How Labour could crack the UK's growth conundrum

One of the best recent efforts to tackle our longstanding productivity and growth problem comes from the Resolution Foundation’s Simon Pittaway. He focuses on three explanations: energy, technology and healthcare. On energy, Pittaway notes that the US enjoys cheap natural gas prices, while we grapple with substantially higher electricity costs.

With regard to technology, Pittaway thinks that adopting it is a real challenge. Either side of Covid, US firms raised spending on software twice as fast as their British counterparts. He sees a similar pattern in spending on research and development (R&D).

Then there is the toughest nut of all to crack: healthcare. The NHS has a terrible record on productivity, a problem that even the health secretary, Wes Streeting, acknowledges. This is a huge, messy problem: the NHS represents 9% of UK GDP. So how can we improve matters? Former legal academic Lawrence Newport offers an interesting perspective.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Growth from the grassroots

Newport addresses the growth challenge via a new campaigning group called Looking for Growth (LFG). A grassroots organisation, it describes itself as “a movement of founders, professionals, and tradespeople pushing for pro-growth policies. We don’t wait for action – we make it happen”.

Unlike the growing number of think tanks dedicated to the growth agenda (the latest is the Centre for British Progress), LFG is pushing a campaigning model with local chapters full of entrepreneurs and activists, encouraging growth policies even at the local level. LFG has also been building cross-party support for a series of bold initiatives represented by a proposed bill ready to be put before Parliament. Newport argues that this campaigning-focused, cross-party model is essential, as significant changes must be based on popular support.

One key insight is that it’s not always apparent that large portions of the UK electorate back a pro-growth agenda, particularly if it entails more construction and affects the environment. Does Newport believe the average UK voter cares about GDP or productivity growth? “Voters care about how expensive their bills are, how little money they seem to have year after year. They care deeply about the cost of goods and the future trajectory of this country. They like industry and industrious people. But terms like GDP, or economic growth, or even productivity, have been overused by politicians attempting to sound as though life is improving, even when it feels worse for voters. If anything, these terms are met with suspicion by voters – after all, what does it mean to talk about a productivity problem, if I feel like I’ve worked hard every year but seen little change to my cost of living.”

Newport agrees that the root causes of stagnating productivity are complex. However, he also insists that politics plays a part, not least the dearth of talent in politics (with leaders unable or unwilling to make brave decisions) and a civil service that rewards inaction and discourages innovation. He echoes many of the criticisms of so-called state capacity made by former chief adviser Dominic Cummings (who works with him).

If a government cannot deliver on its promises quickly, there’s clearly a blockage in “state capacity”. “You need to be able to rely on the courts to give judgments quickly on a functioning visa system, on responses by regulators, [or] on government to step in or strip back blockers when they [thwart or delay] well-placed innovation and opportunities”.

Newport is quick to accept that the Labour government was handed a pretty awful set of circumstances. “However, they are not treating our situation as the national emergency it is. We are in decline, losing talent abroad, having some of the world’s highest energy prices, and in a cost-of-living crisis. Their reforms are slow to arrive, will be extremely slow to roll out and they are nowhere near as ambitious or radical as the moment calls for. They are not doing enough. Not even close.”

Criticism is one thing; working out what to do is another. But Newport has an answer. He is the author of a bill focused on growth that could be adopted at once: it’s called the LFG National Priority Infrastructure bill and streamlines planning for nuclear power stations, overhead electricity cables and data centres. Streamlining development and construction programmes is exactly what the French did to ensure that the Notre-Dame cathedral could be renovated within five years. “Despite experts claiming it was impossible, they did it. If France can do it, we can too.”

So, equipped with a magic wand and brandishing his Infrastructure bill, what would Newport do now? First, he’d streamline planning, citing the fact that it takes just two days to put up a wind turbine, but years and vast sums devoted to planning beforehand.

Next, focus on government procurement. “It’s a nightmare to deal with government contracts – this makes our civil service slow, risk-averse, and the awful processes mean that only the same few incumbent players are consistently rewarded with government contracts. It is a system built to slow us down and discourage startups and innovation.”

Finally, give talent an incentive to enter politics, civil service, and policy-making. “We need... high-agency, thoughtful, and brave people to enter politics and the civil service. This means getting rid of bad performers, increasing pay, giving civil servants a clear mission, and selecting political candidates for their dedication to improving the country and... record of brave decision-making.”

Maybe some of those future bright civil servants might even be able to work out how to solve the chronic NHS productivity problem?

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.