Competing narratives trouble the Government

The Government is struggling to manage the flow of information as it tries to challenge negative narratives about the state of the UK, Paul Montague-Smith, senior counsel – public affairs, writes.

Which narrative do you buy into?  Inflation falling. Wages growing at their fastest rate for three years. More than 70,000 jobs created since the election. The UK voted the second most attractive destination for private investment and on track to be the fastest-growing major economy in Europe.

Or the economy facing stagflation. Government borrowing higher than expected. A record rise in businesses in severe financial distress and the sharpest fall in business confidence in two years. Fewer companies hiring and many – particularly in retail and hospitality – shedding thousands of jobs.

Both can of course be true.

But such is the concern within Government about where things are heading – or not heading – that we’ve seen an almighty flurry of announcements and activity by the Prime Minister and Chancellor to try and turn the tide and instil confidence in our economic future.

In the Swiss mountains at Davos, where the political and business elites gather once a year to network, the Chancellor was in self-confessed sales mode, meeting as many business leaders as possible to sell the UK as a destination for investment. It’s needed.

While the UK may be viewed as an attractive destination to invest in surveys, the stats show that the number of foreign direct investment projects has pretty much flatlined over the last four years and they are fewer in number than pre-pandemic.

Aside from courting international investment, in its desperate pursuit of growth the Government appears ready to smash down barriers that may be holding our economy back. In fact, we seem to be witnessing a wholesale resetting of the Labour Party’s narrative around regulation, making it more akin to Maragaret Thatcher and, dare I say it, Liz Truss than Tony Blair or Gordon Brown.

Changes to our planning and legal systems are on the way to make sure everything from houses to nuclear power stations don’t take eons to get approved and built. No more putting bats ahead of builders. More runways are now considered to be good.

Regulators across all sectors have been told to up their game and make sure they support growth, with the Chair of the Competition and Markets Authority sacked to drive the point home that the status quo is not acceptable.

In the financial services sector, the hundreds of billions of pounds in pension schemes, including current surpluses in defined benefits schemes, are to be unleashed to invest in (hopefully) the UK economy.

The Chancellor is also hosting a series of industry forums to hear businesses’ views on what the Financial Services Growth and Competitiveness Strategy, due in the Spring, should include.

Some of these initiatives will no doubt help future economic growth. But the benefits probably won’t be seen in this parliament.

Having boxed herself in on tax, there’s a fair chance that Chancellor will have to revisit her spending plans to stay within her ‘non-negotiable’ fiscal rules. Whatever happens elsewhere, tough decisions on the ballooning welfare budget will have to be made in any event.

Spending on health and disability related benefits is set to rise by a third to over £100bn a year by 2030.  Labour backbenchers could quickly become very disgruntled and rebellious if even a whiff of austerity is smelt in Westminster.

The impact of the new emphasis on growth for sector regulators will probably be more muted than the recent headlines imply. The FCA’s primary objectives in legislation are to protect consumers, protect the financial system and promote competition (in the interests of consumers).

It’s duty to promote our international competitiveness and economic growth is defined as secondary. It’s not dissimilar for other regulators, who have a primary duty to protect consumers and who tend to only have to consider the ‘desirability of promoting economic growth’, which is put into practice through the principles of taking action only where necessary and only doing so in a proportionate way.

The FCA has reasonably flagged to Westminster that it is happy to look at what more it can do to reduce regulatory burdens and promote growth, but politicians will have to accept things going wrong more often and shouldn’t give them a kicking when they do.

Unless the primary statutory objectives of regulators are changed, though, consumer protection considerations will still have to trump economic growth.