In with a chancellor: dissecting Britain’s growth plan

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The Economist. Hello and welcome to the Intelligence from the Economist. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. An overwhelming number of countries have some kind of national day, a celebration of their founding or independence or the overthrow of tyranny. In Australia, the celebrations have been getting increasingly fraught and now they're getting political. And we'd like to introduce you to arXiv 1945. It's a new interactive series that sifts through the annals of the Economist and the and revived the history of 80 years ago, when the Second World War was starting to come to a dramatic close. First up though.

We did it.

When Britain's Labour Party won in last summer's election, optimism abounded. I don't have to tell you that the previous few years had been economically tricky and growth has been sickly for nearly two decades. The hoped for savior came in the form of Rachel Reeves, the new Chancellor of the Exchequer. Now, a bit more than 200 days into the new Labour government, the optimism has faded, growth has gone nowhere and just about nobody liked what was in miss Reeves little red box of plans presented in October.

This budget raises taxes by 40 billion pounds.

Investors are reading the room a sell off in bonds ramped up in the first days of this year.

It spiked yields on long dated British government bonds are at their highest in decades. That's put government finances under pressure.

So when Ms. Reeves landed in Davos for the World Economic Forum to hobnob with the Wall Streeters and asset managers and pension funders, a tough sales job lay ahead. She's certainly been on message. Britain is open for business and single mindedly focused on growth. What exactly does that mean? Though our Editor in Chief, Zanny Minton Beddoes wanted to drill down beyond the talking points.

So Chancellor, you're here in Davos to persuade the world's business leaders in this remarkably warm mountain village that Britain's open for business and that you are single mindedly focused on growth. I've heard you say it many, many times. You're an economist. You know that economists have different views on what's the main necessity, what's the main focus. What is the Reeves theory of growth for Britain?

My theory that what is needed in Britain is a more active supply side approach to improve the productive capacity of our country. We need to strip out of the way the barriers that are inhibiting investment into Britain and investment by businesses already in Britain. That's where government need to get involved, to remove those barriers and then allow businesses to do what they do best, which is to allocate capital to find productive things to invest in. But for too long there's been too many constraints and too many things holding that back.

Let's focus on the elements of that supply side. You can have improvements in human capital, you can have improvements in productivity. One of the striking things about Britain post Covid is that we have an incredibly high share of people who are not working. Does that need to change? Are there too many people not working in the UK and do you need to tighten the rules to get more people into the labour force?

Yes, we do need to get more people working. There's a number of ways to do that. Of course. Welfare reform is part of that. One of the things I announced in the budget was a number of trailblazer projects working with some of our mayors to help better target job support based on local labour market needs, rather than a one size fits all policy for the whole country. It's also why we are rolling out reforms on childcare, because if you look at the different groups of people who are underrepresented in the labour market, we've got people retiring early, we've got 1 million young people not in education or employment. We've also got a lot of women with children who are not either in the workforce or they're not working the hours that they might be able to if childcare was better.

One of the other ways in which you can boost growth is by encouraging people to go into higher skilled jobs and by moving away from a low wage economy. And it's something that you have focused on a lot. As I look at your budget and where obviously the main tax increase was national insurance, which hit employers of low wage workers three times as hard as high wage ones, is the logic of that actually a pro growth logic that what you're doing is saying to firms, don't hire low skilled workers, invest in capital instead?

I wouldn't put it quite like that. We needed to raise revenue at the budget. I was really clear all the way through the election campaign that we were not going to be increasing taxes on working people. That did mean that the tax increases did have to fall on business and some of the better off individuals. But there has been a lack of investment in robotics, in engineering, in AI, in tech, by businesses in the uk. Our most productive firms in Britain are competitive and comparable with the most productive firms in the world. But we've got too many with low productivity and often that's because they are not taking up the latest technologies and ideas and we need to diffuse that technology that there is to those firms.

But if that wasn't the logic, because I've been really scratching my head about why this was the centerpiece of your budget. If your focus is, as you keep telling me or telling the world, growth is your number one focus. Because this was not a pro growth budget. This was a.

Well, wait a second. I mean, what was the alternative? Right, the alternative. No, no, no, Let me say this because I think this is really important. Returning stability to the public finances is absolutely essential for stability and stability is absolutely essential for economic growth. Now, I've heard a lot of criticism about the budget. What I haven't heard is any serious alternative. We had to put a public finances on a firm footing, otherwise you'd be back in the situation that Liz Truss led us into.

Chancellor, with respect, in the budget, you increased spending. You call it investment, but actually you increased spending on public services. You could have not done that and you could have got stability a different way. You could have raised a different set of.

But here's the point, Zanny. The previous government was spending money, but they didn't have a way of paying for it. So if we had have not done that, it would have actually been cut to public services. We did put aside money in the budget for capital investment, £100 billion extra over five years. But this government will be the first government for a long, long time to actually balance tax receipts with day to day spending. We're getting a grip of day to day spending.

I absolutely agree that although I think the dividend from your stability has probably been less than you expected and certainly many people expected, but if you just look at the tax increases you put in place, I think it would be hard to find an economist who said that the tax policy, which is the policy over which you have the most direct control, was really a pro growth tax policy.

Well, as a Chancellor, I have to make sure that the sums always add up. And during the election campaign, I said the first step that I would do to return growth to the UK economy would be to return stability to the UK economy. Returning that stability gives us a chance now of making People look at Britain with a different lens.

When you walk around Davos here, virtually nobody mentions Britain. It's a kind of an afterthought. And it's not the place that people are talking about saying, oh wow, this is the most exciting pro growth policy that we see. One of the senior people in one of the world's biggest asset managers said to me yesterday she doesn't have a story. What's the bumper sticker version of this? What is the bumper sticker version? Why Britain? Why is it going to grow?

Britain is going for growth and we're removing the barriers that make it hard to do business in our country.

And are you being radical enough? And I ask this because twice in the last 80 years the UK has been the radical redefiner of public policy after the Second World War. Right? The UK with the welfare state and then the Thatcher revolution. Is there going to be a Reeves revolution that will be laying out what is an advanced economy's recipe for growth? Or are you going to be seen as someone who is just too cautious and too timid?

I don't think what we're doing on planning, on regulation, on capital markets reform is timid. It is ambitious. It's doing what no government in Britain has done for a long term and that is prioritizing growth, making it the number one mission, removing those barriers that make it too hard for businesses to do business in our great country.

To hear the fuller version of that interview, along with analysis of Ms. Reeves strategy from Zanny and our business affairs editor, Rachana Shanbog, listen to this week's subscriber only. Money Talks, our sister show on business, finance and economics. If you're not already a subscriber to Economist Podcasts plus, wow, what a great time to get in there. It might be Friday, but here at Intelligence Towers we're still beavering away. To make sure you've got an engaging listen for tomorrow's weekend. Intelligence. This week we sit down with a colleague of mine who's ended up with the informal title of Death Correspondent. She's been covering the tricky and troubling debate around assisted dying in Britain for four years now. The hard fought legislation that allows some people to choose to die has finally passed. Now she has to ask, will it accomplish what so many people had hoped for for so long?

Australia Day is known as a day for beers, barbecues, beach, the things Australia is best at. There are fireworks held in some places.

Eleanor Whitehead is our Australia and New Zealand correspondent.

But it's also known as a day of heated political debate. And there's a reliable debate that it generates here every year. And that is because the date that it commemorates, January 26th is the landing of the First Fleet of British settlers, including many convicts, in Sydney in 1788. And so it's commemorating the start of British colonization of modern Australia. And to many people, that's the kind of foundation of what is a successful and genuinely incredibly multicultural nation. So something that's worth celebrating. But to lots of other people, including indigenous activists on Australia, celebrating the anniversary, the birthday of colonization seems wrong and it seems hurtful because the Brits arrivals mark the start of the violence and dispossession of their people. So there's been a debate here for years about whether to move Australia Day to a less contentious date.

So you've given a sense that there has long been attention around this, but also a sense that it's been changing recently.

Yeah. So the backlash against Australia Day has been growing over the past few years here, and you can see this on several different fronts. So every year there are protests which thousands of Australian Australians, both indigenous and non indigenous, join against what they call Invasion Day. Companies are also increasingly allowing staff to swap their days off if they don't want to observe Australia Day as a holiday. And some governments here are changing how they observe the dates as well. So the state of Victoria, for example, no longer holds a parade for Australia day. And in 2022, the centre left government that's led by Anthony Albanese revoked a Conservative directive that forced councils to hold citizenship ceremonies patriotically on Australia Day. And since then, 80 or more councils have moved those events out of solidarity with indigenous populations.

So there's a strong political angle to all of this now.

Yeah, and this is fertile territory, I suppose, for the right to complain about the way that a pious left wing is dismantling Australian traditions, heaping shame on the country's history. So this year an election is approaching. It's due by May, a federal election. And the Conservative Liberal Party has inserted the Australia Day debate into the campaign. So the opposition leader, Peter Dutton, talks about woke CEOs trying to cancel the celebrations and his party, the Liberal Party, would go back to insisting the councils hold the ceremonies on Australia Day. He says this would be a sign of pride and nationalism in Australia.

Would we reinstate the requirement for councils to hold citizenship ceremonies on Australia Day?

You bet.

So this is a position that he's held for several years, but he does campaign against wokeness on other fronts as well. So in a previous job as Defence Minister, he talked about what he called a woke agenda in the military, and specifically he was against teas that were being held in support of gay rights. He talks now about woke up banking executives setting environmental targets. He objected to one recently that denied Forestry Group alone on environmental grounds. And he's also pledging to scrap Labour's 2030 emissions reduction target. He says children are being preached to and indoctrinated on all sorts of agendas in schools. So it's a recurring theme in his election campaign.

Forgive me for seeing it through this lens, but all of this sounds like lots of the same culture war rhetoric that we hear coming out of America.

Yeah, there are definitely Trumpian overtones to this. It has its own flavour in Australia as well, I think. This week Dutton talked about how the referendum on the indigenous voice to Parliament in Australia was a turning point in Australia on wokeness. So that was the vote, you may remember, on the advisory body that the labor government aimed to enshrine in the constitution here, which in 2023 Australians voted resoundingly against. So Dutton argues that this was a turning point that Australians are sick of being spoken down to and vil for whatever opinions that they might hold by PC police.

This is turning and I think there is going to be a new revolution that comes with the Trump administration in relation to a lot of the woke issues that just aren't cutting it around kitchen tables at the moment where people can't pay their bills.

He says that the referendum campaign here and now Trump's return to the White House as well, are starting a backlash against wokeness in Australia, which bodes well.

For Mr. Dutton when that federal election does come.

It's hard to say, because plug in culture wars in Australia only goes so far because of its electoral system. So Australia has a compulsory electoral system and that does mean that politicians basically have to appeal to the middle ground, to the kind of moderate voter that in other countries a politician might bank on not turning out to vote. And the general thinking is that so far this has helped to protect Australia from the more extreme populist convulsions that we've seen in countries like Britain or America. That said, Peter Dutton's not the first Australian politician to try and whip up anger against elites. This happened in the 1990s as well, when John Howard, who was a hugely successful Conservative prime minister, built a base by pitting what were called the Aussie battlers, which is a term here for working class people, against affluent latte sipping urbanites. And it is possible that, as Peter Dutton argues, voters who are struggling to make ends meet at the moment will feel some sympathy for these kind of anti woke arguments, as they seem to have done in America as well. And certainly on the issue of Australia Day, polling suggests that a good majority of Australians and a growing majority as well want to keep the holiday as it is.

Eleanor, thanks very much for your time.

Thanks so much, Jason.

In January 1945, 80 years ago, the Second World War was entering its seventh year.

Fraser McIlraith is the author of the Economist's Archive. 1945.

Fighting raged in Europe as Allied armies liberated large parts of France and Belgium from Nazi control. The Red army was pushing west from the Soviet Union.

Action in the East Russia launching a gigantic land defensive pointed across Poland and aimed at Berlin.

Meanwhile, the Allies campaign in the Pacific was gathering momentum and America was planning for an invasion of Japan. The outcome of the war would transform the international balance of power politics and the global economy in ways that still shape the world. With arXiv 1945, we're republishing excerpts from the Economist's archive week by week as the Second World War rolled to an end. It's a time capsule of how we reported on the war's final year, and we'll be adding a new entry every Friday for the next next eight months. Already this month we've published entries on the state of Britain's wartime economy, the war in the Pacific and fighting in France. 80 years ago. This week the economists journalists were busy preparing a new issue to go out on Saturday, January 27th. It included a report on the region of Upper Silesia, most of which is in modern day southern Poland, which Germany held but was coming under attack from the advancing Soviet army. Upper Silesia, we wrote then, was an industrial heartland.

Within this region there are the richest coal deposits of the whole continent. A dense gas and electricity grid reaching as far as Breslau depends on Upper Silesian coal.

And we reported that Upper Silesia's zinc deposits were thought to be the largest in the world. Its importance as one of the main engines of Germany's war economy was clear.

It cannot be doubted, therefore, that during the last two years Upper Silesia has developed numerous new industries. Apart from new chemical plants, large factories for all kinds of war material have sprung up all over the area, usually being situated away from inhabited places and well camouflaged by forests and hills.

The loss of the region, the Economist.

Wrote, would be a very severe blow to Germany's war industry.

It would also mean liberation for thousands of prisoners. The region was home to a number of the Nazis concentration camps, including one of the biggest and most notorious, Auschwitz. As we went to press that Saturday in 1945, the Red army was liberating it from the Nazis. More than 1 million Jews, Poles, Roma and others had been killed there during the Holocaust. And as the Red Army's advance continued, the extent of the atrocities perpetrated by the Nazis in occupied Poland and elsewhere would become clearer still.

To find Archive 1945, just open up the Economist app or visit economist.cominteractive. That's all for this episode of the Intelligence the show's editors are Chris Impey and Jack Gill. Our deputy editor is John Joe Devlin and our sound designer is Will Rowe. Our senior producers are Rory Galloway and Sarah Larnyuk. And our senior creative producer is William Warren. Our producers are Maggie Khadifa and Benji Guy. And our assistant producer is Henrietta McFarlane. With extra production help this week from Peter Granitz, we'll all see you back here tomorrow for the weekend. Intelligence.