On Wednesday Reeves made an avalanche of infrastructure announcements. Heathrow's long-awaited third runway, the Oxford/Cambridge silicon corridor, the redevelopment of Old Trafford, reservoirs, airports, train lines, houses, new towns, a tunnel!. There were changes to planning rules that are meant to speed things up, which include "investment zones" that bypass some regulations (as per the Tory freeport idea, which has been retained by Labour and is now as much their idea), yes as the default position for new homes in the vicinity of railway stations, changing pension rules for allowing funds to make productive investments, and a more can-do attitude for infrastructural development outside the South East. Reeves was living the best life of every managerialist politician: the privilege of announcing dozens of megaprojects and basking in the resultant glow.
In all, the speech was a confident performance. On businesses concerned about NICs, Reeves was asked if there was going to be any wriggle room here. She said no, but added her October statement was a once-in-a-generation event. Stability was back in the public finances, and it was there in the economy too. Business can take it as read that, notwithstanding some disaster, they won't be charged for further contributions while she resides in Number 11. It was a theme Kemi Badenoch picked up on in Prime Minister's Questions as well, but going harder on the £5bn "cost" of Labour's employment rights agenda. Reeves and Starmer sang from the same hymn sheet when asked separately about it, but they might have gone further and said this estimated figure doesn't simply disappear from business balance sheets. It's extra confidence and extra money in workers' pockets, which will feed through into growth via their improved spending power.
The combined effect of these projects are bound to put figures on GDP. The IMF's growth forecast, which has uprated the economic outlook for Britain, specifically says this is the case. But there are some issues. Having observed Donald Trump's bravado, there were some Trumpesque flirtations - though Reeves didn't quite say make Britain great again. Government is a knight on a white charger, hacking away and doomer attitudes, nimbyism, and unnecessary regulation that has held the country back for decades. A pseudo-populist construction of a serious party, on behalf of working people, doing battle with an unnamed, sclerotic and complacent elite. But that was not all. Having paid lip service to net zero in the context of the third runway announcement, and new developments at Doncaster and East Midlands airports, she specifically declared bats and newts persona non grata in the new planning regime. So much for Karel Čapek's warning about going to war with the newts. And so, despite saying many times there is no contradiction between the environment and economic growth, Reeves's habit of showing herself up struck yet again.
There is an additional serious problem. On top of this, the government has already set a target of 1.5m new build houses by the end of this parliament. If you tour around Derby, for instance, it's a hive of building activity and a microcosm of what Reeves wants to see. Two housing estates have started, five or six huge blocks of new flats are due over the next few years, more offices and new homes around the railway station, a hotel and leisure complex to replace the derelict Assembly Rooms, and new university buildings due to start on the outskirts of the city centre. Great stuff, you might say. But where are the workers and the engineers going to come from to meet Labour's plans? We know Liz Kendall wants to expel as many people as possible from health and disability-related social security and getting them into work, but they're not going to fill the shortfall in construction. As PBC Today observed last summer, construction workers fell by 14% between 2019 and 2024 and there would need to be an extra 250,000 workers, more or less doubling the workforce, in the next five years to meet the government's ambitions. Training can only make an impact toward the end of the target date, so this means immigration - something Starmer has stupidly caved to the right on and will face some degree of punishment seeing as he's pledged to get the number of new arrivals down. A political problem needlessly of their own making.
Ultimately, as far as British capital is concerned, despite the chuntering over taxes on unearned income the common affairs of the bourgeoisie are happy with what Reeves had to say. The CBI have endorsed it. The big finance houses, foreign investors, and domestic property development are on board. The FT gave it a warm write up. The promise of guaranteed state money and the later productivity boost improved infrastructure is forecast to bring offers a bonanza of profit-making opportunities. Reeves doesn't have to worry about the press whispers about her position. She's safe because she's inviting all and sundry to partake of the public trough, which leaves to the Tories and Reform the most unrepresentative and backward-looking sections of capital. For now.
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5 comments:
"Business can take it as read that, notwithstanding some disaster, they won't be charged for further contributions while she resides in Number 11."
And a failure of the promised economic benefits to materialise in full - perhaps due to a supply chain issue with workers, for example - would be "some disaster"?
Shocked that employment is going in the wrong direction, who could have predicted that increasing payroll taxes might have that effect? Surely, employer's NIC is a "bosses tax"?
As for shifting the GDP numbers, it all depends on which ones. Absolute GDP should certainly grow, GDP capita is another question, that has started to go backwards (not really a shock if you have a low productivity economic model backed by high net immigration). Bringing in a quarter of a million highly skilled immigrants to build us houses would probably boost GDP per capita, of course if there's several million low skilled ones coming along too then it rather defeats the point (see Angela Rayner's interview with Trevor Phillips about how we need lots of houses, but not for the large volumes of immigrants, because there's plenty for them already).
Whatever building you are seeing happening today in Derby has nothing to do with anything Reeves has said or done because it would have been initiated several years ago. Similarly, these announcements of these grandiose projects won't result in much for several years. It is perfectly possible that there will be little sign of actual construction before the next election. As for growth, since that is measured using GDP, and since GDP is just money changing hands, then it is bound to increase. The bigger issue is productivity, again measured in money, which is unlikely to improve as a consequence of these projects. So, while a few jobs might be created, given the pool they are fishing in is already poorly stocked, this might just mean other construction work not happening...such as house building. The UK economy needs long term thinking and solutions, but when all decisions are party political based (as in, 'will this improve our polling?') that can't happen. So it's more posturing, in my view, rather than serious policy to reverse the economic decline of the UK.
By the time they get to thinking about building LHR 3 there will be a new runway at Gatwick, and an additional terminal building at Luton. The demand for aviation will be dropping because of cost of living issues: if you can't afford food or heating, you're hardly going on holiday.. So it will never happen.
GDP is misused by politicians as a proxy for national well-being. GDP goes up, everyone must be happier. But, as we all should know (Kamo excepted) GDP measures the monetary value of all the goods and services produced in an economy during a given period. Well, not all because it ignores the services that are not charged for, like parental childcare, looking after your sick or elderly relatives, volunteering etc. All the externalities (damage/harm from production) are ignored. So pollution, deforestation, biodiversity loss, soil erosion, illness etc are not subtracted from GDP. Instead any clean up work to redress the problem is added to GDP. So, the dirtier a process, the more GDP it can create by forcing money to be spent fixing the problem. All those people with cancer from smoking - extra GDP from their cost of trying to mitigate it. Death? GDP from the undertakers work. Marvellous. Depressed? mentally ill? Struggling in miserable accomodation - who cares, your rent adds to GDP, so do any therapy costs (assuming you can afford them). In effect, GP doesn't care if the things it measures harm us or help us. It just counts how much they cost. So long as you can monetize it, no action, no matter how damaging, detracts from GDP. Hurrah.
So, when Reeves & Starmer, that anti-comedy duo, prattle on about growth, they mean a rise in GDP. Not a better life for anyone. Just more money being spent.
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