5th July. A day the Conservative
Party will not want to remember. In the 2024 UK General Election, the
Conservative Party were crushed- losing 251 seats across the UK. Yet, it was a
day the Labour Party will most certainly remember, winning 412 seats and
gaining a seat majority of 174 seats. One of the most important topics in this
year’s general election was the economy. For the past 14 years, under the
Conservative party, the UK economy has faced many difficulties- from the
economic volatility caused by Brexit to the Cost-of-Living Crisis to the
Housing Crisis. It is fair to say that the UK’s economic stability under the
previous Conservative Party has been strained and damaged. Yet, what will this
new Labour Government do differently? With kickstarting economic growth their
number one objective in their manifesto, how will Keir Starmer and his Labour
party change the UK economy?
In this blog, to show how the Labour
Government plans to revolutionise the UK economy, I will separate this into 2 main
sub-topics:
·
Labour’s plan for Sustainable
Economic Growth
·
Green Economy
Labour’s Plan for Sustainable Economic Growth
Before understanding how the new Labour
government will increase UK economic growth, you need to know the situation of
the UK economy before this Labour government. The UK’s GDP growth was only 0.1%
in 2023, with the UK having the lowest GDP growth in the G7. To further this, the UK’s productivity levels have flatlined in recent years. In 2023, the UK’s unemployment rate had risen
by almost 0.5% to 4.1%. In 2022, the UK’s inflation rate was at its highest
since 2000, at almost 8%. This Labour government has inherited an economy currently in a weak position, but what will they do to recover
the UK economy?
One way Labour plans to stimulate
more economic growth in the UK is through an increase in investment in the
private sector. The new government will establish a National Wealth Fund, which
will be capitalised by £7.3 billion over the next 5 years. This Wealth Fund
will invest in UK industries to allow for growth to occur. However,
at first, it may seem as though £7.3 billion is only a small amount of money.
This is true, yet, the main objective of this National Wealth Fund is to
encourage private investment since this initial investment from the National
Wealth Fund will mobilise billions of pounds of private investment. The Labour
Party aims for every £1 of investment from the National Wealth Fund, it will
encourage £3 of private investment. This new policy will not only generate returns
for these private investors but also create more jobs now and into the future,
allowing British workers to reap the benefits sustainably. To further increase
investment, the Labour Party will implement policies so that pension funds can
be domestically invested in UK markets. Through more investment, UK
businesses and industries will have more financial capital. Thus, enabling
these industries and businesses to increase production scale, leading to
economic growth and the creation of jobs.
Another way how the new Labour Party is
planning to create sustainable economic growth in the UK is fiscally through
taxations and budgets. The new Labour government has vowed to not make any
immediate changes to VAT or Income Tax but will cut corporation tax to 25%, the lowest for any G7 country. Furthermore, the new Labour Party government will legally
guarantee that only one major fiscal event will be made per year and this major
fiscal event will be reviewed by the Office of Budget Responsibility. Well, what
is the purpose of this? Cutting corporation tax enables businesses to have
more profit which can be reinvested into their research and development sector.
This will allow for innovation and entrepreneurship to occur, leading to
growth. This cut in corporation tax will also increase the competitiveness of
the UK business space internationally, attracting international firms to set up
in the UK. This will allow for long-term economic growth and employment to be
created. The new government has specifically said that only one major fiscal
event will be set out each year after seeing the turmoil caused by the
previously ruling Conservative Party who set out multiple budgets throughout a
year. Multiple budgets being set out throughout the year creates uncertainty
within the economy which can reduce business confidence and limit private
investment within the economy. Through this guarantee, the new Labour
government will ensure the UK economy is secure and will not face any major
economic disarray e.g. after Liz Truss’s mini-budget.
Transport infrastructure is an extremely
important factor in determining how well an economy performs. Good transport
links allow for the efficient transport of goods and services, enable UK
businesses to gain access to markets to other regions in the UK and also
enable UK firms to gain access to more resources (e.g. labour market
expansion). Under Conservative rule, there have been multiple transport
failures ranging from the cancellation of the HS2 railway project to the
underinvestment in road networks across the UK. What will the new Labour
government do differently? The new Labour government will set up a new
government body called ‘National Infrastructure and Service Transformation
Authority’ which will set out, design and oversee new transport infrastructure
projects in the UK. Furthermore, as part of the National Wealth Fund, the
Labour government will spend around £1.8 billion to upgrade ports in the UK
over the next 5 years. However, the new government has not planned to make any named
road network improvement schemes or any railway projects. As the world becomes
more and more digital, communication infrastructure is becoming equally
important as transport infrastructure. The new Labour government has made an
ambition to achieve full gigabit and national 5G coverage by 2030 but will
push to try and achieve this before that date. Through an improvement in the UK’s
communication infrastructure, the new Labour government is trying to create
more jobs but is also ensuring to improve the UK’s competitiveness globally,
attracting overseas firms to be established in the UK but also encouraging
foreign investors to invest in UK firms. This allows for economic growth to
occur now and into the future.
Green Economy
Since the turn of the 21st century,
more and more emphasis has been placed on the environment and global warming.
This has directly caused our global economy to be transforming into an economy
that is becoming more and more green. So, how is the UK economy changing in
this sense? Since 2000, the UK’s energy production from renewable has increased
to around 40% in 2024 and the UK’s CO2 emissions per capita have more than
halved. It is fair to say that the UK has taken strides in moving towards an
environmentally friendly, green economy. Yet, more has to be done and what will
this new Labour government do? First of all, this new government has vowed that
the UK will become carbon-neutral by 2030, a much more ambitious aim than the
previous Conservative government who said this would occur by 2050. But, what steps
will the new Labour party take to reach this target?
This new government has set out a Green
Prosperity Plan which is set to make the UK economy energy independent. One of
the parts of this plan is the Energy Independence Act, this new Labour Government
has vowed to heavily invest into renewable energy sources (e.g. nuclear energy,
wind energy, solar energy) and energy stores (e.g. carbon capture and storage,
hydrogen storage) to ensure the UK maintains energy security. This new
Labour government says that this new Act will create 500,000 jobs, indirectly
affecting the UK’s economic growth.
Furthermore, a new publicly-owned clean
energy company will be created called GB Energy. This public company will
harness renewable energy sources to deliver energy security within the
UK. Just like the purpose of the National Wealth fund, the government will initially
invest in this company to de-risk and incentivise private
investment to occur, therefore accelerating its growth. The new government
plans for GB Energy to ensure long-term energy security by creating energy
supply chains across the UK which will further create thousands of jobs in
areas across the UK. The new government plans to use GB energy to
invest in leading-edge green technology and revolutionise the UK’s renewable
energy sector. As this begins to occur, the Labour government sees the
potential for the UK to become a clean energy export superpower, dominating globally,
through the use of GB energy.
Inflation has been a hot topic regarding
the UK economy for the past two years with the Cost-of-Living Crisis deeply
affecting millions of households across the UK. A fairly important factor
contributing to this is energy bills, which in recent times has had a 6% weighting
in the CPI (Consumer Price Index). According to the statistics from the Office
of National Statistics, in 2023, average energy bills had doubled since 2018. This
large rise in energy bills has contributed to the rise in the inflation rate in the
UK. Thus, this new Labour government will set out the Warms Homes Plan which
plans to cut household energy bills by up to £500 by installing insulation in
more homes in the UK and investing to upgrade energy efficiency in the UK. To
further this, the setting up of GB Energy will save UK households £93 billion in
the next decade. These are very ambitious, planned outcomes however, the new
government did not show any proof of these predictions.
To further this, let us look at the fiscal
plan of the Green Prosperity Plan. Labour predicts that this plan will cost a
total of £4.7 billion. However, the only source of funding for this is the Windfall
Tax on UK oil and gas companies which will only bring in a revenue of £1.2
billion according to predictions. In reality, this could be much lower since many
of these companies will do tax evasion. Based on this, this means that the UK
government will have to borrow at least £3.5 billion or more to fund this Green
Prosperity Plan. This will put further pressure on the UK’s national debt,
negatively impacting the UK’s economic security; something which the new Labour
government is planning to improve significantly in their new brand of ‘securonomics’.
In conclusion, it is clear to say that this new Labour government has inherited a weakly-performing economy that is currently struggling as a highly developed country. Yet, with the ambitious economic plans of the new Labour government which plans to positively transform the UK’s economy through economic growth, whilst also moving towards a greener future, it Is fair to say that the UK’s economy has a brighter future ahead. Yet, only time will tell whether or not this will occur.
Bibliography
Kickstart
economic growth – The Labour Party
The
Starmer Project: Labour’s surprisingly bold economic agenda (ft.com)
Labour manifesto 2024:
12 key policies analysed - BBC News
Q&A:
What do we know about Labour’s economic policies? | Evening Standard
United Kingdom | Data
(worldbank.org)
How
the Labour Party Wants to Change the UK Economy - The New York Times
(nytimes.com)
politicsandpolicy_2024-5-20--what-economists-think-of-labours-economic-policy.pdf (lse.ac.uk)
Hi, this is my first blog!! Thanks for taking the time to read it and I hope you found it informative. Please write down any feedback in the comment section below.
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