Yahoo Finance General election 2024: Will Labour’s plan for growth work?
Keir Starmer made generating economic growth the heart of his pitch to voters when he launched Labour’s manifesto today.
Whether his plan to boost growth is sufficient is the critical question for UK economy watchers.
Before turning to his plan for growth, it is worth acknowledging (again) the fiscal position. It has been said a million times, but it bears repeating. Labour has essentially signed up to the same spending package as the Conservatives, a package in which unprotected departments are facing spending cuts worth around £20bn.
These departments are already struggling. To avoid these cuts, and meet the fiscal rules, Labour will have to raise taxes. That much is certain.
Even Labour know it. They have committed not to raise income tax, VAT or National Insurance, but on any other tax, the response is that there are “no plans” to increase rates further.
Keir Starmer’s plan is to generate enough economic growth over the coming months that these difficult choices will disappear. Pat McFadden, Labour’s national campaign coordinator, said a plan for economic growth had been the “missing piece in this election debate so far”.
But Paul Johnson, director of the Institute for Fiscal Studies (IFS), pointed out that “growth would take time to arrive, and its scale is uncertain”.
No matter what you think of him, few think Starmer will be able to engineer a huge economic recovery in a matter of months simply by being elected.
If this miraculous recovery fails to arrive, then taxes will go up. That’s not economics, that’s arithmetic.
Looking at the longer term, though, Starmer is right. The economy needs to grow to avoid a continuing increase in the tax burden to pay for an ageing population. Once you’ve accepted that taxes will go up after the election – as nearly everyone has – the real question is whether Starmer has a convincing plan to get the economy growing again.
Here, there are some genuinely encouraging signs.
Reflecting the tight government finances, Labour’s plans revolve a lot around working with businesses. This means providing a clear direction, some policy stability, and a little bit of cash to encourage private sector investment.
The emphasis on business investment is welcome. The UK has fallen behind other rich economies in terms of business investment, something which has only gotten worse since Brexit. Investment is crucial for generating economic growth.
Labour has promised to use “every available lever” to encourage business investment, and fortunately, some of those levers look relatively easy to pull.
On the most basic level, the party promised to provide a “stable policy environment”, giving investors some certainty on the direction of travel. Similarly, it pledged to “end short-term policy making” through the establishment of an Industrial Strategy Council. This is just good governance.
One of the other major obstacles Labour identified is planning. “The current planning regime
acts as a major brake on economic growth,” the manifesto said.
“We will set out new national policy statements, make major projects faster and cheaper by slashing red tape, and build support for developments by ensuring communities directly benefit. We will also update national planning policy to ensure the planning system meets the needs of a modern economy, making it easier to build laboratories, digital infrastructure, and gigafactories.”
The details are sparse and there will no doubt be complications along the way but the direction of travel is clear enough. And while many governments have set out to reform the planning regime, few will enter Downing Street with the sort of majority Starmer will soon enjoy.
In short, Starmer is not being honest about tax, but there are reasons to remain hopeful when it comes to economic growth. To be successful, he will need to set out a clear plan of action early. The manifesto is a good start, but its only a start.
