Budget 2024: how the Chancellor can kickstart growth in Prospect’s industries

Rachel Reeves will deliver the first Budget by a Labour Chancellor since 2010 next week and it’s a particularly important one for Prospect members. 

It is true that the government faces a difficult inheritance – a sluggish economy, understandable resistance to tax increases in the wake of a cost-of-living crisis, and public services at breaking point.  

Our own members in the civil service tell us how a decade and a half of underfunding and pay cuts have left them desperately short of the staff and skills they need to deliver for the public. Our members working across the economy feel the consequences of this, but are also understandably wary of tax rises.  

Prospect members in the public sector constantly strive for greater efficiency but it must be recognised that years of real terms cuts to departmental and agency budgets will have meant loss of capabilities and services, and more cuts will do further damage. The government needs to use this Budget to set out how the forthcoming Spending Review will repair this legacy in the coming years so there can be optimism for the future.

There are no quick fixes. In the medium and long-term, the government is right to identify growth as the key to raising cash to repair our public services and raise wages and living standards for all.

And they are also right to pinpoint investment, both public and private, as the key to generating this. Prospect has long highlighted the UK’s poor investment performance relative to peers as a key factor behind the UK’s slowing growth and stagnating productivity. 

The future of regulation

Getting the regulatory framework right is part of the answer. Our members in energy, for example, know the barriers the planning system can present to getting vital projects moving.

This shouldn’t mean deregulation – it is, in many cases, about resourcing regulators properly so their expert staff can ensure environmental and other objectives are protected without adding to delay. 

Although less widely understood, modernising our employment and trade union regulations is a key plank as well: if workers can feel confident that they will be treated fairly and that their collective voice will be heard, the economy will be more dynamic, innovative and productive. 

Public investment to kickstart projects

But on their own these measures won’t be enough unless we use well-targeted public investments to kickstart projects, build business confidence and “crowd in” the necessary private sector finance.  

Whether we are talking about the energy transition, scientific R&D, or harnessing new digital technologies and AI across the economy, the private sector may have the biggest part to play but it simply will not happen on the scale and speed required unless the public sector takes a lead.

The public sector must take responsibility for building infrastructure and making markets, and where necessary taking direct stakes in the industries and businesses of the future.

The last government’s attitude to this urgent imperative was either blithe disinterest or negligent denial – it even planned to cut net capital investment in real terms (by about 7% each year) and as a share of GDP (from 2.4% to 1.7%) over the next five years.

Its lack of seriousness about meeting the challenges the country faces is not in doubt. The question is whether the new government will show it is different on this issue that is so key to all the other differences it wants to make – from boosting growth to ending austerity, improving health and expanding opportunities 

Fiscal rules: Prospect’s proposal

We have seen a belated debate about the need to ensure the government’s fiscal rules are not framed in a way that, perversely, would rule out the investment we need to secure growth, revenues and fiscal sustainability over the medium and longer term.

A number of options have been canvassed, many of which have merits. Here’s the option Prospect has submitted:

We propose that we enable different accounting for public investments and institutions that, as well as having a clearly defined public mission and rationale, generate significant revenue of their own. 

The most obvious candidates on the government’s agenda would be Great British Energy and the National Investment Bank, whose investments would, as well as boosting growth and productivity, generate direct cash returns through their sale of goods or services or the interest paid on their loans. 

This is not about getting anything “off balance sheet”. Of course, any such investments need to be transparent, accounted for, prudently planned and independently audited. But it makes no sense to treat borrowing for such investment in the same way as all other government borrowing, as the past government’s rule did. 

Implementing this simple, logical change could be transformative, unlocking the potential for urgent, strategic investments in key sectors that could catalyse the sea change in industrial innovation and development that the government wants to see. It would mark a historic break with the short-sighted approach to investment that has held Britain back for so long.  

By international standards, however, it would not be radical at all.

What we have proposed is broadly in line with standard national and fiscal accounting practices across the Western world. It is, for example, how Germany or France treat investments by KfW or Bpi France (their state-owned investment banks), and how the European Investment Bank is treated by the EU.

It is no accident that these are the countries with whom Britian’s poor investment and productivity record is so often compared. Even the US relies on locally-issued municipal bonds and state-level institutions like California’s IBank to support infrastructure and economic development, and is actively debating the creation of a new National Infrastructure Bank. 

A bright future?

Despite the noises of doom and gloom the future this could open for our country is a bright one. At Prospect we know that it is one within our grasp.  

Our members in the energy sector, for example, are impatient to get moving on vital clean energy projects that are ready to go and just need the green light.  

Our members in strategic, value-adding industries throughout the economy, from digital to creative, are brimming with the ideas, expertise and talent that could turn a more ambitious and long-termist financing environment into the business success and prosperity we all benefit from.  

And our members working in the civil service and key public sector agencies – from scientists and technologists to project managers and regulators – are ready to play their part. 

The Chancellor is right that, economically and fiscally, right now the UK is in a tight spot, thanks both to the dogma and the dereliction of years of maladministration by the last government. But if she takes the chance now to choose a different way forward, we could be in a much better place within the foreseeable future.

Mike Clancy is general secretary of Prospect