The UK Chancellor of the Exchequer, Rachel Reeves, has made a financial statement to the British parliament. She was reluctant to call it an emergency budget. Opposition politicians were less reserved. However, the overall impression for business was lacklustre. There was nothing to help boost the UK economy in the short term.
Rising employment costs and overall tax burdens are suppressing the UK economy. Coupled with falling productivity, there is some surprise at the resilience of UK trade. However, there are warnings that plain sailing is coming to an end, with official figures putting growth at a very weak one per cent.
Rough waters for trade
The long-term effects of the UK Spring Statement will wind down into the trade sector in the coming months. Rising employment taxes and a corresponding slump in recruitment is affecting overall growth. The official office of Budget Responsibility has downgraded UK growth expectations by half, down to one per cent. Warnings from employers have now begun to crystallise, with blue-collar sectors (such as supermarket chains) announcing layoffs.
Domestic issues, including slowing demand, are on the cusp of affecting international trade and logistics. Tightening belts amid rising prices, rising taxes, and falling employment reduces purchasing power, leading to fewer containers needed to stock warehouse shelves. Britain has a well-documented shortage of rail-served warehousing and logistics infrastructure in general. Suppressing economic growth may not be the best way to go about solving that issue.
Nothing new, await Spending Review
Rachel Reeves claimed she was nine months into a “decade-long” programme of economic reform. She claimed that the economy would return to surplus within two years. She was adamant that she would not review her own financial parameters. She said there would be tax changes in her statement, but that she would significantly increase tax evasion measures – an issue that remains a multi-billion pound issue for the UK.
Reeves made frequent reference to the forthcoming Spending Review – expected in June. The Spending Review will outline specific projects or, more pertinently, which projects may be dropped. She concluded by admitting that turning around the stagnant economy would not happen overnight. It may be a matter of years before she can return to the House of Commons in such a confident mood.
Low margin, low profit, low confidence
The shadow chancellor, Mel Stride, replied with equal vigour. He said that Reeves had brought about her own downfall by persistently talking down the UK economy. He said today’s statement had brought her to a cold hard reconning. growth has been halved according to the independent Office of Budget Responsibility.” This is going to mean prices bearing down on households and businesses. Nor will unemployment fall in the short term, he said, with jobs being lost across the entire economy.
No matter which politician is in charge, rising costs and falling revenue still dominate the UK economy. That is a climate that is most damaging for low-margin, low-profit operations. Unfortunately, if there was a way to describe the UK rail freight industry in one phrase, that would be it. There have been hundreds of quiet (and not-so-quiet) closures in the road freight industry already. The same could happen to a rail freight carrier in the UK. Already, at least one operator (Freightliner) has admitted to its staff that a buyer would be welcomed.
Questions over infrastructure spending
There seems little prospect of domestic funding to make right the elusive growth sought by Rachel Reeves. The national debt is already running at 100% of GDP. That’s not historically exceptional, but servicing the debt is extracting revenue growth and the ability to invest. In these conditions, expect trade and transport infrastructure to take a back seat. Instead, welfare, health care, and defence were all the subject of re-announced funding pledges.
It seems that if any growth is to come in the UK transport and trade industries, it will come from the private sector or overseas investment. Peel Ports development at Liverpool and DP World’s London Gateway expansion offer examples of each scenario. However, private investors are unlikely to fund repairing Britain’s notoriously neglected roads, nor is any investor stepping in to fund projects like the Ely Area Capacity Enhancement rail project.
The Chancellor set a great store for announcing increasing infrastructure capital spending by GB£2bn annually. However, that must cover everything from potholes in roads to holes in school roofs. Freight sidings and port berths cannot be expected to be high up on the spending list. Whether her pledge to make Britain a “defence industry superpower” remains to be fulfilled. She did emphasise that a new “defence growth board” would be at the heart of a modern industrial strategy for Britain. Right now, most observers would agree that Britain feels anything but an industrial superpower.