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War in the Middle East rendered the Chancellor’s Spring Statement “irrelevant” according to City analysts as the economic impacts of the Iran conflict become frighteningly clear.
In this instalment of the Week in Business, City AM Editor-in-Chief Christian May unpacks the difficulties for the government.
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0:00
War in the Middle East rendered the
0:02
Chancellor's spring statement
0:03
irrelevant, according to city analysts,
0:05
as the economic impacts of the Iran
0:07
conflict become frighteningly clear.
0:09
Welcome to the week in business with me,
0:11
Christian May.
0:15
Rachel Reeves made just a passing
0:17
mention of the Iran war when she
0:19
addressed MPs on Tuesday, referring
0:21
briefly to global instability while
0:23
trying to paint a picture of domestic
0:25
economic harmony. I can't sugarcoat it.
0:28
The Chancellor appeared out of the loop,
0:31
out of depth, and out of ideas. We'll
0:33
come back to the war and its economic
0:35
consequences in a moment, but first
0:37
let's consider what Reeves said about
0:39
the government's record. "Our plan is
0:41
working," she insisted again and again,
0:43
claiming that government policies are
0:46
bearing fruit and that we can't afford a
0:48
change of course. Opposition MPs said
0:50
there was more gaslighting than
0:52
Victorian London. The Shadow Chancellor,
0:54
Mel Stride, said the Chancellor was in
0:56
denial, asking, "What planet is she on?"
0:59
It was a fair point, given that Reeves
1:00
claimed her plan is working on the very
1:03
day that official forecasts downgraded
1:05
this year's GDP growth from 1.4% to just
1:08
1.1%.
1:10
Modest upgrades to next year's growth
1:12
forecast don't make up for the loss.
1:14
Unemployment was also forecast to
1:16
continue its climb ever higher, a grim
1:19
trend that we've seen month after month.
1:21
So, in what possible sense can the
1:23
government's plan be described as
1:25
successful? The impact of higher
1:27
employment taxes, more regulation, and
1:29
increased costs for businesses is clear
1:31
to see. Employers have been shouting
1:33
about it for months, and I may have
1:34
mentioned it once or twice myself. The
1:36
economy is being deprived of fuel. The
1:39
engine is spluttering. The warning
1:41
lights are on, and the Chancellor says
1:43
everything is fine. Now, to be fair to
1:45
her, there are rumors that the planned
1:47
hike in the minimum wage for young
1:48
people could be postponed, but this is
1:50
too little, too late, given the damage
1:52
that has already been unleashed on the
1:54
jobs market. And if they acknowledge now
1:56
that higher costs have an effect on
1:58
employment, why couldn't they foresee it
2:00
or even listen to the warnings from
2:02
employers?
2:03
Beyond the harm caused by recent
2:05
government policies, there are also
2:07
major structural issues with our economy
2:09
that are not being addressed. Yesterday,
2:11
top city economist Simon French
2:13
published a paper accusing successive
2:15
governments of effectively rationing
2:18
three things that serve as fuel for our
2:20
economy: land, energy, and capital.
2:23
Layer after layer of regulations and
2:25
policy decisions building up over years
2:27
means that the supply of these critical
2:29
factors has been artificially
2:31
constrained with growth-sapping
2:33
consequences. Electricity costs are
2:35
among the highest for an advanced
2:37
economy. Construction, particularly
2:38
house building, is held back by damaging
2:40
regulations, and the cost of capital for
2:43
UK-listed companies is significantly
2:45
higher than in European countries or the
2:47
US. French says this has all led to
2:50
slower UK economic growth, pressure to
2:53
raise the minimum wage, declining living
2:55
standards, and higher marginal tax
2:57
rates. Now, the government will insist
2:59
that its planning reforms will bear
3:01
fruit, and we hope that's the case.
3:03
While net zero zealots like Ed Miliband
3:05
cling to the delusion that we have to go
3:07
all in on renewables regardless of
3:09
capacity and cost issues, the Chancellor
3:12
met leaders of North Sea oil and gas
3:14
companies yesterday in response to the
3:16
prospect of an energy crisis triggered
3:18
by the war in the Middle East amid talk
3:20
that the crippling tax regime in the
3:22
North Sea could be scaled back. But
3:24
again, too little, too late. It will
3:26
take more than a photo op round table to
3:29
correct the mistakes of successive
3:31
governments when it comes to energy
3:33
security.
3:34
While the Chancellor's speech on Tuesday
3:36
was a master class in self-delusion, the
3:38
rest of us can see that there's nowhere
3:40
to hide. Any sustained price spike in
3:43
oil and gas will feed through to higher
3:45
inflation, which in turn would interrupt
3:47
and possibly reverse the downward
3:49
trajectory of interest rates. This would
3:51
be bad news for households, businesses,
3:54
and the government. And while it's not
3:55
certain that this will happen, and let's
3:57
hope that it doesn't, the fact that
3:58
we're so vulnerable, so exposed to these
4:00
risks, underlines the urgent need for a
4:03
much more radical and effective growth
4:05
agenda, while highlighting the areas of
4:07
government policy and the apparent
4:09
complacency of this administration. War
4:12
or no war, economic growth, the only
4:15
thing that matters, is still being
4:17
sacrificed in favor of Labour's natural
4:20
instincts to increase taxes, increase
4:22
regulation, and increase welfare
4:24
spending. Around the edges of the
4:26
choices, the Chancellor still talks
4:28
about growth, but 20 months into office,
4:31
the question isn't so much whether their
4:32
plan has failed, but whether they ever
4:34
had one in the first place. That's it
4:37
for me this week. Stay up-to-date and in
4:39
the know on the City A.M. app and on
4:41
cityam.com, and I will see you next
4:44
week.
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