Growth ought to be the priority for Rachel Reeves. Yet as the International Monetary Fund notes after its annual inspection of the British economy, progress is pedestrian.

The Government’s proposals, such as planning reform and building out infrastructure, are stuck in the slow lane of ‘formulation and consultation’.

Keir Starmer’s Government is so panicked by challenges from the Left and Right over welfare policy, such as the winter fuel allowance and two-child limit on benefits, that almost a year into government the growth dial barely has moved.

Labour has boxed itself in with insufficient fiscal headroom to accommodate change in global conditions or the national agenda. 

Pledges to confine budgetary decisions to one event a year have become a succession of mid-course adjustments. A multi-year public spending review is scheduled for June 11.

Britain’s output is 25 per cent below where it should be if trend growth prior to the Great Financial Crisis was maintained.

Fine margins: Chancellor Rachel Reeves and Labour have boxed themselves in with insufficient fiscal headroom to accommodate change in global conditions or the national agenda

The IMF argues that the slowdown is due to multiple causes, including ‘chronic under-investment’. It cites low levels of private R&D, limited access to finance for businesses to scale up, skills gaps and a deterioration in health outcomes. 

A lack of focus on R&D is a perennial problem for a country with a terrific record of innovation. Improved tax breaks for R&D, including full expensing for cyber and AI spending, is critical. 

Both our leading-edge pharma groups, AstraZeneca and GSK, regularly upgrade their R&D spend with good results.

It is astonishing that the UK, home to the most sophisticated financial sector in Europe, lags in providing funds for businesses to scale up. 

Our biggest banks, Lloyds and NatWest, are flush with cash. HSBC seized the opportunity to cater to the tech sector when Silicon Valley Bank failed in March 2023. 

The British Business Bank and National Wealth Fund ought to be facilitators working with the commercial banks. 

The Government keeps shifting the goalposts in Net Zero and defence priorities, and squeezing out other objectives. 

There is an awareness of the gap in skills and Make UK, representing UK engineers, applauds a 10 per cent lift in the apprenticeship budget. 

But the group notes that millions of pounds are collected via the apprenticeship levy but are ‘not spent on what it was intended for’.

The IMF suggests that a deterioration in health outcomes is among the problems. The Government hopes that by making access to sickness benefits less available it can entice some of the 1m people added to claimants since Covid back into the workforce. 

The underlying problem is the NHS itself, with poor outcomes and the insatiable demand from health workers for more pay. Deep-seated change, such as the social market model proposed by Reform, is beyond the capability of Labour.

More attention to prevention, such as making obesity medicines widely available, would be a start.

Common bond

The ‘moron premium’ on bond markets – this time Donald Trump, not Liz Truss – is forcing government issuers into change. 

Investors have become less tolerant of the high risks of carrying longer bonds, which have plunged in value, in their portfolios.

In Britain, the new-ish head of the UK Debt Management Office, Jessica Pulay, has signalled a move away from the longer 30-year-end of the market.

This year the average maturity is set to come down to nine years from the historic 14-year average. 

In the US, the price of the 30-year bond is down 3.5 per cent this year – the same as the tech-dominated Nasdaq – and 30 per cent off since Covid-19.

Champion bond issuer Japan, with a debt to GDP ratio of 236 per cent, is signalling a cut to its long debt offers. Yields in Tokyo fell sharply to 2.91 per cent on the report.

Bank holdings of core government debt across the globe have risen but not by enough to cope with the excess volumes.

The IMF calculates an exponential expansion with some $80 trillion outstanding. That’s quite an overhang.

Over here

Much attention has been paid to the 10,000 or so millionaires who have left these shores since Labour began its clampdown on wealth. 

Less notice is paid to people moving in the opposite direction with 6,618 US citizens this year seeking to join glorious Blighty. Wonder why?

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