What are the economic consequences of a Labour government? 

What impact will the Labour government have on the UK economy?

What measures can they take to mitigate the public accounts black hole? 

What are the prospects for growth over the next five years? 

What is the economic outlook for the UK – and what do things look like in other major economies? 

These questions are all answered by Roger Martin-Fagg in his September 2024 Economic Update for Vistage. Read on for some of his key takes on the current economic situation – and a link to the full report. 

“A public sector in need of repair, but a strong economy”

In 1997, Labour inherited a public sector in need of repair, but an economy that was strong. When they left office in 2010, they handed over an economy that had been damaged by the financial crisis, but public services that were in good shape. 

This time around, though, they inherited a public sector and an economy that were both in a poor state. Since the Election, they have already made some major changes – such as increased public sector pay awards – at the expense of other things, like the winter fuel allowance. 

One of Labour’s big challenges is to fill the £20bn black hole in the UK’s public accounts. This black hole stems from the Conservatives ending comprehensive spending reviews in 2021 – and in his report, Roger talks of the ways in which Rachel Reeves can mitigate this black hole. 

Is growth likely in the next five years?

There has been much talk of Labour increasing various taxes over the coming months and years. Some, says Roger, believe that increasing taxes will limit growth. 

This, though, is not the case. 

He explains how higher levels of taxation equal more money for the Government to spend on sectors like education, defence, health and social care. It does not change the total amount of money in the system – instead, it redistributes spending power to where it is most needed. 

What would limit growth, says Roger, would be the UK’s capacity to increase supply in response to higher demand. If the capacity is there, real GDP will grow. The UK, however, has limited capacity. 

According to best estimates, the UK can grow – in real terms – by 1.8% per annum. If the country makes any attempt to grow faster, says Roger, average prices – and inflation – will rise as a result. 

He explains that our dwindling labour pool is one major blocker to increased capacity. In the past, the UK had a significant pool of employable workers who could be hired when a business began to grow. Now, that pool is no longer there. The ageing population further increases the challenge: over the coming years, more older people will leave the workforce than younger workers joining it. 

Innovation, too, is driven by younger workers who are more open to taking risks. With fewer younger British workers entering the workforce, could immigration be the answer? 

The outlook for the UK

While the news is full of doom and gloom, Roger’s economic reports for Vistage always focus on the positives. Mortgage lending is up. The UK is in a more stable position than France or Germany. Money supply is now growing, and the composite PMI is above 52 – the number that corresponds with stable growth. 

The UK stock market is up, retail sales volumes are increasing, and real disposable income is growing. Tax increases on capital gains – which will mainly affect the top 20% of households – may increase worker supply, as some of those in their 50s and up may decide to work for a little longer for a more comfortable retirement income. 

The brand value of the UK continues to improve, says Roger. Of course, there are still challenges – but it appears there could be light at the end of the tunnel…

Download Roger’s latest Vistage Economic Update in full here.

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