For the Government, the latest ONS figures must have come as an unwelcome surprise. GDP has contracted for a second consecutive month, and unless June brings a marked improvement, the second quarter will register the first quarterly decline since 2023. Despite Labour’s protestations, Rachel Reeves in particular attributing sluggish growth to global headwinds, it is difficult to escape the conclusion that the policy framework enacted over the past year has stalled the economy.

Meanwhile, the Office for Budget Responsibility reports that current spending in 2024 25 exceeded the March 2024 forecast by £23.2 billion, with higher wages for public sector staff averaging over 5% among the principal drivers.

On top of this, the Employment Rights Bill as drafted is estimated by the CBI to add £5 billion in costs, already prompting firms to delay hiring amid concerns over day one rights. The ICAEW and FSB warn that 79% of SMEs expect their compliance bills to rise, with many considering headcount cuts, automation or wage freezes in response.

The Government has also so far failed to address the welfare crisis. In 2024 some 148.9 million working days were lost to sickness, 7% more than in 2019, and nearly one million 18 to 24 year olds were NEET, up 29% on pre pandemic levels. Only 47% of households qualify as net contributors to the Exchequer, a share well below most OECD peers.

Nor has the policy on immigration provided relief. Net migration fell by 431,000, meaning a smaller workforce. Unless productivity rises sharply, GDP will remain under pressure. The quickest way to revive headline growth would be to liberalise visa rules once more, a step one might have expected were it not for the Reform Party’s resistance.

The culmination of these policies has been to stall direct foreign investment, with a 12% drop in FDI projects in their first 12 months in Government, compared to the previous year. Along with that, FDI project numbers are at their lowest since 2007-8. The policy framework required to reverse this includes:

• Committing to a stable predictable tax regime (no more tax increases on business)
• Ensuring headline rates remain competitive, with 25% corporation tax sitting above most major economies
• Streamlining regulation rather than add to business burdens through costlier employer obligations

Labour’s stated solution is investment led expansion. Yet many of its flagship schemes lack realism. The proposed power required for its AI infrastructure alone would lift domestic energy demand by over 30%. Great British Energy remains untested, clean technology per unit costs are still high, and new SMR capacity cannot replace ageing reactors overnight. Its plan to build thousands of homes in the South East founders on a chronic shortage of skilled tradespeople.

Yet there are glimmers of hope in the newly unveiled Leeds reforms. Key measures include:

• Global investment push: Concierge service launched to attract international financial firms
• Homebuyer support: Higher LTV mortgage guarantees, 4.5× income lending, and simpler remortgaging rules
• Regulatory streamlining: Senior Managers Regime burden halved to reduce compliance costs
• Capital unlocked: MREL threshold raised from £25bn to £40bn to boost bank lending
• Basel alignment: Basel 3.1 delayed for investment banks, supporting UK competitiveness
• Ring-fencing review: Economic Secretary to reassess retail–investment bank separation rules
• Startup growth support: Single regulatory contact and £25.6bn British Business Bank funding expansion

The Chancellor is effectively rolling the dice that deregulating financial services will unlock growth. Whether that gamble pays off may determine if the UK can break free from its current economic malaise and whether the Labour Government can win another election. With that, if Reeves can solve this conundrum, she may well go down as the Chancellor who finally made UK PLC boom again.

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