A great investment summit is needed to boost UK GDP

A lot rests on the UK government’s aim to boost growth and catapult the UK into first place in the growth tables for the leading G7 economies. The right kind of growth that brings increases in per capita real incomes and is based on more productive capacity at home to deliver great goods and services is much to be desired.

If this growth materialised it would mean a natural rise in tax revenues without having to hike tax rates or impose new taxes. This, in turn, would help pay for more public service provision where it is needed – and more public investment in services and infrastructure where these are in state hands. It needs opportunity for the private sector to make profitable investments and to structure investment products for savers based on them.

More investment is the key to unlock growth

Chancellor Rachel Reeves set out how she wished to speed growth this before the election. She wishes to restore stability as a prior condition for making the UK a more attractive place for investors from home and abroad, as she thinks the previous government’s changes of prime minister and policy followed by an early election was putting people off.

The outgoing government pointed out that UK growth outperformed the rest of the G7 in the first quarter of 2024, although the UK had been lagging the US badly in recent years along with other European economies. Ms Reeves aims to deliver a big increase in total investment, mainly coming from private-sector sources, given the budget limitations. Last week, she went to New York and Toronto to meet prospective investors and set out her stall. She and Prime Minister Keir Starmer plan a large Invest in the UK seminar on 14 October to boost inward investment to the country.

It was unfortunate for The Chancellor that whilst she was away Mr Starmer felt he had to turn the full attention of government and media to controlling criminal damage and riots – as this was a disappointing news background for the stability message to North American businesses. It is important the actions taken end the violence promptly and provide a better backdrop to the October seminar. It would be a big boost to confidence and activity if the October summit brings in substantial new money for new UK capacity.

So far, the government has made several announcements that seek to boost growth, but also a number that will reduce it.

Measures announced so far to boost growth

• The government has proposed increases in state investment through the modestly enhanced budgets available to the National Wealth Fund and Great British Energy compared to the sums still available to the British Business Bank and the UK Infrastructure Bank, set up for similar purposes by the previous government.
• It has restated the old government’s 300,000 homes a year in 2025 as an annual target for the next five years – and has proposed some planning changes to deliver more home building plots.
• It has increased the amount of subsidy available to produce more investment in renewable energy in the next bidding round.
• Work has started on the 14 October private-sector investment summit.
• It will be recruiting more teachers and seeking more capacity in the National Health Service (NHS) and the Immigration service.
• It has indicated a wish to grant more and faster planning permissions for data centres.

Measures that could reduce growth

• The government has brought forward the end of sales of diesel and petrol cars to 2030, probably leading to earlier closures of internal-combustion engine car making capacity in the UK.
• It has continued the past government policy of facilitating the closure of all UK blast furnaces and new steel manufacturing.
• It will continue with the planned closure of all UK nuclear power stations but one by 2030 – and may not have Hinckley C working as a partial offset for a big loss of capacity in the next five years
• It has declined to offer financial guarantees or further support to Harland and Woolf, so there is likely to be a reduction in shipbuilding capacity as the business is broken up and costs cut.
• It has announced some cuts in public investment in roads to offset a small part of government spending increases.
• It faces the closure of the Grangemouth refinery and related petrochemical capacity.
• The British Investment Bank, which is a forerunner of the planned National Wealth Fund, produced a second year of losses. This shows the difficulty in finding good faster-growing investments that the private sector has missed.

There are plenty of headwinds against growth of industry in the UK. An economy already heavily dependent on services and service exports is likely to rely more on this success. A combination of inherited policies and the government’s own enthusiasm for a more rapid transition to UK net zero will see further losses of capacity in traditional energy, petrochemicals, steel and cars.

The strategy so far revolves around a 50% increase in housebuilding, which is unlikely to be achieved this year or next. There are issues with affordability and mortgage provision.

It assumes a rapid shift of energy production from fossil fuels to renewables. Here the UK remains import dependent for much of the engineering products needed for solar panels and wind turbines. The general thrust to more private investment is a good idea, but that requires more action to make the UK an even more favoured location for inward investment – and a place where UK-based savers want to make a bigger commitment to riskier investments than deposits and government bonds.