
Growth Commission response to Rachel Reeves’ speech on Growth
Responding to the speech delivered by Chancellor of the Exchequer Rachel Reeves today, Shanker Singham, Chairman of the Growth Commission, gave the following reaction:
“The Chancellor’s rhetoric on growth is excellent and echoes that of the Prime Minister, but words are not enough. Robust action is required and the Government needs to be honest about the trade-offs involved in promoting pro-growth policies: this means accepting that the current course it is pursuing in areas like Net Zero and many of the measures included in the Employment Rights Bill conflict with its stated aim of putting growth first.
“The Growth Commission made a series of recommendations to the Chancellor ahead of her Budget in October and she took far too few of them on board and specifically implemented a series of policies which we warned would be detrimental to growth, such as the rise in employers’ National Insurance contributions, increasing the minimum wage and the changes she made to Capital Gains Tax, pensions, Inheritance Tax and the taxation of non-doms. She urgently needs to revisit what we proposed last autumn because our calculations found that her Budget would cause a hit to GDP per capita (as a percentage of annual GDP) of 0.4% in 2025/26, 3.4% in 2030/31, 3.8% in 2040/41 and 4.1% in 2045/46.
“We need to see comprehensive regulatory reform and lower taxes, not just announcements. We need to see real planning reform that includes zonal planning and ways to deal with the problems presented by statutory consultees and Judicial Review. Regulation in energy needs to drive competition and a reduction in costs.
“I suspect Rachel Reeves is about to find out that wealth is incredibly hard to create but very easy to destroy.”
On specific areas of her speech today, he added:
On the Growth Duty on regulators
“The Growth Duty on regulators from the previous government was a good example of good words which were undermined in their implementation. The Growth Duty on regulators now includes all kinds of sustainability requirements and assessment of social value factors that render it at best meaningless and at worst a negative growth duty. The Chancellor cannot and must not shy away from these calculations and the fights that will determine their resolution. Most of those fights will be against other government departments and those resistant to change in the corporate world and the NGO community. The issue of the third runway at Heathrow will be a good test: if the runway is agreed subject to all sorts of growth-killing environmental objectives, she will have failed.”
On regulation more broadly
“Ensuring that regulations deliver competition is the crucial supply side requirement. As the Growth Commission has noted now on three occasions, the impact of improving domestic competition is three to four times greater than improving the trade settings, although these do also boost growth. Government departments and status quo promoters who do not want to change need to explain to the public how their equities are more important than specific economic gains from reform. The regulatory information office and CMA should evaluate the cost of the stock of UK regulation and the cost of the EU pipeline, so we can identify those regulations that need to be eliminated or diverged from.”
On environmental regulation
“There is a trade-off between Net Zero and growth-promoting policies. Net Zero requires costly policies like CBAM and inefficient emissions trading schemes and the like that limit growth. Politicians need to be honest with the public about these trade-offs. The UK has the highest energy costs in the developed world and that is killing growth – yet they are so high precisely because of the Net Zero policies initiated years ago.”
On labour market flexibility
“There is also a trade-off between growth and the labour protections which the Government is about to impose on business. Our models show that labour market flexibility is one of the biggest drivers of improving competition, and therefore increasing GDP per capita. The new bill on employment protection takes the UK in the wrong direction.”
On the importance of an independent trade policy
“The trade and supply side regulatory reform that the Chancellor talks about means that the UK must have an independent trade policy, which means we cannot be in the or a European customs union. It also means retaining regulatory autonomy, which rules out re-entering the EU single market or pursuing regulatory alignment with the EU.”