Victor Anderson questions the logic of going for growth via deregulation whilst supporting tighter regulation on building construction and water provision
Keir Starmer gave a very warm welcome to overseas investors gathered at a specially convened “investment summit” on October 14, complete with dinner with King Charles. His speech was a variation on the “Britain is open for business” theme.
Ignoring over 50 years of campaigning and scholarship about the costs of economic growth, and criticism about what it does and doesn’t measure, Starmer was very definite on the subject. He told his audience: “You have to grow your business. And I have to grow my country… growth is a cause that binds us together… It’s why we’ve made it the number one test of this government. I am determined to do everything in my power to galvanise growth.” “We will rip out the bureaucracy that blocks investment. We will march through the institutions… Determined to get Britain building. Determined to get our economy moving. Through the shock and awe of investment. That’s the message to take home today.”
Let’s give this some sort of context. This speech of praise for deregulation was made only six weeks after the report on the Grenfell Tower fire put a large share of the blame on the reduction of regulations and the lack of resources to implement those that remained. To be fair to him, Starmer mentioned Grenfell in his speech. The problem is that he didn’t draw the obvious conclusions.
Five days before the speech, the Financial Times carried a story on its front page, reporting that investors have been complaining to the Government that the water industry is regulated too strictly! This is a view diametrically opposed to that of the vast majority of the British public, as numerous opinion polls have shown. This “overregulation” was, they said, putting them off investing in Britain.
We can also put this in the context of the fact that private sector housebuilders, for their own financial reasons, often don’t build housing even when they have planning permission to do so, leaving “the planners” to take the blame. Private sector renewable energy projects often can’t get off the ground not because of planning restrictions, although that was certainly a problem for onshore wind, but because the grid connections have not been built to enable their renewable energy to actually be distributed.
Where does all this leave us? Having ruled out sufficient tax increases on the wealthy to pay out for improvements in infrastructure, and having ruled out simply borrowing on the market in order to fund those improvements, the Government has turned to private investors. But they want to make a profit. Where they are negotiating with the Government, they will make it choose: either we have a lowish rate of profit with weak regulation, or if you want to regulate us (even more strictly than water!) we want a very high rate of profit. So the Government’s desire neither to spend nor borrow very much in the short term translates into a set of liabilities on the national balance sheet, requiring higher expenditure in the long run, and/or infrastructure and public services which fall below the standards the public expects, such as clean water. This takes us back to something like a previous Labour Government’s 1990s Private Finance Initiative, which piled debt onto many hospitals and local authorities.
A new twist in our “island story” is that many of the overseas investors invited to the “summit” were from ex-colonies of Britain. The colonial relationship created in many cases strong financial and business links between colony and Britain. Now those links are producing a flow in reverse, as Malaysian money funds luxury flats at Battersea Power Station, for example, and an Australian corporation proposes to invest in electric vehicle charging points at the UK motorway service stations it already part-owns.
This was no charity fundraising event. This was about opportunities to make money, and the problems for the British public that will go along with that.
Since the summit, there have been some hopeful moves in a different direction. The Government has announced a review of the water industry, which really acknowledges that its current bill doesn’t go anywhere near far enough. They have also announced a redefinition of “government debt” in their fiscal rules: apparently a technical matter, but one which makes billions more capital spending possible. We go to press just before the Budget, so we wait to see which side that comes down on.