Chancellor’s plans for growth will be slow to emerge: academic opinion

Posted on 31 January 2025 • Arts and social sciences, Society and politics

The UK’s Chancellor’s plans for growth and ambitious industrial policies will only work if she can reset European trade, says Alan Shipman, Senior Lecturer in Economics at The Open University.

When the Labour government returned to power last year it chose not to act rapidly against one of the biggest growth constraints, Britain’s isolation from the EU single market and Customs Union.

So, Rachel Reeves’ recent plans for growth could be slow to take effect. Her public expenditure push for infrastructure is designed to boost productivity, but she’s looking at a UK landscape where that growth has been stalled for 20 years.

One of her big announcements this week is to back a third runway at Heathrow airport with the promise of 100,000 jobs, but she needs investment and consumer spending to restart growth.

Can’t rely on a sharp pick up

Even with the promise of less red tape, proposals for a silicon valley between Oxford and Cambridge, the national wealth fund, and a new Thames crossing, she can’t rely on investment to pick up sharply. It didn’t do so when interest rates were ultra-low in 2009-22, and they’re now much higher.

Faster growth is still not guaranteed as much investment is needed to make existing capacity more environmentally sustainable. New capacity will come later.

She may need to introduce more tax changes because of another problem that plagued her predecessors: the rewards of any growth have been going to those with the highest incomes, while average pay hardly outpaces living costs.

History shows us that when a new Labour government came into power in 1964, it also failed to remove the most immediate growth constraint – on that occasion an over-valued pound. It took three years and a change of Chancellor before that happened.

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