> Keir Starmer’s “defining mission” of spurring stronger growth in the UK economy relies on investment that so far is barely showing up. The British prime minister’s Labour government has ramped up planned spending on buildings, railways and IT, with Chancellor of the Exchequer Rachel Reeves committing an extra £120 billion ($160 billion) over five years to provide the infrastructure that the UK’s public services require.
> The problem for Reeves and Starmer is the government has pushed harder on low-return day-to-day spending while falling behind on the growth plan. Official data shows investment was 7.3% behind target in the five months since April, while borrowing to cover day-to-day costs like wages, benefits and debt interest is 28.7% higher than planned. The risk for Labour is the UK economy only truly logs the benefit of the spending spree after the next election due in 2029. With a recent projection putting Reform UK’s populist leader Nigel Farage on course to be Britain’s next prime minister, Starmer may see the boost from his economic strategy inherited by a political rival.
“At this rate, the best case scenario is the growth won’t show up until the next parliament or the back end of this one,” said Andrew Goodwin, chief UK economist at Oxford Economics.
> Labour’s waning popularity — and a round of local elections in May in which the governing party risks hemorrhaging seats — mean Reeves does not have the luxury of time. The chancellor needs to show the investment is being delivered at her Nov. 26 budget to counter the growth-strangling policies she’s expected to unveil. Reeves will have to raise taxes by more than £20 billion to fix a deterioration in her fiscal position since March, many economists believe. That comes after she already raised taxes by £36 billion a year last October. While fresh tax hikes may help fix the budget hole, they risk backfiring if they slow the economy. Both Bloomberg Economics and Capital Economics reckon her upcoming measures will knock 0.2% off GDP.
> “It is hard to see with our low levels of projected growth how we can stabilize our fiscal position,” Jagjit Chadha, economics professor at the University of Cambridge, told a National Institute of Economic and Social Research survey on Monday. Labour’s diagnosis of Britain’s economic malaise, which has seen growth in output per head slow to 0.5% a year since 2008 from 2.2% in the preceding 17 years, is straightforward. If you don’t invest in your home for a year or two, “it will look a bit shabby, but nothing bad will happen,” Treasury Minister Torsten Bell said in September. “Do it for 20 years and the roof will fall in. That’s what we need to start putting right.”
> Bell said the solution was for Britain to invest more in the future than it had in the recent past. Under Labour, public investment is due to settle at around 2.7% of economic output, the highest sustained level since the 1970s. Long-awaited nuclear power and carbon capture projects have begun, and the government says it’s deregulating planning in order to “build, baby, build.” There have been some promising signs. Gross fixed capital formation, the combined investment of both the public and private sectors, rose to 19.3% of economic output in the three months to June, its highest since 1997. That still puts it only ahead of Germany in the G7.
> But investment takes a long time to transform a country, when the government needs results today. Starmer talks about “a decade of national renewal” but faces judgment by the public in under four years. “You have to increase investment by an eye-watering amount as you are adding small sums every year to a very large number,” Goodwin said. Reeves’ £120 billion boost will lift growth by a paltry 0.14% at the end of the parliament in 2029-30, the Office for Budget Responsibility projects. For that reason, urgency is building. Former civil service chief Gus O’Donnell and other eminent figures said in a public letter last month that he government must invest at a “higher level needed to provide the foundations for a credible, serious plan for growth.”
> Committing the cash is one thing, but the real test is whether the money is deployed, and the evidence is patchy. Not only is Reeves undershooting this year but Labour’s target to build 1.5 million homes over the parliament looks in jeopardy. During the government’s first year in office, the number of new builds started in England was the second lowest since 2013. A more timely measure using requests for energy performance certificates on new dwellings has maintained a declining trajectory since the party came to power in July 2024. Business investment — which accounts for 85% of the UK total — has been slow to pick up, but there are signs firms are recovering from the shock caused by Reeves’ £26 billion payroll tax hike last October. A Barclays survey for the three months to June found almost all companies plan to invest, with the median increase almost doubling to 7% from last year.
> In a bid to bolster the investment partnership between government and corporate Britain, Reeves will probably avoid raising their costs again on Nov. 26, said Andrew Wishart, senior UK economist at Berenberg Bank. To catalyze private capital, Reeves is putting huge store in arms-length financial institutions: the National Wealth Fund, British Business Bank, National Housing Bank, GB Energy and UK Export Finance. She’s set ambitious targets for the NWF and BBB in particular. Since last year, Reeves has redirected £26 billion of direct state investment as “financial transactions,” to be delivered through the institutions in partnership with the private sector. The idea is to crowd in private money on projects from housebuilding to clean energy, lured by state underwriting, to multiply government firepower threefold. But the risk is growth from the investment comes too late. “They may not get a second term,” Goodwin said. “So the benefits accrue to the next lot.”
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> Keir Starmer’s “defining mission” of spurring stronger growth in the UK economy relies on investment that so far is barely showing up. The British prime minister’s Labour government has ramped up planned spending on buildings, railways and IT, with Chancellor of the Exchequer Rachel Reeves committing an extra £120 billion ($160 billion) over five years to provide the infrastructure that the UK’s public services require.
> The problem for Reeves and Starmer is the government has pushed harder on low-return day-to-day spending while falling behind on the growth plan. Official data shows investment was 7.3% behind target in the five months since April, while borrowing to cover day-to-day costs like wages, benefits and debt interest is 28.7% higher than planned. The risk for Labour is the UK economy only truly logs the benefit of the spending spree after the next election due in 2029. With a recent projection putting Reform UK’s populist leader Nigel Farage on course to be Britain’s next prime minister, Starmer may see the boost from his economic strategy inherited by a political rival.
“At this rate, the best case scenario is the growth won’t show up until the next parliament or the back end of this one,” said Andrew Goodwin, chief UK economist at Oxford Economics.
> Labour’s waning popularity — and a round of local elections in May in which the governing party risks hemorrhaging seats — mean Reeves does not have the luxury of time. The chancellor needs to show the investment is being delivered at her Nov. 26 budget to counter the growth-strangling policies she’s expected to unveil. Reeves will have to raise taxes by more than £20 billion to fix a deterioration in her fiscal position since March, many economists believe. That comes after she already raised taxes by £36 billion a year last October. While fresh tax hikes may help fix the budget hole, they risk backfiring if they slow the economy. Both Bloomberg Economics and Capital Economics reckon her upcoming measures will knock 0.2% off GDP.
> “It is hard to see with our low levels of projected growth how we can stabilize our fiscal position,” Jagjit Chadha, economics professor at the University of Cambridge, told a National Institute of Economic and Social Research survey on Monday. Labour’s diagnosis of Britain’s economic malaise, which has seen growth in output per head slow to 0.5% a year since 2008 from 2.2% in the preceding 17 years, is straightforward. If you don’t invest in your home for a year or two, “it will look a bit shabby, but nothing bad will happen,” Treasury Minister Torsten Bell said in September. “Do it for 20 years and the roof will fall in. That’s what we need to start putting right.”
> Bell said the solution was for Britain to invest more in the future than it had in the recent past. Under Labour, public investment is due to settle at around 2.7% of economic output, the highest sustained level since the 1970s. Long-awaited nuclear power and carbon capture projects have begun, and the government says it’s deregulating planning in order to “build, baby, build.” There have been some promising signs. Gross fixed capital formation, the combined investment of both the public and private sectors, rose to 19.3% of economic output in the three months to June, its highest since 1997. That still puts it only ahead of Germany in the G7.
> But investment takes a long time to transform a country, when the government needs results today. Starmer talks about “a decade of national renewal” but faces judgment by the public in under four years. “You have to increase investment by an eye-watering amount as you are adding small sums every year to a very large number,” Goodwin said. Reeves’ £120 billion boost will lift growth by a paltry 0.14% at the end of the parliament in 2029-30, the Office for Budget Responsibility projects. For that reason, urgency is building. Former civil service chief Gus O’Donnell and other eminent figures said in a public letter last month that he government must invest at a “higher level needed to provide the foundations for a credible, serious plan for growth.”
> Committing the cash is one thing, but the real test is whether the money is deployed, and the evidence is patchy. Not only is Reeves undershooting this year but Labour’s target to build 1.5 million homes over the parliament looks in jeopardy. During the government’s first year in office, the number of new builds started in England was the second lowest since 2013. A more timely measure using requests for energy performance certificates on new dwellings has maintained a declining trajectory since the party came to power in July 2024. Business investment — which accounts for 85% of the UK total — has been slow to pick up, but there are signs firms are recovering from the shock caused by Reeves’ £26 billion payroll tax hike last October. A Barclays survey for the three months to June found almost all companies plan to invest, with the median increase almost doubling to 7% from last year.
> In a bid to bolster the investment partnership between government and corporate Britain, Reeves will probably avoid raising their costs again on Nov. 26, said Andrew Wishart, senior UK economist at Berenberg Bank. To catalyze private capital, Reeves is putting huge store in arms-length financial institutions: the National Wealth Fund, British Business Bank, National Housing Bank, GB Energy and UK Export Finance. She’s set ambitious targets for the NWF and BBB in particular. Since last year, Reeves has redirected £26 billion of direct state investment as “financial transactions,” to be delivered through the institutions in partnership with the private sector. The idea is to crowd in private money on projects from housebuilding to clean energy, lured by state underwriting, to multiply government firepower threefold. But the risk is growth from the investment comes too late. “They may not get a second term,” Goodwin said. “So the benefits accrue to the next lot.”