Looking for growth in all the wrong places
The Spring Statement failed to deliver the radical reform needed to scale up Britain's productive capacity
Towering columns
At CapX, Gerard Lyons believes the Spring Statement has only delayed the hard choices Rachel Reeves will have to make to balance the budget.
Debt, spending, tax and borrowing are all high and can’t credibly keep rising. Spending must be brought seriously under control and stringently assessed. If not, then borrowing yields will rise and tax resistance will force people to continue to leave or retire. The opposition to spending cuts may be followed by pressure for higher taxes instead. But the tax take is already at an all-time high, and our welcome progressive tax system is already seeing high earners foot the bulk of the income tax bill. We also tax property heavily, albeit stupidly, through stamp duty that hits turnover.
It’s necessary to push back against proposals for new taxes, such as wealth taxes, as if they offer an easy way out of the UK’s problems. The reality of course is that they don’t, instead being a diversion from the issues of curbing the growth in public spending and raising economic growth. Few countries globally have a wealth tax, with the number in the OECD falling from 12 in 1990 to three now – and in those, thresholds have risen and rates fallen. Like most new taxes, workers and the middle classes pay them, not the mobile wealthy. For the UK to raise a wealth tax would send a very negative signal about the outlook, disincentivising entrepreneurs and wealth creators, and discouraging them from investing and creating jobs here.
This may not augur well for the economy, which may not be able to withstand even higher taxes. Ahead of the October Budget last year, economic confidence suffered as people and firms worried about what lay ahead. In part, that was driven by the cautious messaging then by the PM and Chancellor. There is a danger of a repeat this year, as the Chancellor has made herself a prisoner of her own self-imposed fiscal rules and she is now a hostage to fortune.
On his Substack, Rian Chad Whitton examines how falling material production has contributed towards economic stagnation.
Net Zero is itself a form of austerity, deferring consumption of certain energy assets and interfering in consumer choices to reduce overall emissions. However, Net Zero is just the spearhead of a broader trend in Britain towards material austerity; that is, the decades-long detaching of population and headline GDP increases with declines in material and energy intensity…From 2000 to 2023, fossil fuel consumption declined by 38%, non-metallic minerals by 24%, metal ores by 40%, and biomass stayed roughly the same at 1%. If we say that fossil fuel reductions are mainly due to changes in electricity supply, non-fossil fuel material consumption in Britain has declined 16% during the 21st century, while the population has increased by 15%…
The result is that, on a per capita basis, Britain’s material consumption resembles Latin America more than Europe, North America or East Asia. Britain consumes 11 million tonnes of cement, which translates into 106 million tonnes of concrete products, including ready-mix, precast, mortar and asphalt. For context, the world consumes around 4 billion tonnes of cement and 30 billion tonnes of concrete.
British aggregates production is way below the developed world average, at 3.9 tonnes per capita versus 5.3 tonnes per capita. Britain consumes 233 kilograms of cement per year, well below the EU average of 347 kg per year. The picture is similar for metals. Britons consume 135 kilograms of apparent steel per capita as of 2023. The world average is 219 kg, the EU average is 284 kg, the U.S. is 226 kg, and China is 628 kg. At least when looking at steel consumption, Britain is closer to Latin America and the Middle East than North America, Europe or East Asia.
At UnHerd, Aris Roussinos considers how British grand strategy requires a more realistic view of the nation’s capabilities and interests.
Reading Policy Exchange’s initial argument for the Tilt, one is struck by its divergence from the actually-existing world of 2025. Aside from the scheme’s essential paradox — that of preserving Britain’s trade links with the Pacific, in which China is by far our greatest trading partner, through a policy of confronting China — the proposal rests on planning assumptions that must now be re-examined from ground-up. “To fully globalise Britain,” it states, “the Indo-Pacific region… must become a priority in the UK’s overall foreign and security policies.” Yet what is the advantage of fully globalising Britain in a world of frantic deglobalisation, where over-extended supply chains outside national control have become a major source of strategic anxiety?
The Tilt commits Britain to a project of “reinforcing its commitment to a rules-based international order” by confronting global autocracy, yet this order not only does not exist but is anathema to the Trump administration, happily engaged in carving up the world into civilisational spheres alongside likeminded autocrats. The conceit was that committing the armed forces to a project beyond their abilities, to defend a fictional order that the United States wishes to firmly bury, would boost the Special Relationship; and this conceit must surely now be consigned to the dustbin of bad ideas. Not only are the ends beyond the existing means but those ends are illusory. By any definition this is the antithesis of grand strategy.
Yet the same can be said of the Integrated Review’s hurried, post-invasion of Ukraine update, the 2023 “Refresh”, which, while reverting to Europe as Britain’s prime source of strategic anxiety, rests upon two worryingly dubious planning assumptions. The Refresh states with unshakeable certainty that “NATO remains the bedrock of collective security”, and “The United States remains the UK’s most important ally”, two assertions, made just two years ago, that the entire ongoing European defence crisis now treats as false. With no certainty of success, European leaders are currently engaged in persuading America not to walk away from NATO for the five to 10 years it will take Europe to fill its role. Both the Integrated Review and the Refresh revolve around a “NATO first” defence vision, preservation of global free trade, and a “high cooperation and low-tension Arctic”, all of which now put the UK in direct confrontation with the US, not least because the greatest current threat to NATO’s Arctic possessions in Canada and Greenland is American annexation.
On his Substack, Sam Currie reflects on how great powers need productive capacity to shape global geopolitics.
The enduring truth that trade and economic production are essential to political power was never forgotten outside the West. Since its Reform and Opening, China has patiently and consciously climbed the economic value chain. The Made in China 2025 policy announced a decade ago articulated a clear ambition to domestically produce the world’s most advanced technologies. Combining Marxism, Confucian-Legalism and a laser-like focus on national interests, the CCP understands that power accrues to countries with firms who control the means of production.
Mirroring the industrial protectionism that brought America to industrial and geopolitical pre-eminence in the 19th and early 20th centuries, China’s policy, thus far, has been massively successful. The country has deliberately turned its manufacturing prowess from cheap consumer goods to high-tech drones, cutting-edge electric vehicles and pillars of the energy transition like batteries. Chinese firms are projected to constitute 45% of global manufacturing by 2030 (a position comparable to the US after WW2), possess roughly 3 times more lithium-ion battery manufacturing capacity than the rest of the world combined, and dominate civil drone manufacturing through companies like DJI and XAG.
This has put China in a formidable geopolitical position. It has accrued vast amounts of influence by developing massive manufacturing capabilities that are fundamental to hard power in products like drones, and surplus production capacity that provides significant advantages in war. Similarly, China’s leadership in clean tech gives it the potential to not only dominate critical 21st-century industries and shape norms in these fields that reflect its political and economic interests, but also create a pathway to reduce dependence on foreign oil.
For The Spectator, Gavin Rice argues that J.D. Vance is developing an economic vision that is better equipped to address today’s challenges.
Vance is right that productivity gains from training, skills, technology and investment should not destroy the value of labour. It is measured in ‘output per hour worked’. So on the contrary, productivity gains should increase workers’ prosperity, allowing them to create more with less, earn better salaries and live more secure lives. But that vision of widespread economic improvement is already clashing with the tech lords’ preference for a digitised, borderless world where the proceeds of innovation are privatised and hoarded while workers become literally redundant.
To ensure growth benefits workers, there must be a rebalancing of the global trading order. Britain is in a worse state than America: we import nearly 40 per cent of our energy and consume £28 billion more in goods and services than we produce annually, financed by selling equities in our companies, private and public debt, and our scarcest national resource – land you can legally build on – to foreigners. Productivity has been frozen for over a decade, yet consuming cheap imports and importing cheap labour has papered over this. But it has hollowed out our manufacturing so we produce just two per cent of global output, while China now accounts for more than 30 per cent. Companies with capacity for productive growth have gone overseas and good jobs have disappeared.
Autarky for America, let alone Britain, would be impossible and mad. But the current model cannot go on. The old economic religion was blind to inequality so long as growth was achieved. But it has not. The remoralising of Anglo-American thinking on economics can and must go hand in hand with a better and saner commitment to innovation and production that benefits workers and families, not transferring wealth up to the owners of technology or overseas to Beijing.
At Works in Progress, Alex Chalmers uses Airbus as a case study of how industrial policy can be done well when the right conditions occur.
Good industrial strategy requires favourable market conditions, consistent strategy in the face of political headwinds, and the courage to call it a day if failure seems likely. Getting one of these right is tough, and all three is exceptionally rare. Concorde was a marvel of engineering, but even without US obstructionism, it had little prospect of commercial viability. In today’s money, it cost £16 billion to develop, roughly ten times the cost of the Boeing 727, making it the most expensive plane of its age by some margin. Its limited passenger capacity, fuel inefficiency, and expensive maintenance meant that a ticket for a round trip cost in excess of £10,000 adjusted for inflation. The ultra-premium air travel market wasn’t big enough in the 1980s or 1990s to bear the costs of 1960s technology, leading to Concorde’s retirement in 2003…
…It’s also easier to build a global leadership position when your main rival wages a prolonged campaign of self-sabotage. By the new millennium, the competition had been reduced to a simple showdown between Airbus and Boeing. Lockheed had decided to bail on commercial aviation in the 1970s after losing billions of dollars on the L-1011, while Boeing acquired McDonnell Douglas in a $13 billion deal in 1997…
…It may be nearly impossible to operate the multi-billion dollar, multi-decade product development cycle this industry requires without some form of government backstop, whether it is a direct subsidy (Airbus) or reliable military orders (Boeing). It is a business that is well-suited to subsidy for other reasons too. Governments are generally better at supporting companies in established markets where innovation takes place slowly and incrementally. This is likely why state-backed efforts have found it easier to be competitive against aerospace companies than Silicon Valley giants working at breakneck pace to keep pace with changing consumer tastes.
Wonky thinking
Reform published Everythingism: the pathology holding back the State by Joe Hill. The essay argues that policy should be better designed to achieve specific goals instead of trying and failing to meet many different policy goals simultaneously. This would improve the state’s capacity to resolve problems such as housing, energy and infrastructure.
Everythingism is the belief that every proposal, project or policy is a means for promoting every national objective, all at the same time. Trade policy is not for getting cheaper goods, but for reshaping the global economy. Planning policy is not for getting high-quality housing near the best jobs, but creating local jobs, hiring more apprentices, and enhancing biodiversity. And Government procurement isn’t for the best products and services at the cheapest price. It’s about promoting “social and economic value”, reshaping the British economy to promote Net Zero, regional economic development, and diversity and equality training.
Because of Everythingism, we never do any one thing well, we do everything badly. Housing policy becomes the main route for fixing the nitrogen imbalances in local rivers, and creating more social housing the main way of subsidising the welfare state. Trains must look after bats. Climate policy is to support the services sector.
Creating jobs, reducing pollution, and boosting biodiversity are all laudable policy aims. So how can pushing them be bad? Because in each example of Everythingism, the policy is to deliver those goals through systems which are fundamentally designed with other objectives in mind. The goals aren’t always at odds, but often they are. Sometimes that trade-off might be worth it, but often it isn’t.
This isn’t a new problem. When Governments have failed in the past, the spectre of Everythingism has been there. Concorde was set up to simultaneously be a joint Anglo-French industrial project, a demonstration of the most advanced aerospace engineering, and commercially viable. The result was a beautiful but financially unsustainable aircraft that only a handful of airlines could use and required massive subsidies just to keep it going.
Britain isn’t alone in Everythingism. In the US, Ezra Klein calls this “Everything-Bagel Liberalism”, the propensity of policymakers in blue states, especially in leading cities, to see any project as an opportunity to advance multiple goals.12 Affordable housing projects become unaffordable because of California’s insistence on ideas about perfect development, which get in the way of plenty of ones which would be good enough. The security-critical semiconductor industry can’t build new factories because of the National Environmental Policy Act, or Congress insisting on workforce diversity measures at semiconductor sites in the Inflation Reduction Act. But Britain is also a place where Everythingism is deeply rooted, and a profound problem for the country. It isn’t just that it feels like everything is going wrong, or that everything needs to be fixed. The problem is that we’re relying on everything to fix everything else, everywhere, all at once. And so nothing works.
At the Looking for Growth #2: Policy Summit, Dominic Cummings ran a workshop on the system challenges of building a Number 10 that can control the government.
Book of the week
We recommend American Prometheus: The Triumph and Tragedy of J. Robert Oppenheimer by Kai Bird and Martin J. Sherwin. This detailed and colourful account explores how Oppenheimer led the Manhattan Project and developed the world’s first atomic bomb. In addition to helping defeat the Japanese, the Manhattan Project is an instructive example of how the state can support historic advances in scientific and technological innovation.
When Los Alamos opened in March 1943, a hundred scientists, engineers and support staff converged on the new community; within six months there were a thousand and a year later there were 3,500 people living on the mesa. By the summer of 1945, Oppenheimer’s wilderness outpost had grown into a small town of at least 4,000 civilians and 2,000 men in uniform. They lived in 300 apartment buildings, fifty-two dormitories and some 200 trailers. The “Technical Area” alone enclosed thirty-seven buildings, including a plutonium purification plant, a foundry, a library, an auditorium and dozens of laboratories, warehouses, and offices…
…Soon after Oppenheimer began making his rounds to recruit physicists to Los Alamos, however, he discovered that his peers flatly opposed the notion of having to work under military discipline. By February 1943, his old friend Isidor Rabi and several other physicists had persuaded him that the “laboratory must demilitarize.” Rabi was one of the few among Oppie’s friends who could tell him when he was being foolish. “He thought it would be fine to go in uniform because we were at war; it would bring us closer to the American people, that sort of crap. I know he wanted seriously to win the war, but we couldn’t make a bomb that way.” In addition to being “very wise, he was very foolish.”
By the end of that month, Groves agreed to a compromise: During the lab’s experimental work, the scientists would remain civilians, but when the time came to test the weapon, everyone would don a uniform. Los Alamos would be fenced and designated an Army post—but within the “Technical Area” of the lab itself, the scientists would report to Oppenheimer as “Scientific Director.” The Army would control access to the community, but it would not control the exchange of information among the scientists; that was Oppenheimer’s responsibility. Hans Bethe congratulated Oppie on his negotiations with the Army, writing him that “I think that you have now earned a degree in High Diplomacy.”…
…From the beginning, Oppenheimer and Groves had agreed that everyone’s salaries were to be pegged according to each recruit’s previous job. This resulted in wide disparities since a relatively young man recruited from private industry might well be paid much more than an older, tenured professor. To compensate for this inequality, Oppenheimer decreed that rents would be pro-rated according to salary. When the young physicist Harold Agnew challenged Oppenheimer to explain why a plumber could earn nearly three times the pay of a college graduate, Oppie replied that the plumbers had no idea of the laboratory’s importance to the war effort, whereas the scientists did—and that, explained Oppenheimer, justified the pay difference. The scientists, at least, were not working for the money. Oppenheimer himself had been six months in Los Alamos when his secretary reminded him one day that he had not yet received a salary check.
Everyone put in long hours. The laboratory was open day and night and Oppenheimer encouraged people to set their own schedules. He refused to allow time clocks to be installed, and a siren was introduced only in October 1944, when one of General Groves’ efficiency experts complained about the laxness in regular work hours. “The work was terribly demanding,” Bethe recalled. The leader of the Theoretical Division thought that as science his work was “much less difficult than many things I have done at other times.” But the deadlines were highly stressful. “I had the feeling, and this came in my dreams,” Bethe said, “that I was behind a terribly heavy cart which I had to push up a hill.” Scientists accustomed to working with limited resources and virtually no deadlines now had to adjust to a world of unlimited resources and exacting deadlines.
Quick links
Institute for Fiscal Studies warned that the Chancellor will have to raises taxes again in the autumn Budget…
…as Trump tariffs on cars will wipeout £9.9 billion fiscal headroom.
Britain has become the only G7 country unable to produce steel following closure of the Scunthorpe plants.
Couples need a combined £88,000 income to afford having two children.
Sweden is increasing its defence spending to 3.5% of GDP by 2030.
Report found 1,600 primary schools with incidents of rape culture.
Poland has suspended the right to claim asylym for the next 60 days.
Data shows that 10,800 millionaires left Britain in 2024, an increase of 157% on 2023.
New submersaible tool capacble of severing undersea cables was uneveilled by China.
Despite a £100 million funding settlement last year, the Alan Turing Institute has failed to meet expectations.