Growth

 Rachel keeps on going on about her budget was a budget for growth so I thought I would look objectively at what Governments can do to stimulate growth and see whether she is talking bollox or whether there are foundations for growth.

So let's start with "What is growth".  She should mean economic output however I cynically suspect she actually means growing the size of the state.

So what is the definition of Economic Output?

    Economic output is the quantity and quality of goods or services produced in a given time period

OK in order for the economy to grow the UK needs to sell more stuff or charge higher prices for the same  stuff.

So if we have high inflation then prices will rise and in theory economic output will increase or if the pound becomes weaker we should in theory export more since our stuff will be cheaper.

So what does the internet say about the conditions for stimulating economic growth?  It says you need the following things:

Productivity

An increase in productivity, or output per hour worked, can increase the overall size of the economy

• Workforce size

  An increase in the size of the workforce can increase the overall size of the economy. 

Physical capital

• Infrastructure such as factories, transport links, and machinery can reduce costs, improve labour productivity, and increase economic output. 

Natural resources

• Natural resources, such as oil, can boost production capacity and economies. 

Technology

• Technological change and advancement can significantly impact economic growth. 

Tax cuts

• Tax cuts and tax rebates can put more money into the pockets of consumers, which can increase businesses' revenues, cash flows, and profits. 

Education and training

• Investing in education and training can help youth transition to decent jobs and match labour market demands

So let's look at these.

Productivity has been  problem in the UK for decades.  All governments for decades have been striving for growth but it's been very elusive.  Cheap immigrant labour has meant investment in capital items which improve efficiency has been limited.  The UK is very service oriented  which tends to not lend itself  to capital investment to improve efficiency. 

So what was in the budget to improve output or lower the cost of employment? 

Well actually nothing.  In fact the budget increased the unit cost of labour eg increased minimum wage and also increased the "tax" employers have to pay for the privilege of employing someone.  So clearly these steps are not going to stimulate economic growth but rather the opposite and discourage economic growth.

Next is Workforce Size.  What was in the budget to increase workforce size?  Well nothing.  Subsequently Labour are taking very Conservative steps to "punish" people who refuse to work.  The underlying assumption here is there are jobs for the people.  With employers now reviewing employment due to increase labour costs we are likely to see a workforce contraction not an expansion.

What about Physical capital?  If Government invests in Physical Capital projects then that may improve economic efficiency.  Labours GB Energy looks like a load of hot air that will not improve efficiency - it may subsidise energy but then why go to the trouble of building wind farms etc - simply subsidise business energy costs.   Again I see very little the government is going to reduce energy costs.  The UK has the highest energy prices in Europe.  Higher than Germany which is a mess.

https://www.gov.uk/government/statistical-data-sets/international-industrial-energy-prices

The UK industrial energy price is 25p / kwh compared to Germany at 15p / kwh, Sweden 7p / kwh. We are seeing the consequences of this with Tata Steel closing the Port Talbot steel works.  The USA is circa 5p / kwh and they have seen significant economic growth since the pandemic whilst the UK has stagnated.  There's a direct correlation between energy prices and economic output.  So why are the UK energy prices so high?  Well environmental tax levys,  windfall taxes, reliance on imported gas, no nuclear strategy etc. In fact I would say expect things to get a lot worse not better.

Similarly Labour has killed or stalled key infrastructure projects such as the Lower Thames crossing. Admittedly Government are crap at projects. Take Hinkley nuclear reactor.  A standard Chinese design which they build in 3 years at about £5Bn.  Ours will take 20 years and £30Bn.....

There are hints at what Rachel's plan is in her Mansion House speech.  She wants to raid pension fund to invest in these infrastructure projects by forcing your pension to be used as capital for these projects - basically another kind of gilt as the bond market is starting to turn against government debt.

OK natural resources are next.  Here the Uk doesnt have much which is of value nowadays.  Government policy on oil gas and coal is to not use it and rather import it making our energy more expensive.

Technology.  Well the UK doesnt have much technology to make us more productive.  AI might improve productive and hence reduce the size of the workforce (higher unemployment).  We are reliant of USA (or Chinese) AI tech giants.  AI is power hungry so it wont be based here - it will be based in low cost energy countries like Sweden. The UK might be a market leader in pharmaceuticals but that isnt improving economic output for the whole country.

Tax cuts - well that's obvious there were none.

And finally education and training.  Again not much here.

So I struggle to see how Rachel's budget is a budget for growth - it's a budget for recession.

This is probably reflected in the growth data since Labour came to power - just 0.1% compared to the outgoing Conversatives 0.3%.  The economy is contracting. Expect economic turmoil not growth.  Rachel simply saying and insisting that it will stimulate growth is wishful thinking.  Maybe she has got a fairy godmother who will waive her magic wand and say "Rachel you shall have economic growth". Meanwhile in the real world.....