Is it the responsibility of Government to directly stimulate economic growth, or is it for them to create the environment where businesses invest themselves? Statism, or interventionist supply side policies are coming to the fore once more, and for the incoming Labour Government,  there are a myriad of policy proposals designed to achieve growth. Starmer has stated that he believes the budget shortfall can be addressed through growth (as opposed to tax increases or borrowing) which is a bold statement.

So analysed further, what would this take to achieve? The UK currently generates 1.1 trillion in receipts. Meanwhile, borrowing is forecast currently at 128.7 billion. Put simply therefore, receipts would need to increase by 18% just to break even. For this to be a function of economic growth, it would mean every category generating nearly 20% more, without tax going up… And that’s before one considers the spending increases planned for.

Hence what we could well see, is a Keynesian style strategy, to plan for borrowing to increase temporarily, to enable the country to achieve that 20% in tax receipts. Given the biggest generator of tax is income, for the plan to work, Labour has to start by getting more people working. Hence the plans we have seen so far have led on that premise. Interestingly, the UK has an economic inactivity rate of 21.9% for people aged between 16-64 (so not in employment, education or training) so reducing that will also reduce the social security bill. The danger of course, is that there becomes a temptation to underwrite failing sectors. Should Port Talbot be kept going through subsidy for example? The Tories offer was not enough. How much more will Labour have to commit to?

Against this backdrop, we can see that in the private sector, vacancies have been lower in 2024 in four of the first six months of the year so far. Similarly, in both business quarters, vacancies are lower year on year also. Arguably the election announcement has depressed June activity though, so looking ahead, we are forecasting July to be a busy month to compensate. As for the second half of the year? Much will depend on whether the Labour party can foster the environment businesses want to invest in. But will they be able to do this? If not, a return to a statist economy beckons…