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Among the many depressing aspects of Rachel Reeves’ budget, the growth forecast was the most disappointing.
Despite a huge investment in utilities, production is projected to fall sharply after a brief revival this year and next.
The outlook is even more uncertain now given the threat of retaliatory trade barriers around the world, should Donald Trump implement plans to impose higher tariffs.
As Bank of England monetary hawk Catherine Mann points out, the shift away from free trade toward a more fragmented world threatens higher costs, prices and interest rates.
Changes: Chancellor Rachel Reeves is planning a restructuring of the pensions industry and a reform agenda for the Square Mile and Britain’s cutting-edge financial services industry.
The turbulent context and Britain’s already disappointing expansion prospects make the growth theme of last night’s speeches at Mansion House even more important.
The Chancellor must be given credit for trying to boost national dialogue following the £40bn fiscal shock to the Budget and the tractor protests in Westminster.
There are two central city themes in Reeves’ growth strategy. One is the restructuring of the pensions industry, which has supported Britain so little.
Too often, asset managers prefer to sell their holdings to hedge funds and private equity rather than force changes in underperforming companies.
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) are needed to unlock change and growth.
If Reeves can encourage more adventurous management of the mega-funds, drawn from local authorities and defined contribution schemes, then it will be a big plus.
Similarly, the Chancellor is adopting a wide-ranging reform agenda for the Square Mile and Britain’s cutting-edge financial services industry.
The bottom line is that the barn door was closed too firmly after the great financial crisis and now it is time to loosen the hinges.
There are countless stories from top banking and insurance executives about how bureaucracy at the city’s financial services authority has delayed the appointment of relatively low-level but critical positions. Speeding up processes should not mean weakening protection.
Reeves also seems to recognize how fintech – where the UK is a European leader – can underpin the City. She has given the go-ahead to this with a proposal to issue the first digital gilts. The explosive growth in the price of Bitcoin has exposed the need for digital assets that have real value.
It is important to improve the architecture of pensions and financial services. Firefighting during the Great Financial Crisis, the pandemic, and Russia’s war against Ukraine left the government and the city little room for change. A hasty reform would be a mistake.
However, the series of reviews of every aspect of the proposed reforms, followed by market research and consultations, mean it could be years before any of this is done.
Where is Elon Musk when you need him? It was nice to see the Chancellor and Bank of England Governor Andrew Bailey fight for growth at Mansion House.
The country needs fiscal and monetary policy to work in the same direction.
In fact, lower mortgage and borrowing costs would bring quicker and earlier benefits to the property market than trying to override local authority planning departments.
Deputy First Minister Angela Rayner is already at war over her plans to take over a new garden village in Kent.
What Britain needs is faster, bolder decision-making. Bailey records the doubts raised about the investment in Crossrail, which came in late and over budget.
But what a difference it has made to London’s infrastructure and development near the stations. He points out that AI is a real opportunity for growth.
As an economic historian, he recognizes that, as with the invention of electricity, it may take a long time for the benefits to be seen in productivity and output.
What we do know from the experience of Silicon Valley and Israel is that strengthening tax incentives and R&D spending galvanizes innovation and entrepreneurship. Fixing the financial infrastructure will help, but it is a very slow process.
If some of the billions falling into the NHS black hole had been allocated to R&D and strengthening the UK’s enviable scientific base, growth could be unlocked at a good pace.
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