Chancellor unveils a new era for economic growth

by Admin
July 8, 2024

The Chancellor has today (8 July) promised to take immediate action to fix the foundations of the economy, rebuild Britain and make every part of the country better off.

In her first speech as Chancellor, Rachel Reeves pledged to leaders of some of the UK’s pioneering industries to build growth on strong and secure foundations built on stability, investment and reform, and forged through a new partnership with the private sector.

Addressing the difficult economic inheritance this government faces, she committed to taking immediate action to drive sustained economic growth, the only route to improving the prosperity of our country and the living standards of working people.

Setting out her first steps to deliver on the government’s commitments in its manifesto that every action it takes will be based on sound money and economy stability, the Chancellor promised a new economic model that will grow the economy and keep taxes, inflation and mortgages as low as possible.

The Chancellor said had the UK economy grown at the average rate of OECD economies over the fourteen years from 2010, it would be £143.3 billion larger – worth £5,053 for every household in the country. This could have brought in an additional £58 billion in tax revenues in the last year alone to sustain our public services.

Taking decisive action, the government is today announcing a series of measures to lay the foundations for a dynamic, modern and growing economy, including taking urgent steps to build 1.5 million homes over the next five years and the immediate removal of the de facto ban on onshore wind in England, as part of its clean energy mission.

Chancellor of the Exchequer Rachel Reeves said:

Today I am taking immediate action to fix Britain’s economic foundations.

By growing our economy we can rebuild Britain and make every part of the country better off.

Deputy Prime Minister Angela Rayner said:

Our country is under new management and a new era for economic growth will be built on secure foundations.

The Chancellor and I will work in lockstep to kickstart the economy, unleashing housebuilding and powering local growth.

Change starts now. We will unblock the bottlenecks and drive forward a transformational package to build the homes people need.

Energy Security and Net Zero Secretary Ed Miliband said:

Every family has paid the price of the ban on onshore wind farms in higher energy bills. This ban has undermined our energy security, put costs on people’s bills – especially those on lower incomes – and held us back in our fight against climate change.

This Government is wasting no time in delivering the bold plan we need to take back control of our energy; boosting our energy independence and cutting bills for families as we tackle the climate crisis.

Getting rid of this ban and giving priority for planning permission for much needed infrastructure sends an immediate signal to investors here and around the world that the UK is back in business, an immediate step in our mission to make Britain a clean energy superpower.

The government is taking swift action on its central growth mission by announcing the following:

Planning

The government is taking swift action to identify and unblock key ‘stalled sites’ to get large housing schemes moving forward, starting with four sites across England to unlock over 14,000 homes: Liverpool Central Docks, Northstowe, Worcester Parkway and Langley Sutton Coldfield.

The Chancellor has also welcomed the Deputy Prime Minister’s commitment to make the economic benefit of development a central consideration when intervening in the planning system. This starts today by recovering two appealed planning applications for data centres in Buckinghamshire and Hertfordshire.

To facilitate this new approach, the Deputy Prime Minister will also write to local mayors and the Office for Investment to ensure that any investment opportunity with important planning considerations that comes across their desks is brought to her attention and to the Chancellor’s. This will help to ensure the planning system can unlock major schemes from clean energy projects and transport infrastructure to film studios and art-entertainment venues.

The Chancellor has also confirmed that the government will support local authorities with 300 additional planning officers across the country.

Further announcements will be made in the coming weeks to accelerate the development of housing and infrastructure, including launching a landmark consultation on an updated, growth-focused National Planning Policy Framework to include mandatory housing targets and a requirement to review greenbelt boundaries where necessary to meet them.

These will prioritise Brownfield and “grey belt” land for development to meet housing targets where needed, partnered with new ‘golden rules’ that will make sure the development this frees up will also deliver thousands of affordable homes, including more for social rent.

Critical major infrastructure

The current planning regime acts as a major brake on economic growth which is why the government will make the changes the country needs to forge ahead with new roads, railways, reservoirs, and other nationally significant infrastructure.

The government will set out new policy intentions for critical infrastructure in the coming months, ahead of updating relevant National Policy Statements within the next 12 months to provide certainty to industry. We will legislate to ensure they are updated at least every 5 years.

The government will also build on the Strategic Spatial Energy Plan which is being developed by the National Energy System Operator to speed up the roll out of clean power, and will seek to expand the use of spatial planning to other infrastructure sectors.

The Chancellor has asked the Secretaries of State for Transport and Energy Security and Net Zero to prioritise taking decisions on critical infrastructure projects which are with them now.

To go further, to help speed up delivery on infrastructure such as transport and energy, the government will review how it can unlock critical infrastructure, without weakening environment protections.

Alongside this, the government will make sure energy projects are prioritised in the planning system and consult on including onshore wind power developments in the Nationally Significant Infrastructure Projects (NSIP) planning regime.

Further details on ending the de facto ban on onshore wind will be set out later by the Department for Energy Security and Net Zero, and the Department for Levelling up, Housing and Communities.

Martha Lane Fox, President of the British Chambers of Commerce, said:

Fixing the foundations of the economy can provide businesses with the stability and certainty they need to unleash a wave of investment to create growth and new jobs.

Labour’s pledges to create an industrial strategy, improve trade relations with the EU, and boost skills training all have capacity to make a huge difference.

Today’s commitment to deliver large scale infrastructure at greater pace, especially green energy projects and more housing where people want to live, is very welcome.

But policy must be backed up with better skilled and resourced planning departments to deliver this step change. That’s why the pledge to fund an extra 300 planning officers is so important.

It’s also why the BCC’s Planning Skills Fund has been set up in partnership with Government. It will develop an additional pipeline of new and upskilled planning talent to boost growth in our local economies.

Additional information

For more information, read the Chancellor’s speech text

Due to previous restrictions, only two onshore wind turbines have been built in England in almost a decade, with projects in the pipeline shrinking by 90%.
The Chancellor used some facts based on Treasury analysis in her speech to industry leaders today. In the interests of transparency we are publishing more information on this analysis, including some facts not specifically referenced in her speech. We have also set out details of the methodology and sources used for this analysis.

GDP

The UK economy would be £143.3bn (6.3%) larger on an annualised basis in 2024Q1 if it had grown at the OECD average from 2010Q2 to 2024Q1:

This is £2081 per person, or £5053 per household.

Tax receipts would have been £58bn higher in 2023-24 (holding the tax burden constant).

The UK economy would be £159bn (6.9%) larger on an annualised basis in 2024Q1, if it had continued to grow at the average rate seen between 1997Q2 and 2010Q2:

This is £2303 per person, or £5593 per household.

Tax receipts would have been £64bn higher in 2023-24 (holding the tax burden constant).

International forecasts

UK GDP would be 1.4% (£32bn) larger by the end of 2025 if it grew in 2024 and 2025 by the G7 average (compared to the IMF’s UK forecast).

UK GDP per capita would be 1.5% (£497) larger by the end of 2025 if it grew in 2024 and 2025 by the G7 average (compared to the IMF’s UK forecast).

Investment

Since 2010Q2, UK business investment averaged at 9.9% of GDP (compared to the G7 average of 12.6% in this period).

If UK business investment as a share of GDP were at the G7 average since 2010Q2, business investment levels would have been £57.1bn higher on average, per year.

Living standards

If UK living standards, as measured by Real Household Disposable Income (RHDI) per capita, had grown by the same amount between 2010 and 2023 as they had between 1997 and 2010, they would have been £4,238 (16.6%) higher in 2023.

The level of UK RHDI per capita in 2023Q4 would have been 7.7% higher had it grown by the same amount as the G7 average between 2010Q2 and 2023Q4.

Methodological notes

GDP

UK GDP calculations are based on ONS GDP estimates in chained volume measures, seasonally adjusted – as published in the 2024 Q1 Quarterly National Accounts dataset. UK average quarterly GDP growth rate is calculated as the geometric mean growth rate between 1997 Q2 – 2010 Q2. OECD average growth rates are calculated as weighted averages of the OECD aggregate quarterly real GDP between 2010 Q2-2024 Q1 (expenditure approach, 2015 USD PPP converted, calendar and seasonally adjusted).

Per person statistics use ONS resident population: 2024 mid-year estimates while household figures use data from the ONS families and households in the UK 2023.

Estimated tax receipts are derived by assuming the higher level of real GDP would feed through one for one into a higher level of nominal GDP in 2023/24 (assuming the level of the GDP deflator is unchanged) and applying the National Accounts tax receipts to GDP ratio of 36.1% (the level recorded in 2023/24) to the nominal GDP. This assumes the tax richness of the economy would be unchanged.

International forecasts

UK and G7 GDP and GDP per capita forecast data are drawn from the IMF April 2024 World Economic Outlook (WEO) dataset. GDP(PPP)-weighted averages are used for G7 growth rates, using IMF 2023 GDP estimates from the April 2024 WEO dataset. ONS GDP and GDP per capita data for Q2-2023 – Q1-2024 was used to estimate £ equivalents for growth rate differentials.

Investment

Business investment figures across the G7 are calculated by taking total Gross Fixed Capital Formation (GFCF) from country-level national accounts data and subtracting dwellings GFCF and government GCFC (excluding government investment in dwellings to avoid double counting). These adjustments help produce more accurate comparisons across countries as they align more closely with the ONS definition of business investment. This methodology has been developed in partnership with the Bank of England, and was included in the February speech “Worlds apart? UK inflation and monetary policy in an international context” by external MPC member Megan Greene.

Living standards

UK Real Household Disposable Income per capita is taken from the ONS UK Economic Accounts time series. Figures are provided in 2023 prices. Real values in the ONS dataset are in 2019 prices, which have been converted to 2023 prices using the real-income deflator (Nominal household disposable income / Real household disposable income).

G7 average RHDI per capita growth is calculated from OECD Household indicators dashboard (gross measure, chain linked volumes, calendar and seasonally adjusted). This growth rate is applied to UK data as reported in the OECD dashboard. G7 data is only available up to Q4 2023.

The following business attended the speech today: