With all the events unfolding in Washington, a crucial annual event had been flying under the radar on the economic calendar last week. The World Economic Forum Annual Meeting at Davos was held between the 20th and 24th January, clashing with the events of the US Presidency. It was attended by global leaders alike, such as German Chancellor Olaf Sholz and Argentine President Javier Milei, as well as global business leaders. The feeling toward Britain has reportedly been that of uncertainty at Davos – with the government sending Chancellor Rachael Reeves to face the music at the conference of Britain on the global stage. Chief Secretary Darren Jones has claimed that those at Davos are enthusiastic about the message they are receiving from the British government – however this seems to be an attempt to play down the bleak picture the government is facing in regard to growth of the economy.
Decreasing employment levels is the latest headache the Chancellor has to contend with, as according to the S&P Global Flash UK purchasing managers index (PMI) shows a bleak picture for the fourth consecutive month in the private sector. In response to the budget, I made the point that the Chancellor’s measures simply did not stack up, it would seem there has been more of the same. The bigger issue here, however, is not the simple fact of detrimental budget measures affecting employment levels – it’s the fact that it completely contradicts the rhetoric coming out of the Treasury that this government means growth for the economy and growth for business.
There seems to be a bit of confusion about the directive of the economic consensus in Britain at the moment – something which was definitely a topic of interest at Davos last week. The lack of directive means that the world is struggling to have confidence in Britain, and for good reason, too. If what the Chief Secretary is saying is true then it shows that the world is keeping tabs on Britain as a potential area for investment, however they are being kept optimistically waiting for an actual plan to squash any doubts that they may have.
If Britain wishes to perform on the global stage, it must distance itself from the stagflationary label it has been given by those in the financial sector. Before the government can try to woo executives at places such as Davos, they need to establish their domestic economic agenda, and most crucially put a stop to the feeling of unrest in the City. The truth is that Britain as of present does not appear as an attractive area to invest – with policies such as the scrapping of the non-dom tax status causing an exodus of the wealthy in this country, which fails to build an image of sustained growth or worthwhile investment. The Chancellor is expected to soften this specific area of taxation after listening to concerns, however the main growth agenda for business still remains hazy despite this shift on the policy levers. We will have to see if the Chancellor’s plans for growth unveiled on Wednesday actually provides business leaders with the confidence they need to put their trust in this government and the economy.
On Laura Kuenssberg last week, the Chancellor has continued the narrative of slashing the red tape on many shelved projects which could potentially unlock growth. There is no doubt that lack of new infrastructure and slow planning processes have been a real detrimental factor on the economy, including transport links such as HS2. Until the fundamental issues in infrastructure planning in this country are addressed, the plan for growth will not work – as the country cannot grow if it is not given the facilities to do so.
If the government are to run with the main message of growth, the figures from the OBR and IMF must not contradict them within the next six months to a year – something which has been the case in their first six months in office. The Chancellor has hinted at better investment in local areas in a bid to boost local economies and therefore improve these figures, however it must be acknowledged that this is something which can only be achieved in collaboration with regional mayors and others in local government. The optimistic view on Britain from Davos shows how business leaders are willing to invest in the United Kingdom in the future, however a grip on public spending and a tangible growth plan has to be seen before that can happen.
This growth plan was unveiled by the Chancellor in a speech from the Oxfordshire base of Siemens Healthineers, where she announced pretty radical plans to boost growth, such as support for the third runway at Heathrow and development between Oxford and Cambridge to create a British Silicon Valley of sorts, as well as other infrastructure investment. These plans will grow the economy if they get up and running – however the Chancellor is going to face the stark reality that the previous Conservative governments also faced, that being the fact that in this country planning is a slow process, and many may get the axe before spades even be put into the ground.
The political fear here is that these are pretty long–term investments. Of course these are necessary and are something which this country has lacked, especially in contrast with our European neighbours. As these are long–term investments it is going to be a substantial amount of time before people feel any benefit of the growth plans, which may make it look like the Chancellor is not doing anything to stimulate growth. The only political play really possible for the Chancellor in the interim is to announce short–term plans for growth to keep her growth agenda alive, as well as keep hammering home the message of long–term growth.
The Chancellor has seemed to have gone from the hot seat and being on the brink of getting the sack to becoming the individual who seems to be driving this Labour government, so I’d trust she knows exactly what to do to get out of this upcoming political storm. Now that the seeds of long–term investments have been planted, the Davos elite may be more receptive to invest in Britain the next time the Chancellor is in town – but one speech will not be enough, and further investment will have to be sought to really ensure the confidence of business leaders and those in the City.