The Bazooka Revisited

Six ways for Labour to get the economy growing

Today we have a very timely guest post from John Kingman, who wrote for us back in November on the need for a more growth focused agenda. In the light of the turmoil unleashed by Trump’s tariff announcement this is going to be more important than ever.

John is Chair of Legal and General, Britain’s largest investor and Barclay’s UK retail bank. Previously he spent much of his career at the Treasury. Under Gordon Brown he was responsible for growth policy, and played a critical role in the UK’s response to the financial crisis, negotiating deals with nationalised banks and then becoming the first CEO of UK Financial Investments which managed the government’s stakes.

He returned to the Treasury in 2012 to become Second Permanent Secretary, again with a focus on growth policy, leaving in 2016. He then spent five years as the first Chair of UK Research & Innovation, which oversees Government science funding.

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Last November on this site I argued that: Britain’s growth problem was very deep-seated; that this was disastrous, and getting relentlessly worse - for living standards, public services and investment; that the Government needed to take radical action to force us off our current trajectory onto a fundamentally better one; and that a heavy-duty growth strategy could also bring the prize of re-kindling international investor interest in the UK, breaking the current vicious cycle of investor negativity. In short, that we needed a bigger bazooka.

That was all before Mr Trump changed the economic world last week, with an even bigger bazooka of his own.

Since I wrote my piece, the Government has taken some meaningful action:

• It has pressed ahead with planning reform. Even the OBR has recognised that housing supply will now rise, and that this will help growth. In the real world, previously tricky planning applications are visibly now getting approved;

• It has developed its crusade against the crazier manifestations of environmental regulation;

• It has grasped the nettles of expanding Heathrow, Gatwick and Luton; and

• It has committed to developing the Oxford-Cambridge corridor – if done right, potentially the biggest dial-mover there could be for UK growth.

This is without question serious policy, and an important start. The Government has demonstrably shown it is willing to take on big issues.

But it is just a start. This would have been true even before Mr Trump added into the mix the serious possibility of a global recession. Self-evidently, it is even more true now.

To the siren voices saying the problem is just that the Chancellor has lashed herself to the mast of her fiscal rules, from which she merely needs to snip herself free and spend lots more money, I suggest they simply glance at the significant rise in the premium the UK is already having to pay in world markets to borrow very large sums each year. Whilst Mr Trump’s actions have brought some relief to all Government bond markets, the UK is still paying meaningfully more to borrow than other developed countries. That is a clear warning sign.

Of course no fiscal rule can be perfect. But the UK sovereign is already treading a very delicate path, along a cliff-edge in deep fog. The protective fence may or may not be in quite the optimal place. But removing it seems unlikely to be a good idea.

At the same time, the economy remains as flat as a pancake. A long period of misrule has left us stuck in a self-reinforcing equilibrium of low growth, high borrowing and a comparatively high cost of capital.

We have to be brave enough to yank ourselves out of this, and the only route is to take heavier-duty policy action to raise the growth rate.

Moreover, we risk missing out on a critical moment - possibly even a sea-change - in global capital markets. In recent weeks, investors have begun to seriously re-appraise their long deep love affair with the US. They are asking themselves with a more open mind where to put at least some of their money. This is a crucial opportunity from which the UK could take advantage. But at the moment, it is others - not yet us - who are succeeding in getting the benefit.

So the Chancellor needs to get their attention. The way to do this is to keep thinking bold and big. In her pro-growth outings at the beginning of the New Year, she briefly but effectively seized the moment and set the agenda. But clearly this alone was not enough. I suggest she now needs to make this the first down-payment on a much more wide-ranging set of interventions which add up to a compelling broader strategy.

Fortunately there are some immediate opportunities.