means that it could take centuries before all this is achieved.
Where is Elon Musk when you need him? It was good to see the Chancellor and Bank of England Governor Andrew Bailey both fighting for growth at Mansion House.
The country needs to see that fiscal and monetary policies work in the same direction.
Indeed, lower mortgage and financing costs would deliver faster, early benefits to the housing market than trying to override local government planning departments.
Deputy Prime Minister Angela Rayner is already at war over her plans to take charge of a new garden village in Kent.
What Britain needs is faster and stronger decision-making. Bailey records the doubts that have been raised about investments in Crossrail that came in late and went over budget.
But what a difference it has made to London’s infrastructure and development close to stations. He points out that AI is a real growth opportunity.
As an economic historian, he recognizes that, as with the invention of electricity, it can take a long time for the benefits to become visible in productivity and output.
What we do know from the experiences in Silicon Valley and Israel is that strengthening tax incentives for research and development stimulates innovation and entrepreneurship. Restoring the financial infrastructure will help, but it is very slow.
If some of the billions that fell into the NHS black hole had been spent on research and development and strengthening Britain’s enviable science base, growth could have been unleashed at a rapid pace.
DIY INVESTMENT PLATFORMS
A. J. Bell
A. J. Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund trading and investment ideas
interactive investor
interactive investor
Invest for a fixed amount from € 4.99 per month
Sax
Sax
Receive €200 back in trading fees
Trade 212
Trade 212
Free trading and no account fees
Affiliate links: If you purchase a product, This is Money may earn a commission. These deals have been chosen by our editors because we believe they are worth highlighting. This does not affect our editorial independence.