Labour’s plans are not a quick fix for the UK economy

The King’s Speech calls for repairs to some of the plumbing, electrical, and foundations of the economy to “force the British to build.”

We will have to wait until next year before we see any impact of these plans on economic growth.

In fact, the main piece of legislation His Majesty has promulgated is the promotion of “economic stability.” This is remarkable. Stability is not something that normally requires legislation, but something that would be taken for granted in the UK.

The plans outlined include a series of complex changes to the way the government makes big decisions about planning, infrastructure, housing and transport. At the heart of the matter is giving private investors greater certainty about the economy and politics.

For example, the “Fiscal Responsibility Act” is a fancy way of saying there will never be another disastrous Liz Truss-style mini-budget.

No future chancellor will be able to ignore the decisions of the government’s independent financial forecaster, the Office for Budget Responsibility (OBR), as happened in late 2022 when Truss announced £45bn of unfunded tax cuts.

The hope is that this will be such a rock of credibility and stability that investment in the UK will grow and that borrowing rates for households, businesses and the government itself will fall and not rise again. Internally, they call this “fixing the fundamentals”.

The OBR’s role in assessing the affordability of every single policy, elsewhere in the speech, is now embedded. It also has a direct role in assessing whether all other policies announced actually promote growth. This is the most power the OBR has ever had, and gives it enormous influence over the policies of this government.

Is it transformational? The government claims that the stability itself is almost revolutionary after several years of rolling chaos. But does the chancellor really need legislation to stop her doing something like Liz Truss?

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The really significant implication of this approach is that it will indicate when, in the summer, the OBR will decide whether all these reforms will actually contribute to growth.

The company has previously acknowledged policies it expected would help boost the economy, for example by including former chancellor Jeremy Hunt’s childcare policies in its growth forecasts.

If the OBR does this again for Labour’s planned bills, it will help “improve the so-called compromises” and reduce pressure to cut spending or raise taxes.

If the OBR does not believe Labour’s plans will deliver significant economic growth, it is hard to see how it can avoid raising taxes or introducing spending cuts at the upcoming autumn Budget and Spending Review.

The government is using its overwhelming majority to push through politically painful changes that should spur economic growth in the long term.

It will take some time to see whether this works, and there is currently a lot of emphasis on measures that could take a long time to implement.