Rarely has a speech been so heavily trailed in the media, with so many of the details – from the third runway at Heathrow to the revived Oxford-Cambridge corridor and the nine new reservoirs across the country – pre-briefed and leaked to the press in advance.
So you might have thought there were no surprises left from the chancellor’s big speech today. But here are a few intriguing lines worth pondering.
The first was something Rachel Reeves said quite early on in the speech itself. Before she even made any of those big announcements, she said a key priority was “building on our special relationship with the United States under President Trump.”
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That the relationship with the US was given such prominence, mentioned before the EU, is not without significance. It’s a coded message intended for the White House – that while it may be set on slapping tariffs on many of its allies, Britain is keen to do business.
Doing a deal with Donald Trump might stick in the craw for some in the Labour Party, but if there was one overarching message from this speech it’s that sometimes, if you want the economy to grow, you have to do stuff that might stick in the craw.
Consider: one of the biggest problems with Britain’s economy is that it’s way too dependent on what happens in London and the South East. That’s where most of the gross domestic product (GDP) is generated, it’s the most productive region of the country, where house prices are highest, and transport links are, already, better than anywhere else.
Many if not most of the plans unveiled by the chancellor today will only widen that divide: new runways in London will make the country yet more London-centric. A rail link between Oxford and Cambridge is unlikely to benefit the people of Manchester or Sheffield.
But one of the easiest ways of generating extra growth is to further boost the areas which are already growing fastest. It means cosying up to financial services (at which Britain is already very good) more than manufacturing or steelmaking. Being growth-friendly means being friendly to your biggest market for services, the United States, even if you’re not a big fan of the president.
A second line that leapt out to me came a bit further down in the speech: “There is no trade-off between economic growth and net zero. Quite the opposite. Net zero is the industrial opportunity of the 21st century, and Britain must lead the way.”
I have mixed feelings about this, having written an entire book which documents the fact that net zero is indeed the industrial opportunity of the 21st century. However, and this is really important, that does mean that in the short run it’s also quite expensive. Replacing your fossil fuel power systems with wind and hydrogen backup is massively costly. It will mean power prices rise even further in the coming years. Hopefully, they will come down thereafter, but it’s quite hard to escape the fact that in the short run power prices will stay high.
And that matters enormously. Because high energy costs are the reason this country is currently deindustrialising. High power costs are one of the reasons this country is struggling to deploy as much computer server capacity (for which, read: AI) as, for instance, the United States. It’s very hard to build anything if your energy is expensive – and the upshot is the UK is mostly importing green tech made in China instead.
All of which is to say, growth is not always straightforward. It involves many trade-offs. More planes at Heathrow might mean more growth, but it also means more emissions.
Let me give you another example. In my interview with the chancellor today, I asked her whether she thought the company we were at – Siemens Healthineers – was a British success story. Because to some people’s minds, it is better cast as a corporate failure.
After all, the key technology behind MRI scanners – the things they’re making there in Oxford – was invented in Oxford. However, the company behind that invention, Oxford Instruments, never managed to turn it into a corporate success. Instead, it was American companies which turned it into a money-spinner. And Oxford Instruments’ MRI business was eventually bought by a German giant, Siemens.
Crucially, many of the jobs have stayed here – indeed, Siemens still makes its MRI magnets here and is actually expanding its plant. And the traditional economists’ answer is that the nationality of a firm doesn’t matter in the slightest. But, in an era characterised by trade war and nationalism, that might not always apply.
And it turns out what happened to Oxford Instruments is hardly an isolated example. There are many important technologies Britain invented: CT Scanners, LCDs, fibre optics, radar, the lithium-ion battery (also invented, in part, in Oxford). But none of these inventions gave birth to a world-leading company. Instead, they were mostly snapped up by foreign companies, which proved far better at scaling them up. In most cases, there were far fewer jobs created than by Siemens with its MRI business.
Why? No one really knows. But it’s a real problem. British start-ups are very good at growing up to a certain size, and then they’re very good at getting sold to American or European corporations, earning a hefty payout in the process. This pattern is actually probably quite good for growth – it helps boost gross domestic product. But is it the model Britain should be aiming for in future?
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That’s a knotty question. And while the attention today was understandably on Heathrow, the politics of the speech and the other more eye-catching announcements, her response to my question – about why businesses struggle to scale up here – was quite instructive.
“You’re absolutely right, that is a challenge,” she said. “It’s why we are introducing the capital market reforms, particularly around pension reform, are unlocking £80bn of long-term patient capital by creating mega-funds, merging defined contribution and local government pension schemes to create larger funds that can invest at scale in the exciting opportunities in The UK.”
Whether these funds move the dial remains to be seen. In some cases, staying independent and resisting foreign takeovers could actually be growth-negative in the short run. But it’s something Britain has not historically been very good at. It may be a skill we need to re-learn.
