Can Rachel Reeves secure the investment Britain so badly needs in Davos?
These next few days at the World Economic Forum will prove critical for the chancellor and business secretary, writes James Moore – and, indeed, the UK economy
In the lead-up to the annual World Economic Forum in Davos, Switzerland this week, business secretary Jonathan Reynolds said in an interview: “We’ve got to be explicit and say the only way to turn around the UK’s growth performance of the last 15 years is attracting greater amounts of private capital.”
And he was unequivocally right.
No doubt chancellor Rachel Reeves will say something to the effect of: “The time to invest in the UK is now” – banging the same drum as Reynolds. But the million – or, rather, the six billion – pound question is: do the people who control the growth capital that the nation needs agree with her?
The international investors and multinational corporations sipping champagne and taking to the snowy slopes with their expensive skis aren’t much interested in words. They deal in spreadsheets and forecasts and a hard-headed assessment of where their interests will be best served in terms of returns.
In the same interview with The Observer, Reynolds said the UK was “a Goldilocks country”. The domestic business community would beg to differ. It has been howling about the three policy bears: tax increases, labour market reform and the ever-present monster under the bed known as Brexit.
The latter, at least, isn’t on Labour. But its approach – involving the same counterproductive posturing over “red lines” that the last lot were so fond of – is one of the most quietly disappointing aspects of a government that has shown a troubling tendency to trip over its own shoelaces.
Reeves’ decision to plug the hole in the public finances she inherited by taxing jobs through employer national insurance contributions (NICs) was arguably another example of this. It left a deep-purple-coloured bruise. Parts of the government’s labour market reform package are welcome – but it goes too far for the liking of the businesses charged with dealing with a vast swathe of new rules. They feel these as another kick and claim that they will deliver more bruises.
The international investors the UK delegation will be courting may be somewhat more relaxed about them than they are about the taxes or the trade barriers with the UK’s biggest market (the EU), that Labour has (so far) failed to take any meaningful action towards lowering. Many of them deal with still-more-constricting regulations on the continent. But I’d be lying If I said they won’t be viewed as a negative.
Don’t shoot the messenger here. I merely seek to illustrate the way these people think – people whose capital is needed if the economy is to be dragged out of the slow lane. Reeves and Reynolds know that. They and their boss Keir Starmer have correctly identified that only investment can take UK plc to where they want it to go.
The state is planning to chip in, funded by debt. But borrowing to invest is good borrowing. This is something Reeves has got right and the market’s concerns about the extra IOUs she plans to issue will be eased if the government can demonstrate that it is capable of delivering returns.
To that end, Labour unveiled what it billed as “the UK government’s credible, 10-year plan to deliver the certainty and stability businesses need to invest in the high-growth sectors that will drive our growth mission” at the launch of a green paper in November.
The response of the Confederation of British Industry (CBI) was that this was “broadly welcome”, so there’s that. But Labour also needs private capital to provide the economic lift it needs to improve Britain’s public services and counter the siren song of populism.
The promise of no more tax rises to cope with the fiscal crisis caused by the bout of distemper on the bond markets, which has significantly hiked the UK’s costs, will, I think, help to boost Reeves’ credibility as an economic steward.
Of course, the best way to tackle that bill would be to get rid of the pensions triple lock, which is simply unsustainable. Unfortunately, we’re only at the talking stage when it comes to reform. Politically, this will not be easy to accomplish – especially if it involves hurting vulnerable people.
It’s not all bad news. PwC’s latest CEO survey had the UK as the second-best place to invest, ahead of India and China, and the International Monetary Fund thinks that it will be Europe’s top-performing economy, despite its recent difficulties. Reeves and Reynolds are still in the game.
But to deliver the fresh bowl of porridge “Goldilocks Britain” needs if she’s to start climbing the economic league tables, they have work to do and credibility to restore. They have to show their words are backed with the sort of deeds investors approve of.
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