The King’s Speech aims to address fundamental issues within the economy, focusing on essential aspects like infrastructure and policy to “get Britain building.”
These initiatives are expected to take well into next year before any noticeable impact on economic growth materializes.
A key legislative highlight announced by His Majesty is the promotion of “economic stability.” This is significant because stability is usually an assumed condition in the UK rather than something needing legislation.
The plans include numerous detailed changes affecting government decisions on planning, infrastructure, housing, and transport. The overarching goal is to provide private investors with greater certainty regarding the economy and government policy.
One notable proposal is the “Budget Responsibility Bill,” which is essentially designed to prevent a repeat of the disastrous mini-Budget presented by Liz Truss. Future chancellors will no longer be able to disregard the Office for Budget Responsibility (OBR), the government’s independent financial forecaster, as Truss did when she announced £45bn in unfunded tax cuts in late 2022.
The intent is to establish a foundation of credibility and stability that will attract investment into the UK, reduce borrowing rates for households, businesses, and the government, and maintain these lower rates over time. This initiative is internally referred to as “fixing the foundations.”
Key Takeaways from the King’s Speech
- Economic Stability: The speech emphasizes the need for economic stability through new legislation.
- Planning and Infrastructure: Reforms to decision-making processes in planning, infrastructure, housing, and transport are aimed at boosting investor confidence.
- Budget Responsibility Bill: This bill aims to ensure financial decisions are scrutinized by the OBR, preventing unilateral decisions like those made by Liz Truss.
The OBR’s role has been solidified in evaluating the affordability of every policy announced in the speech. It will also play a crucial part in assessing whether these policies will foster growth.
Is this approach transformative? The government argues that stability itself is nearly revolutionary after years of instability. However, the question remains whether legislation is necessary to prevent future fiscal missteps akin to Liz Truss’s.
A significant outcome of this strategy is anticipated this summer when the OBR will evaluate if these reforms are likely to spur growth. The OBR has previously supported policies expected to boost the economy, such as former chancellor Jeremy Hunt’s childcare policy.
Should the OBR endorse Labour’s proposed laws as growth-positive, it would facilitate better economic trade-offs, reducing the need to cut spending or raise taxes. Conversely, if the OBR does not foresee substantial growth from these plans, Labour may face difficult decisions regarding tax increases or spending cuts in the upcoming Autumn Budget and Spending Review.
The government is leveraging its substantial majority to implement some politically challenging changes aimed at fostering long-term growth.
The success of these measures remains to be seen, as they focus on long-term results that may take considerable time to manifest.
