Most politicians have signed off for the summer recess following a momentous general election that returned Labour to power after 14 years. Prime Minister Sir Keir Starmer entered Downing Street with the promise to put economic growth front and centre of Labour’s plans and committed to being laser focused on delivering that mission. So far, the new government has not disappointed.
While the Kings’ Speech outlined some bold policy commitments, there was one note of caution, with new chancellor Rachel Reeves providing a sobering update on the state of the nation’s finances. Most of the reaction to the statement focused on her claim that the Government had inherited a £22 billion budgetary shortfall from their predecessors, creating huge pressure on the public purse.
For anyone following economic events closely the prospect of a fiscal gap wasn’t unexpected – but there was some surprise at the scale of the numbers being discussed. With the next Budget being announced for October 30, all eyes will be on the speculated £5.5 billion of ‘in-year spending cuts’ to partially plug the hole and what it means for tax policy.
But it was not all bad news, and millions of public sector workers will have been glad to receive an average pay settlement of around 5-6%.
The chancellor didn’t waste any time in taking off for the US and Canada last week to reassure investors there that the UK is now a stable place to do business. Building trade relations across the Atlantic, and of course with the EU, is a welcome initiative that businesses are keen to see.
The new trade strategy to turbo-charge UK exports and competitiveness requires global investors to have clarity and confidence in the new government’s commitment to making the UK an attractive place to invest. That clarity comes with delivering those meaningful reforms that have been promised in areas such as planning and green growth etc.
Unfortunately, while the chancellor was away on an international charm offensive, the news at home turned particularly sour with shocking scenes of social and racial unrest breaking out in cities across the UK, including here in Belfast. Beyond the simple illegality and immorality of these acts, including damage done to community businesses, they send worrying signs about the UK’s status as a place to invest and do business – at a time when we need global investment more than ever.
In the same week we also saw elevated concerns that the US, the world’s largest economy, might fall into recession. Last Monday, a global stock market shock saw investors run for cover on the back of poor US jobs data. Goldman Sachs raised their probability estimate of a US recession over the coming year from 15% to 25%.
This combined with technology stocks hitting a wall when they failed to meet revenue expectations and a surprise interest rate rise from the Bank of Japan, all worked together to spook traders and led to declining stock markets in the US, Europe and Asia.
Thankfully, markets stabilised as the week went on, but the old adage from former prime minister Harold Macmillan, around governments’ biggest challenge being “events dear boy, events” springs to mind!
Regardless of all unfolding challenges, it is critical that the government always retains a laser focus on growing the economy and making all regions and nations an attractive place for investment. A commitment to economic growth was reinforced in the King’s Speech with an interesting promise to support devolution across the English regions and create a new Council of Regions and Nations, to drive collaboration across all UK governments.
Labelled the ‘Devolution Revolution’ in the press, this initiative aims to hand back more power from Westminster to local government.
The overarching philosophy around greater devolution is based on OECD research which suggests that if the autonomy of UK cities was to increase to the same level as Helsinki, then this (along with high quality government) would have a significant positive impact upon productivity.
Given Northern Ireland, Scotland and Wales already have significant devolution in areas such as planning, energy, skills and infrastructure etc, it will be interesting to see how this newly established Council plays out and how it distinguishes between the needs of ‘Devolved Nations’ and the needs of ‘Devolved Regions’.
As we look ahead to the autumn budget, and amid confirmation from the Chancellor that some taxes will rise, the CBI is urging the government to build on those recent signs of economic momentum and use its pro-business reforms to boost private sector investment.
By developing an ambitious, competitive and proportionate business tax system, the UK will send that outward signal that it is open for business. Keeping key taxes, including VAT, income tax and NICs, at their current levels is an important first step and would give welcome certainty to business, their staff, and customers.
The CBI recognises the challenging fiscal inheritance and the tough choices that must be made on tax and public spending.
But we hope the Government understands that business is the only vehicle to deliver long-term, sustainable growth. Therefore, giving confidence, clarity and certainty to local businesses as well as global investors is essential if we are to fire up the engines of the economy and allow all UK regions and nations to thrive.
- Angela McGowan is director of CBI Northern Ireland.
