Labour's botched growth plan: Reeves must use the tax system to incentivise invention, enterprise, and innovation: ALEX BRUMMER

Labour’s Economic Growth Strategy: Defence and Housing in Focus

Amidst the political discourse of the Spring Statement, the Chancellor presented the nation with two avenues for economic growth. Labour’s strategy envisions the UK becoming a defence superpower and anticipates that planning reforms and housing targets will augment growth by 0.2 per cent by the culmination of the forecast period. This dual approach to stimulating the UK economy highlights Labour’s key priorities for national advancement.

Defence Sector: A New Engine for Growth

The emphasis on defence expenditure as a catalyst for growth is markedly influenced by geopolitical factors, notably the stance of Donald Trump, rather than solely Labour’s pre-election objectives. President Trump’s criticisms of NATO have compelled Keir Starmer and Reeves to acknowledge the UK’s defence industries as strategically vital, shifting away from perceiving them as socially undesirable.

Empowering UK Defence Champions

The UK possesses established defence leaders in companies like BAE Systems, Rolls-Royce, and Babcock. These firms have already gained prominence due to the Russia-Ukraine conflict, tensions in the Middle East, and the AUKUS security pact.

An increase of £2.2 billion in spending for 2025-26, previously declared, will largely be financed by substantial reductions in the overseas development budget, set to decrease to 0.3 per cent of national output by 2027.

Defence Spending in Context

While David Cameron once championed boosting the UK’s aid budget to the UN target of 0.7%, positioning Britain as a leader in international development, this vision is now significantly দূর distant. Nonetheless, the UK’s defence expenditure remains modest compared to the United States at 3.4% of GDP and Israel at 5.3% (amidst ongoing conflicts).

Investment in Defence Technology

To expedite progress, the Chancellor is pledging £400 million to propel UK defence technology forward from July, concentrating on cutting-edge armaments incorporating autonomous systems and Artificial Intelligence (AI). However, prior neglect of UK defence and national security enterprises, many of which were acquired by private equity and foreign entities, has created a considerable deficit in the nation’s capacity to develop advanced defences.

Loss of Key Defence Assets

Satellite innovator Inmarsat was acquired by American interests. Submarine sonar pioneer Ultra Electronics was taken over by private equity firm Advent (operating under the Cobham name), and Cambridge-based cyber-security specialists Darktrace were sold to Thoma Bravo, another private equity group.

More recently, the future of Chemring, a provider of sophisticated aerospace defences, has faced uncertainty.

UK defence technologies are finally receiving long-awaited attention. Yet, this intervention may be perceived as belated. Furthermore, Labour’s approach appears to lean towards allocating public funds to the Ministry of Defence as the primary solution.

A more effective strategy would involve the Chancellor leveraging the tax system to stimulate invention, enterprise, and innovation across the broader economy by enhancing Research and Development (R&D) tax incentives.

Housing and Planning Reforms: A Slower Path to Growth

Labour’s secondary driver for economic expansion is less ambitious. The much-needed planning reforms are a positive step. The recent approval for the Lower Thames Tunnel, a £9 billion infrastructure project, exemplifies the type of long-term investment the country requires.

Challenges to Housing Targets

However, significant doubts persist regarding the government’s ability to meet its manifesto pledge of constructing 300,000 homes annually. This goal appears challenging, especially as housing starts are predicted by the Office for Budget Responsibility to decline from 265,000 in 2023-24 to 192,000 in the current fiscal year.

Overcoming planning obstacles would represent considerable advancement. Developing on ‘grey land’ might offer some relief, although concerns about rapid development, highlighted by issues like those in Corby, warrant careful consideration.

Taxation and the Housing Market

A major impediment to homeownership remains the current tax framework. The Chancellor’s removal of stamp duty exemptions poses a significant barrier to resolving bottlenecks in the housing market.

The discontinuation of government-backed initiatives like Help to Buy will not facilitate improvement. Opting for construction on greenfield sites, such as rural areas with limited job opportunities, presents an easier but potentially less beneficial approach.

Industry’s Perspective and Government Policy

Labour’s conviction that government mandates can generate growth seems overly optimistic. Despite being in power for nine months, the widely anticipated industrial strategy from Labour has yet to materialize.

Missed Opportunities for Investment

Indications are not promising. When faced with the opportunity to support a £450 million AstraZeneca vaccine manufacturing facility in the UK, the government failed to provide the necessary financial backing. Consequently, Britain’s largest listed company chose to expand its investments in the US and China instead.

Need for Pro-Enterprise Tax Policies

The current administration appears to lack a clear understanding of how to utilize tax incentives to foster enterprise and entrepreneurship.