The UK in the second half of 2023 failed to grow. The first half of 2024 saw a good recovery, with 0.7% growth in the first quarter and 0.4% in the second. The second half of the year saw no growth again. UK growth has been well below US growth this century but has been similar to the performance of the main economies of the European Union (EU) which it belonged to until 2020.
The government says it inherited weak finances and needed to raise both taxes and spending in its recent budget to provide foundations for growth. Its critics say the combination of pessimistic messages and tax increases on jobs and businesses interrupted the recovery that was underway.
The government’s plan for growth
The government wishes to see more building to provide stimulus. It has pledged to build 1.5 million houses over a five-year parliament, a 50% increase on the previous five years. It wants more land to be made available for building. It wishes to see more infrastructure investment by both the state and the private sector. It has proposed planning reforms to make it easier and faster to get planning permissions.
It wants to harness more private capital by amalgamating public sector pension schemes and encouraging them to take more risk by investing in new projects rather than buying more government bonds. It is also urging private sector investors to commit more to equity and project financing in the UK.
The government is working on plans to help and to incentivise more of the three million people of working age not looking for work to become job seekers.
It is reviewing with regulators to see how they could make it easier for people to grow their businesses and make more investments whilst still fulfilling their main duties for safety or the environment or competition.
The government has decided to back two main projects which have been much discussed and prepared over the last decade, the expansion of Heathrow and substantial new building along the Oxford to Cambridge corridor. They also back a Manchester scheme to develop around the Manchester United stadium.
The Oxford/Cambridge corridor
Government has long thought that there is a golden triangle of London, Cambridge, Oxford. This area has attracted substantial pharmaceutical, digital and other science-based activity, with spin offs from the Oxbridge, Imperial, University College London and other London universities. The previous government set out plans for an improved railway between Oxford and Cambridge and for a new highway. The government wishes to complete the railway part of this project, but not to revive the highway. It is around 90 miles between the two cities with plenty of open country near the route.
East-West Railway was the company established to undertake the track work. It completed the Oxford to Bicester upgrade by 2016. The Bicester to Bletchley (Milton Keynes) section will complete later this year. This leaves the Bletchley to Bedford and the Bedford to Cambridge sections to be done. The issue is funding. The government needs to find the money for it.
There is plenty of land available between the two cities and adjacent to Milton Keynes to allow new housing, with suitable road additions. This could take the form of expansion of existing settlements or new towns and villages. Landowners are often keen, but the local community may not be.
There will need to be more planning guidance of how this could work, with appropriate consultations following expressions of interest for housing areas. To make a significant impact on national housing totals it will require several new towns and villages.
The rail scheme could be a modest contributor to construction output as it has been in recent years. If the next section is not funded and underway next year, then there will be a fall in activity following completion of Phase 2 to Bletchley.
The expansion of Heathrow
This scheme has been around for more than a decade and gained government backing in 2016. It has been out to consultations. It is contentious with the environmental lobby, which does not wish to see further expansion of air travel, and with some parts of the local community concerned about any intensification of aircraft noise. The last government cooled on the idea.
It is a major scheme. The Heathrow site is constrained making it difficult to fit a third 3.5km runway in. The plan envisages a new runway to the North West of the site. It will extend beyond the M25, requiring the construction of a new section of the motorway slightly to the west of the current road, with the road going beneath the new runway. There will be substantial road improvement and rebuilding affecting not just the M25 but also the A4, the A 3044 and Southern Perimeter Road. Six rivers and brooks need diverting or containing to tackle the flooding risks.
It is unlikely construction work could start in the next three years, given the planning processes that still need to be completed. The government could of course legislate to reduce the need to consult and to meet environmental objectives to speed up progress.
Old Trafford redevelopment
The government says it backs redevelopment of the Old Trafford area, whilst making it clear the cost of refurbishing the football stadium or replacing it with a new one is for the club. That is variously estimated at £bn1-£2bn of work. The state will help finance moving the rail freight terminals to free more land for housing and commercial development. This is an important scheme for Manchester, but not on the scale of the London airport and Oxford/Cambridge development opportunities.
Growth is likely to remain disappointing, as companies adjust to the new higher costs of employing people.
The two major infrastructure plans the government is backing will not bring growth in the next couple of years. There is some continuing work on the Oxford to Cambridge railway and that can be extended to the next phase of the line. This would avoid a reduction in rail work there. Even with some streamlining of planning procedures the Heathrow runway expansion is not about to enter the build phase.
Finding more land for housing on a substantial scale in the Oxford to Cambridge corridor will be helpful to meeting future housing targets. It will not make an immediate difference to housing output.
There are plenty of planning permissions already available for new homes. The barriers to more building relate to other issues. Homes are expensive for new buyers and mortgage rates have gone up, making finance dearer. Housebuilders feel constrained by a shortage of trained staff to do the building.
There are sometimes issues about getting access to sufficient electricity and water and waste-water pipe capacity. The Old Trafford development could offer housing opportunities that can help with meeting the exacting target for the next few years, but we are talking about a few thousand against a national target of 1.5 million.
The government is backing plans for more reservoirs, including the Abingdon scheme south of Oxford and a Fenland scheme. These would be crucial for any large expansion of the Oxford/Cambridge corridor. There will also need to be additional electricity supply.
The better mood music and commitment of the government to growth will help with some investors. There is, however, nothing in these announcements that will deliver new building contracts this year.
Growth is likely to remain disappointing, as companies adjust to the new higher costs of employing people and to the changes affecting farms and small businesses. Recent car output figures are down – and businesses are struggling on the high streets.
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