That didn’t take long. Labour may have promised to make the UK the fastest growing economy in the G7 during the election campaign, and who knows perhaps they even meant it. And yet, since taking office the Chancellor has already made three major decisions that will stifle entrepreneurship, hit startups, and crush technology, while allowing the infrastructure on which businesses depend to decline even further.
In reality, Rachel Reeves is already a fully signed up member of the anti-growth coalition that is now in full command of the UK – and over the next few years the consequences of that will start to become painfully apparent.
In an otherwise dull election campaign that ended a month ago, neither Reeves, the new Chancellor, nor her party’s leader, Keir Starmer, made many firm promises. Even so, at least they were both absolutely clear on one point. They would prioritise growth, sweeping away the restrictions and regulations put in place by the Conservatives, ripping up out-dated planning rules, embracing the net zero “opportunity”, partnering with industry to focus on the technologies of the future and, with a commitment to stability, encouraging a fresh wave of foreign investment.
They even put an official target on it, against which their success (or failure) can be measured. Apparently, during the lifetime of this parliament the UK will top the G7 for growth of GDP per capita for two years running. By the late 2020s, the statisticians at the IMF and the OECD will be able to refer to their spreadsheets and tell us whether the target has been met or not.
But we probably shouldn’t hold our breath. Over the last few days there have been a series of decisions that could have been purposefully designed to crush expansion. Such as? The Government has cancelled £1.3bn that had been earmarked for spending on artificial intelligence and other technological innovations, including such projects as a planned £800m supercomputer at Edinburgh University, and another £500m for AI Research Resource.
The UK may have some of the best scientists in the world, but it turns out that the Government doesn’t think it is worth spending any money on the tools they might need to keep their edge. Meanwhile, Labour are pressing ahead with an AI Regulation bill which many consider will do more harm than good. Put the two together, and a fast-growing sector could be starved of investment and wrapped up in red tape. You hardly need a supercomputer to tell you that the results won’t be good.
Next, Reeves is allowing HMRC to launch a crackdown on R&D tax credits. The scheme, ironically launched by Gordon Brown when he was chancellor back in 2000, allows companies to claim allowances for money spent on innovation. Many will support plans to claw back more than £4bn lost in fraud and error since 2020. But warnings have been issued that it’ll push some startups into bankruptcy, after HMRC decided claims were mistakenly issued. The more fundamental point is that it is notoriously difficult for tax officials to gauge what counts as “innovation”.
Dyson’s first product was a vacuum cleaner, and there were plenty of those in the shops when it was launched in 1991, but the company was nonetheless a great disruptor. Monzo didn’t exactly invent the online bank account when it was launched in 2015, but it came up with a slicker version of the concept, and has turned the business into one of the UK’s most successful new companies of the last decade.
A crackdown may well save the Treasury a little bit of money, but at the cost of closing some fledgling businesses and spooking others from even trying anything new.
Finally, Reeves has cut back on infrastructure spending, scrapping spending on roads and rail networks to try to save money. But in a report published on Wednesday the The National Institute of Economic and Social Research argued that the UK needs far more spending to upgrade transport systems, and every other form of public investment, not less, and that if the money was not made available growth would inevitably suffer.
At the same time, the newly-installed Government is offering inflation-busting pay rises to public sector workers, some of whom have no intention of terminating their industrial action. It has launched a state-owned energy company at a cost of over £8bn. It is picking green winners even in the face of collapsing demand for products such as EVs. Their “national wealth fund” is unlikely to deliver results.
The price is being paid by tech researchers, by start-ups, and by scrimping on the roads and railworks that every business relies on to move stuff around the country. In truth, Labour have an exaggerated faith in their ability to “manage” the economy. The verdict is surely now beyond dispute. Rachel Reeves has little idea what generates growth, or what drives a modern economy. Her target to restore prosperity is already doomed to failure – and that will become clear very soon.
