Year in Review
This year growth went mainstream. Long a concern of economists and governments, 2024 saw the new Labour Government elected with a mission to create the fastest growing economy in the G7. So how has it fared? Still a core element of the Government’s policy plans, the UK’s prospects for growth seem shaky as the year comes to an end. In October, the Office for Budget Responsibility (OBR) forecast Gross Domestic Product (GDP) to have grown by 1.1% this year and to grow by 2% in 2025. Yet, there is some concern that these - arguably meagre - estimates may have been too generous. In November, the Treasury’s survey of independent forecasts found an average of 0.9% growth for 2024 and 1.3% for 2025 and real GDP has largely remained flat. Growth is vital to improve public services, increase wages and raise people’s standard of living. Next year, the Government needs to show that they are laser- focused on improving our economic prospects, to get us out of this growth rut.
The Budget was 2024’s defining moment for the UK economy. The Labour Party’s first budget in over a decade laid the foundation for how the Government would grow the economy by introducing greater investment in the public sector. To much chagrin from business, this required raising their taxes. The Good Growth Foundation’s pre-Budget polling found that the public was largely signed up to the Government’s “difficult decisions” to control public spending, with 50% agreeing with the sentiment (rising to 67% of Labour voters) and nearly 7 in 10 believing the country’s finances are in a bad place. But concern from business is showing - with recent reports blaming the Budget for falling business confidence as well as reductions in hiring. Some also indicate that the economy contracted ahead of the Budget because households and businesses reduced spending due to uncertainty regarding the Government’s plans.
Whilst this may seem all doom and gloom, there is a way out. By laying the foundations for enhanced employment rights and investment in public services, skills and infrastructure the Government may move business to prioritise efficiency in the long-term. In turn, boosting productivity and creating growth. The Chancellor’s Mansion House speech also outlined, in part, how the Government aims to increase investment in much needed infrastructure projects and firms with high growth potential. The large pools of capital created through the consolidation of public service pension pots may boost investment in large scale infrastructure and allow for greater risk-taking when it comes to smaller businesses. However, the implementation of the stated commitments to place targets on investing some of this money into local economies remain to be seen.
Perhaps, the problem the Government is facing is that we expect it to turn the tide quicker than is feasible. Having bet so much political capital on growth, any sign that it may be going the wrong way may be seen by some as a direct failure on their part. Change takes time and comes in stages. This year the Government has made tough decisions to fill the £22 billion black hole in public finances they inherited. But next year it will need to focus on growing the economy in a way the public can see and feel to reap any rewards.
The Government is already beginning to change tack in this direction. The first milestone in the Prime Minister’s ‘Plan for Change’ was to “raise living standards” across the country. Our research, out at the start of 2025 shows signs that this is a much more meaningful approach for the public, rather than simply talking about growth as an abstract number. Without a greater focus on what a more prosperous economy will mean for the people it should serve, Labour risks falling into the same trap as the Democrats in the United States. President Biden was able to deliver solid economic figures but failed to ensure this prosperity was felt by voters. It is not enough to just ask “how will this grow the economy?” when devising policy - one must ask “how will this improve people’s lives?” throughout the process.
