Good afternoon. We’ve been waiting so long for the Budget that it’s tempting to think that when Rachel Reeves approaches the despatch box next Wednesday the skies will part over Westminster and a clarifying light will shine on Labour’s plan for government. If only.
While Reeves will unveil the broad fiscal scaffolding on which Sir Keir Starmer’s first-term ambitions will rest, most of the details shall remain obscured in a great thicket of Whitehall policy reviews and consultations that have been commissioned since Labour won the election in July.
There is barely a policy area of note that is not subject to review — fixing the health service, sentencing prisoners, identifying sites for new towns, empowering regulators, delivering an industrial strategy, improving skills and training, labour market reforms, planning reform — all of it is being chewed over and consulted upon.
(“We’ve embarked on a period of ‘National Reviewal’”, as the joke now goes in Whitehall.)
That’s largely because the spending review to be announced next Wednesday will only set departmental budgets for a year and is very much a “holding review”, according to officials, with the “big stuff” being pushed back into the three-year spending review that will now follow in the spring.
In fact, as Joe Owen, the director of impact at the Institute for Government think-tank and a former civil servant at the cabinet office, observes, from a Whitehall perspective, the last four months have largely been consumed with dealing with the past. Firstly addressing the fiscal inheritance from the Tories and the £40bn ‘black hole’ and then haggling over the one-year spending review.
The race is on
The real battle for the future starts in earnest after Wednesday’s Budget when departments are plunged into a multiyear review to cover the remainder of Labour’s first term.
And if economic growth is the founding mission of this government, then the industrial strategy consultation becomes a foundational policy from which many of the key policy areas — skills, infrastructure, housing and devolution — must take their lead.
Because, as Manchester university’s professor of public policy Andy Westwood explains, this month’s green paper on industrial strategy needs to crystallise rapidly if the government wants to start to build a narrative of transformation.
“The industrial strategy sounds abstract, but very quickly you shift from the conceptual to which projects, in which subsectors, you’re going to support. It boils down to having a plan to do something, somewhere,” he said.
The paper does promise to be brave. It identifies eight broad high-productivity sectors, but then promises “catalytic” government support in subsectors yet to be identified. As it says: “Decisions that government and business make in the short term will have lasting impacts, and there will be choices to make.”
That means the race is now very much on among industry and local mayors and trade promotion bodies to be identified as one of those subsectors — which, if the government is able to join the dots, should in turn attract investment, infrastructure support, a skills pipeline and maybe even a ‘new town’.
Joining the dots
That is the theory at least, and it presents the government — which has, thus far, earned a reputation for dithering and deferral — with a daunting set of interlocking bureaucratic, financial and political challenges.
Can it deliver what Westwood and Giles Wilkes call a “goal-oriented” industrial strategy in this excellent blog for the Productivity Institute, using a data-driven approach to identify where “investment might yield disproportionate results”?
After Rachel Reeves’s Budget departments are plunged into a multiyear spending review © Bloomberg
To make it really work, they must do this simultaneously alongside a multiyear spending review, a rebooting of the skills landscape, radical planning reform and in co-ordination with local growth plans being delivered by local mayors and authorities.
These elements need to flow together, adds Westwood. “Co-ordination is difficult in Whitehall at the best of times, but doing it all at breakneck speed in six months makes it even harder — but that is the challenge they’ve set themselves.”
(There’s a good graphic in this Institute for Government report, which gives you an idea of how a process might work — see figure 1.)
Being brave
On paper, this has the potential to be a visionary, transformational project. But to be effective it will rely on political courage, a strong centre, real support from the Treasury and — to quote Wilkes and Westwood — a government that “is rigorous, united, focused in delivery and ruthless about what isn’t working — to a degree that has not been seen for a long time”.
And it seems the scars of the past decade or more run deep. When I’m out with my reporter’s notebook, it’s fair to say that there is a shortage of confidence that this government is made of transformational stuff — though some of that reflects past assumptions rather than future potential.
In Whitehall, Number 10 still looks weak; the appointment of a new Cabinet Secretary, a vital position for co-ordinating this policy, is awaited. It is also clear that the prime minister, for all his qualities, is not a visionary: he won the election by ducking arguments, not making them.
Some officials are also scarred by the recent Budget process and the strange lack of vision from their new political masters. They were expecting more. Old hands observe, too, that the long-standing Treasury reflex is to be sceptical about an industrial strategy.
When talking to the CEO of an international advanced manufacturing company this week, this particular executive despaired at the lack of understanding in the Department for Business and Trade about the building blocks that underpin investment — infrastructure, skills and public commitment.
And the head of a regional UK trade promotion body fumes about the continued lack of clarity from the government on really core issues, like skills, and the frustrating lack of answers when trying to engage with it.
Let’s hope we’re in for a nice surprise. Doomsters aside, the next six months and the coming spending review are going to be absolutely critical if the process of ‘reviewal’ is to be turned into the promised decade of ‘renewal’.
Because as Owen at the IfG observes, the government is now facing a set of very hard choices about where it is going to place its bets.
“If you spread available resources too thinly, then you’ve chosen not to choose. To have a decent spending review you have to make those pointed choices, and then pull in the other policies behind them. Or you end up jam-spreading at a time when there is not much jam to go around,” he said.
Failure will take the form of indecision.
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Britain in numbers
Today’s chart comes from a British Chambers of Commerce survey which shows that the share of exporters reporting increased sales is at a three-year low.
That continued evidence of the headwinds traders are facing poses important questions for a government that has committed only relatively minor overhauls to the UK’s trading relationship with the EU, which remains by far our largest trade partner.
Small and medium-sized businesses are the key area of concern, according to the BCC, whose latest Trade Confidence Outlook for the third quarter of 2024 showed “a dip in SME exporters’ already poor performance on overseas sales”.
The government is promising a new trade strategy in March (yup, another review) but with big ticket trade deals off the table and the EU reset limited, it will need to focus on trade facilitation — better information for companies, faster digital transformation, removing regulatory barriers.
In (intimately) related news this week, a survey from the Strategic Banking Corporation of Ireland, which provides promotional finance to 60,000 Irish SMEs, has identified clear but unsurprising Brexit effects.
It found that since Brexit, 61 per cent of SME survey respondents said they had “reduced or even completely stopped” using suppliers based in Britain, while 34 per cent “have reduced or stopped selling to Britain”. And that’s before there’s a full trade border in place.
The State of Britain is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.
