Mike Emmerich casts an eye over Chancellor Rachel Reeves’ economic reset.
This post was originally published in The MJ
Rachel Reeves' speech this week was billed as the economic reset moment. It did its job up to a point. She started with a courtly bow to President Trump. This set the tone for what followed, subliminally communicating: I don't want to have to say this, but I've no choice. She has been forced by the global stage into an important reality check.
In life you can only ever really do what you want to do if you pay enough attention to doing the stuff you really have to. Life is about trade-offs.
The longer-term growth potential of the economy may lie in making every region of the country world class in things it is good at. But too much of that, in too many places, is simply not investment ready – if it exists at all beyond vague hopes.
This speech focused on nearer-term realities. Reeves had no real choice if she wanted to use Government money borrowed from nervous international markets. She had to major on plausible and large-scale projects. The greater South East is constrained. Growth can happen here more easily than in other places. We must do what's needed to get back on a growth track: Oxcam and airport expansion included. The fact that most of what she announced wasn't new is not important. She sounded serious about delivering, about being and staying bold. That is news.
But even this will take years. It seems likely that the £78bn dividend from Oxcam is plausible. Alas the 2035 horizon she described is challenging, but delivering on these priorities will create much-needed momentum. We have a growth narrative at last.
The deeper issue is whether advancing the ideas we have on the stocks – the necessary plan to kickstart growth – is going hand-in-hand with meeting the deeper challenge. That is the need to develop the next projects we need to plan for now for the longer term. Here the speech was less convincing, not least outside the South East. As a corrective to the Budget, it fares better than it does as the next articulation of the vision set out in the chancellor's Mais Lecture last year.
Transpennine rail as announced last year barely passes the minimum viable product test and only then for part of the North. There were other goodies in the speech. But anything on a scale of the £78bn Oxcam prize? Not even close. We need to move the decimal places to the right on our plans for the North and elsewhere if what we now look set to build in the greater South isn't going to widen regional differentials further. If we want more growth around the country, we're going to need to act like we need it, if not now, then soon.
There was a tell in the speech which reveals that some around the chancellor still put growth and what we used to call levelling up in different categories. The plan seems to be – substantively – the South now and elsewhere, well, when?
Here's the tell. In her speech Reeves said: ‘The last full-length runway in Britain was built in the 1940s.' That is not correct. In 2001 Manchester Airport opened its second runway. At 10,000 ft it is firmly in the category of full-length. This wasn't a casual error as much as a departmental Freudian slip. The chancellor doubled down on it in answering a question afterwards noting that there were no international landing slots at Heathrow or anywhere else. Also incorrect. Manchester has them and an airport with growth potential.
Of course, if HS2 was on the cards, Manchester would be a near south airport in the time it would take to deliver Heathrow. Sadly, it isn't. So, this whole issue is framed as a South East or nothing choice.
Reeves is a Leeds MP. It seems hard to believe that this came from her own thinking.
I'm a long standing defender of the Treasury and have more sympathy for their economic conundrums than most. But so long as we hold that what is possible in the short term in the South is the same as what necessary long term elsewhere, this country will never reach its full economic potential. More to the point, the siren voices of hard-right populists will push for fantasy solutions in the places that have lost sight of the sunlit uplands as a result. If so, recent elections worldwide suggest people will punish this Government and everyone who at least tries to own the hard trade-offs we face. Where then HMT colleagues?
This speech was a pragmatic response to what we need to do now. As a deliverable long-term national growth agenda, it falls short. The chancellor has created vital tools: her fiscal rules and the National Infrastructure and Service Transformation Authority among them. They need to be put to work. We need a spatial reboot of Reeves's Mais vision, an ironclad commitment to developing major projects in every part of the country and the near term means of preparing them for investment.