It was hardly the message Chancellor Rachel Reeves would have been looking for a day before a Spring Statement which could well make or break her political career. The Governor of the Bank of England, Andrew Bailey, delivered a speech yesterday warning that growth was going to prove very hard over the next five years. The Governor is completely right to emphasise how hard it will be to expand the economy. But he should be making the case for far more radical reforms. If he won’t, no one else will.
Bailey is staying within the ‘managed decline’ consensus
To paraphrase PG Wodehouse on Scotsmen, ‘the difference between the Governor and a ray of sunshine is not hard to detect’. In a speech at the University of Leicester, Bailey argued that the UK was going to struggle to grow significantly over the rest of this decade. A combination of tariffs, wars, and an ageing population will make any expansion very difficult.
‘The story of growth is, I am afraid, quite clear,’ he argued. ‘It has slowed markedly in the last fifteen years.’ The only way he could see out of the fix was ‘some quite large technological advance’ such as artificial intelligence. In other words, we are completely stuffed, and only ChatGPT can save us.
It was interesting to note that Bailey didn’t mention any of the Chancellor’s ‘growth, growth, growth’ reforms, nor the ‘green industrial strategy’ the government puts so much faith in. He clearly doesn’t think either will make any difference. Even so, it would be hard to dispute his analysis. The UK has been stuck in an economic rut for a long time now, and it is hard to see that changing anytime soon.
The trouble is, Bailey should be far bolder. Sure, AI is still very much an unknown quantity. But it is hard to believe it will necessarily rescue us. There is very little evidence that earlier waves of IT, even though they changed the way we live and work, did anything to help the economy expand. The UK is hardly a global leader in this technology either: AI will probably do more for the economy of San Francisco or Shanghai than anywhere in Britain.
But there is still plenty we could be doing to kick-start growth. We could move a lot faster on planning reform, such as scrapping judicial review, so that approvals were far easier. We could drop the net zero targets which have crippled manufacturing with some of the most expensive industrial electricity prices in the world. We could re-boot industry in the North Sea by allowing new licenses, and even reconsider fracking given that it has proved safe in the US and Canada. We could also launch a round of deregulation or match Ireland’s 12.5 per cent corporate tax rate, which generates so much extra cash the government has trouble spending all the money.
If the Governor of the Bank of England was making the case for all those reforms, it would make a real difference. Instead, Bailey is staying within the ‘managed decline’ consensus – and that means the zero growth he gloomily forecasts is probably all we can expect.
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