Autumn Budget 2024

Baroness Moyo Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Moyo (Non-Afl)]

My Lords, no one in the Chamber should be in any doubt over how much of a challenge setting the Budget must be, given the signs of structural decline that regrettably seem evident in this economy today. It is, for example, worth reminding ourselves that, today, if Britain were ranked against each of the 50 US states in terms of wealth, it would be last, with Britain’s GDP per capita performing below America’s poorest state, Mississippi.

Moreover, Britain’s per capita income has flatlined over the last 10 years, going from £31,000 in 2014 to around £33,000 in 2023. While only 25 years ago, Britain’s economy was larger than China’s, it is now just 20% of its size. This is not simply about China’s exceptional growth trajectory over 30 years; it is also about Britain’s multi-decade policy choices, which have inadvertently created an economic environment that is largely not attractive to investment. Of course, statistics that compare countries against each other over time have their limitations, but these data show trends that have deleterious consequences for the real economic life of citizens and the Government’s ability to fund public goods such as health, education and infrastructure.

These facts also support a damaging narrative of Britain not being a top destination for investment. To this end, as we scrutinise this Budget, a key question is whether private investors, both domestic and international, are now more likely to allocate investment capital to the United Kingdom. The answer is that the future flow of investment into Britain on the back of this Budget will be limited.

On the positive side, there is some investment, as has been mentioned already. Just before the Budget, investment pledges of £60 billion were made at the International Investment Summit. In the Budget, the Government commit to investment in the key industries of the future through the national wealth fund—aerospace, life sciences, green hydrogen, carbon capture, ports and gigafactories. The Budget also earmarks investment for public services, in line with the recommendations of the IMF, to bring the UK’s public spending in line with her peers. All of this sounds promising.

However, this Budget has not adequately addressed the considerable barriers to private investment that remain. First, in spite of the Budget, Britain’s economic growth outlook remains tragically low—below 2% over the next five years. Secondly, the lack of breadth and depth of UK capital markets is a deterrent for new and important start-ups. The FTSE 100 remains dominated by traditional industries such as mining and banking. This could partly explain why, this year, Britain traded at a 40% discount to developed markets. Related to this, Britain’s reputation for burdensome regulation risks it substantially missing out on dividends from the emerging AI and energy transition growth-enhancing supercycles. Regulatory logjams gum up capital markets, meaning scarce opportunities for innovation and technology start-ups to list in London.

We know that global investors have compelling investment opportunities. The magnificent seven technology stocks last year returned 76%. Fast-growing Middle Eastern economies, including those in the GCC, are forecast to be larger than the UK economy by 2026. There is even the ability to generate 5% per annum returns simply by allocating cash to US treasuries—the risk-free rate.

As a director on corporate boards and a member of an endowment’s investment committee, I am aware that many investors will not yet allocate capital to Britain based on this Budget. This is because they interpret it, as it has been described in the Chamber, as a stabilisation Budget; it is largely seeking to reduce political and economic uncertainty and not to spur growth. It is an opportunity to demonstrate credibility and competence in managing the government fiscus, but not to spur growth. While investors see public investment as necessary, they do not see it as sufficient in the pursuit of economic growth.

Crucially, investors see this Budget as only an interim step to pave the way for future growth policies. As such, they will need to see much more aggressive policy, regulatory and fiscal reforms that go for growth, such as overdue reform of the capital markets and especially the easing of regulation. More generally, investors will tolerate either high taxes or heavy regulation, but not both. Over time, remembering this principle will put the UK in a position credibly to compete for investment once more.