Just six months into government, Labour’s promises of growth lie in shreds, amid a stagnating economy and stubborn inflation.
In her first big speech of the New Year, the Chancellor will try to restore confidence and – crucially – to discredit the assessment last month by the Bank of England that it was the record-breaking tax rises in Labour’s October Budget that brought the economy grinding to a halt.
Rachel Reeves will try to convince us that the Government has ‘fixed the foundations’.
Yet anyone expecting Britain on its current trajectory to bounce back in 2025 is fooling themselves.
Labour’s efforts to fast-track recovery with planning and pension reforms are already sinking in bureaucratic treacle and promises of a manufacturing revolution – fuelled by the climate-change agenda and Great British Energy, the new state investment vehicle to power it – are simply pie in the sky.
If the Starmer Government is serious about restoring shell-shocked business confidence and fulfilling its growth ‘mission’, it needs to recognise that Britain’s wealth creators don’t live in Whitehall and they are not represented by stubborn union bosses.
Rocky start: In her first big speech of 2025, the Chancellor (pictured) will try to discredit the idea that it was Labour’s October Budget that has brought the economy to a halt
The more investment that’s ploughed into an inefficient state sector, the less cash there can be for entrepreneurship and enterprise – the real levers of growth.
It is not too late to change direction and back a new hi-tech, creative agenda for Britain.
Here are my ten ideas for unleashing enterprise and entrepreneurship to supercharge wealth creation in 2025:
1. Invest in R&D
The best way to get full square behind Britain’s brilliant tech, scientific and medical sectors is to raise the target for government spending on research and development.
We must follow the example of America and Israel – leading innovators who spend 3.4 per cent and 6 per cent of their respective national outputs on R&D.
That’s what has led to the global domination of Silicon Valley and made Israel a ‘start-up’ nation and pioneer of the future.
Britain officially spends a paltry 2.4 per cent, then wonders why it fails to compete. We need tax breaks and direct backing for our best and brightest.
2. Fix business rates
Labour promised to resolve the tangled mess of business rates, but failed to tackle the issue in the Budget. The result is that many high streets are being hollowed out, with over 13,000 shops closing last year, leading to desolation and crime.
Family-owned brick-and-mortar businesses are forced to pay business rates while high-tech giants such as Amazon, Apple and Google can skirt them.
Most of their operations are conducted from lightly taxed warehouses and data centres on the edges of conurbations – or from abroad – and their vast sales contribute to the impoverishment of the High Street.
3. Tax breaks for investment
As Tory chancellor, Jeremy Hunt introduced permanent full expensing of new physical plant and machinery, encouraging firms to invest by lowering their corporation tax bills.
As chancellor under Boris Johnson, Rishi Sunak went further still, allowing businesses to reduce their tax liability by 150 per cent of the value of their investment.
This experiment freed businesses to invest in the future – until it was smothered by the Treasury.
Tech sectors such as AI software, intellectual property and mobile computing are excluded from full expensing. They shouldn’t be – the scheme needs to be modernised to recognise the digital age in which we live.
4. Cut interest rates
The Bank of England’s current mandate to hit the annual inflation target of 2 per cent ‘at all times’ must be broadened.
The UK could learn lessons from America where the Federal Reserve – the US central bank – is required to balance its inflation target with the need to encourage employment and growth.
During the pandemic, the Bank of England’s mandate was briefly relaxed to prevent what governor Andrew Bailey described as ‘scarring’ – in other words, permanently damaging the economy.
The Government must update the Bank’s approach and make it more flexible.
5. Remove stamp duty on shares
Britain is one of the few Western economies to impose a tax on buying and selling shares.
A 0.5 per cent levy has destroyed the cult of retail investment and depressed values on the London Stock Exchange, leading to an exodus of major firms.
Were conditions more favourable, Britain’s Cambridge-based tech star Arm Holdings might still be listed in the City of London rather than Wall Street.
6. Cut stamp duty for homeowners
If the Government is serious about getting Britain building again and encouraging property-rich ‘baby boomers’ (such as this writer) to downsize and move home, it needs to end the iniquitous practice of charging stamp duty on homes valued at less than £1million.
This is a serious barrier to millennials and subsequent generations climbing the housing ladder and punishes already overtaxed workers for moving house.
US trade deal: Lord Mandelson will be Britain’s new Ambassador to Washington
7. Redraw the fiscal rules (again)
The Chancellor’s great wheeze – to adopt a new fiscal rule allowing increased government spending for investment – has been dismissed as a ‘fiscal illusion’ by the Office for Budget Responsibility.
It has undermined the standing of UK bonds and gilts on global markets and raised the cost of government borrowing.
Now UK ten-year bond rates sit at 4.6 per cent – higher than during Liz Truss’s short and disastrous sojourn as prime minister. That means higher costs for our mortgages and for businesses that need to borrow money to invest.
8. Stop the doom-mongering
As soon as they had won the election, Keir Starmer and Rachel Reeves set about trashing the economy and claiming it was in its worst state since the Second World War.
That needless self-sabotage proved a wet blanket for consumer and business confidence.
Much damage has already been done, but it seems even Labour realises the error of its ways and is trying to instil confidence once more.
9. End ‘Britain for Sale’
The Government has approved the sale of Royal Mail to Czech mogul Daniel Kretinsky through a deal financed by debt, thereby ensuring we have the next Thames Water (a vital service company teetering on the edge of bankruptcy) in the pipeline.
Meanwhile, great British scientific enterprises, such as cyber-security pioneer Darktrace, need to be supported and built up, not sold into unaccountable private equity or overseas companies on the make.
10. Sign trade deal with US
The greatest prize for the UK would be a comprehensive deal with our biggest single commercial partner, the US.
If the incoming Ambassador to Washington Lord Mandelson could bring this to pass, his chequered past would be all but forgiven.
Holding such a deal up over fears about importing chlorinated chicken – or other such baseless metropolitan hobby horses – is a nonsense.
There can be no better way of circumventing Donald Trump’s threatened tariff war with trading partners than by pursuing the art of a deal.
Labour promised the fastest growth among the G7 advanced nations. So far it has dismally failed to deliver
any growth whatsoever. But a rosy future of wealth creation and better living standards is still attainable – if our Government can find the necessary willpower and imagination.
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