Spring Statement was “a wasted opportunity to sustain the recovery”

Following Rachel Reeves’ Spring Statement today, The Growth Commission has criticised the Chancellor for wasting an opportunity to make the recovery more sustainable and reiterated calls on the Government to eradicate barriers to growth which ministers themselves have chosen to impose.

However, the 13-strong body of independent economists has nonetheless welcomed the Chancellor’s more optimistic tone, but warned that the Middle East crisis may hold back growth.

Douglas McWilliams, Growth Commission member and co-author of Prosperity Through Growth, said:

“Before the Middle East crisis arose, there was a reasonable chance that growth this year would match the OBR’s forecast. Clearly growth prospects are on hold while oil prices are shooting up, though we hope that the end of the crisis will bring a resumption. But our prediction is that, over the longer term, growth will stutter because of the Chancellor’s failure to adopt policies supportive of the economy. The cyclical recovery is likely to prove fragile unless it is supported, not hindered, by policy. The restrictions on oil and gas development in the UK now look especially short-sighted.

“It is good news that the Chancellor has made no further announcements that might damage the economy after her unfortunate Budgets of 2024 and 2025. And the economy is at least growing. But the growth is at risk from ideological policies – particularly those that damage competitiveness and employment. Today is a wasted opportunity to sustain the recovery which is already at risk from the impact of higher oil prices as a result of events in the Middle East.”

Growth Commission Chairman Shanker Singham said:

“While signs earlier in the year hinted that the economy could finally be recovering, it is critical that the Government clear away continuing barriers to growth. Ahead of a succession of Budgets since 2023 The Growth Commission has recommended the measures which ministers should prioritise – not least planning reform, tax reform and regulatory reform.

“The Chancellor again doubled down on dynamic alignment of regulations with the EU. This would only make sense if three conditions were fulfilled: the UK trading only with the EU, the EU’s regulatory system being more pro-competitive than anything the UK could come up with, and other countries thinking the EU’s regulatory system is sufficiently pro-competitive so as not to constitute a trade barrier – yet none of these is true. We have estimated the economic effects of this rash policy of dynamic alignment with EU regulations and find that it would snuff out the emerging recovery. We urge the Government not to pursue that, and instead to investigate the many alternative options that would be far less damaging”

Growth Commission member Ewen Stewart concluded:

‘‘Today’s statement is hugely complacent. Self-inflicted damage has consistently been done through increasingly onerous employment legislation, high energy prices as a direct result of Net Zero policies and now attempts to re-align with EU rules.

“The employment market remains very weak, especially for the young. Policy choices are simply compounding these challenges and, regrettably, today’s statement did nothing to break that cycle.”

Last week the Commission published a briefing paper, Policies to sustain the cyclical recovery, with a raft of policy proposals to boost the prospects of economic growth, including:

• Bringing central government spending under control
• Revising employment rights to create a fair balance between employer and employee
• Freeing up planning and housing regulation to get developers building and landlords investing
• Making energy cheaper and more abundant and allowing development of oil and gas in the UK
• Financing higher education in such a way that it does not discourage graduates from getting productive jobs
• Reforming the tax system so that it limits the penalties paid for success and encourages the young and talented to stay in the UK
• Avoiding anti-growth own goals in the regulatory sphere such as aligning with EU regulations