Britain will lose the race for growth under Labour
George Bernard Shaw reportedly described the UK and the US as “two nations divided by a common language”. When it comes to the respective approach towards business and growth, the saying has never seemed truer.
Keir Starmer and Donald Trump have both talked about betting the house on growth but Britain and the US are going about the task in two diametrically opposite ways.
In the UK, Labour is charting a path of higher taxes, greater regulation and pouring public money into an unreformed public sector. The Republican plan is the opposite, setting out ambitions to transform America with a radical pro-business programme for government.
The verdict from the markets has been almost instantaneous on both sides of the Atlantic. Business confidence has slumped in the UK and is now at its lowest level since the pandemic. In America, business confidence is up, and the stock markets’ emphatic reaction was to hit record heights. In fact on every single trading day since Trump’s win was declared, the pound has fallen versus the dollar.
Labour inherited the fastest rate of growth in the G7, but following a summer in which Rachel Reeves “trash-talked” the economy, growth has slowed significantly and in the quarter to the end of September, UK GDP per capita declined. There is every possibility that while the new US President is being inaugurated in January, the UK will be reporting a technical per capita recession as the result of Labour’s first six months in office.
The gulf is vast between the two nations too on the approach to co-opting the ferocious problem-solving power of business to unleash growth. In the US the eye-catching appointment of one of the planet’s most successful entrepreneurs, Elon Musk, in a double act with Vivek Ramaswamy to head a new Department of Government Efficiency to “pave the way to dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies” indicates a serious and disruptive approach to pruning public spending and removing red tape.
Such an approach if applied in the UK could in theory yield even greater dividends where state spending as a percentage of GDP is a much greater 44 per cent compared to only 37 per cent in the US. But in contrast, Labour have been steadily purging government of business appointees made by the previous government, having reversed the ambition to slim down Whitehall merely to its pre-Covid levels, and are about to unleash a 150-page trade union inspired Employment Rights Bill that will send the burdens on business ballooning.
Labour’s Cabinet has no experienced business figures in it – indeed the closest experience that most Labour MP’s have of business is standing outside one on a picket line. Not content with unleashing a two tier economy whereby the private sector takes the pain and the public sector gains, Labour are instituting the same approach to the mechanics of Whitehall.
Since the US election, Bill Ackman, one of the US’s most successful investors, has talked of non-US companies that are desperate to immediately create a presence on US soil as they are frightened to be locked out of the most important economy in the world.
There is no such bullish optimism in the UK. This week the Chairman of JD Sports, the only FTSE 100 top boss to have publicly backed Labour before the election, savaged Labour’s Budget for its increases in National Insurance, minimum wage and business rates describing it as a £5 billion a year hit that would cut back on investment, recruitment and headcount or lead to inflation. Rather than incentivising the entrepreneurial spirit essential for businesses, Labour are seemingly intent on crushing it.
The UK has much to be proud of. Historically we punch far above our weight in many business sectors. In a race versus the US, there is no reason with the right leadership why the UK could not aspire to win. However, the first part of winning a race is showing up and knowing in which direction to run. Despite having a six-month head start on the 47th President-elect of the United States, all the evidence is that the race for growth is one that the UK under Keir Starmer is about to lose.