At the end of 2024, the Good Growth Foundation (GGF) polled thousands of Britons about their attitudes to growth. Cut to the chase: “Voters do not trust that a growing economy will improve their living standards. As people struggle with an all-consuming cost of living crisis, aspiration has been suffocated—and trust in politicians decimated.” Ouch.
Growth is supposed to be the sunny uplands of Labour’s offer. But now voters, firms and economists are very gloomy. And the chancellor Rachel Reeves finds herself the bearer of bad news, not the bringer of better things to come. How has this happened and how can it be turned around?
A quick primer on why growth is politically vital. In the short term (read one parliamentary term) it’s needed to pay for the NHS, and all public services. In the long term (read two parliamentary terms) it’s what will increase living standards and get people back on top of the cost of living. The challenge for the government, however, is the inevitable monthly drip of bad news on growth for the next three years. That's a long winter before the sun shines.
This is because the growth plan is flying into political headwinds. First, the polling problem. As the GGF survey shows, people don’t believe that growth—if it comes at all—will improve their wages. And they associate the idea of growth with higher prices. Second, the national statistics problem. Every month for the next 36 is likely to bring month-on-month bad news stories on GDP growth. It will be down on the month before, or from the same month last year, or compared to the Office for Budget Responsibility (OBR) forecast, or subject to a Bank of England downgrade or IMF re-forecast. Third, the national insurance problem. By raising tax on employers’ national insurance in the autumn budget, the Labour government now “owns” low growth, whereas until that point it was the legacy of the previous Tory government.
But perhaps the biggest challenge is that in economic terms, it’s almost impossible to “bring growth forward”.
Most UK GDP comes from household spending, which is why in the past chancellors have cut VAT or other taxes in order to put money in people’s pockets. But that works less well during or after a period of high inflation which has eroded savings. The minimum wage going up is likely to be offset by the national insurance effect on overall wage growth, and prices aren’t due to come down soon. So the most animal of British animal spirits—the UK shopper—is likely to stay in hibernation for some time. Another favourite Keynesian alternative for moments of low growth is to increase government spending. Well, we are already trying that—probably stretching it to its limits—and there’s no visible bump in growth ahead in the short run.
That leaves two choices for growth. First, net exports, which just got harder post-Brexit and, despite warm words with Brussels, are some way off boosting our fortunes. Then there is business investment. This has long been the UK’s Achilles heel, and bravo to the government for finally getting serious about it. There’s a flood of announcements now on-stream, from AI, to industrial strategy, to Mansion House reforms and clean energy action plans, to the new elixir of it all—planning reform. The OBR’s take on all this is that it will likely bring real results—in seven to 10 years’ time.
What to do about those politics? Should you change the chancellor? That won’t make any of these headwinds go away. She’s also the one who cares the most about growth. Should you change the subject? Run the government and the next election on the back of public services improved rather than growth achieved? Good idea, but without better growth it’s not clear the government can afford better public services.
Here’s a political strategy for fighting back and creating some tailwinds. First, pick a number to watch that you really can move. I don’t know if Labour can move the GDP number overall—and even if it does, it’s unlikely people would care. But it can and should move the business investment number. Britain has had good growth before with high consumer spending and low business investment. It’s the equivalent of a sugar rush, and without good nutrition it has been unsustainable. This time, get Britain on the way to economic health with a number that takes the sting out of the monthly Office for National Statistics (ONS) release. Second, sharpen the retail offer of growth to voters. Create growth they can touch—in jobs, high streets and training. The formal GDP numbers may lag behind this visible change, but wouldn’t that be the right way round for once? Finally, strike more deals to counter bad stats. Line up investment announcements by UK companies one after the other in a perfect grid to gain momentum. Stories beat statistics every time. And in this case, stories build momentum and confidence that have a direct bearing on the statistics pretty quickly.
Of course, you could ignore all this. Ignore the political laws of gravity and stick with economics. Wait three years before policy today bears any fruit. Take the political pain now for the economic gain later and do a victory lap before the next election. Donald Trump wouldn’t go three days without making the weather. Good luck Keir Starmer should he try to tough it out for three years.
