Only last week, the Chancellor set out, once again, the Government’s ambition to get the economy moving. The language is familiar: growth, investment, opportunity and, of course, AI. This Government likes talking about growth, while choosing policies that make it harder to achieve.
The route to economic growth is not a mystery
And it is not because this country is short of plans. The Government is constantly rolling out new strategies for growth: industrial strategies, sector deals, missions, frameworks. What we lack is a willingness to pursue the kind of economy that actually delivers sustained growth – one that is flexible, competitive and unashamedly pro-enterprise.
Instead, Britain is drifting towards a different model: higher regulation, higher costs and lower dynamism. Something closer to the European norm, at precisely the moment when the gap between Europe and faster-growing economies like the United States is becoming impossible to ignore.
Britain keeps putting obstacles in the way
Take the labour market, which long used to be one of Britain’s strengths. Flexibility helped drive employment to record highs in the years before the pandemic. But that advantage is now being eroded. Policies that make it harder to hire and fire, as we’ve seen with the Employment Rights Act, have increased the risks of taking on staff in the first place.
We have seen where this leads – higher costs and tighter rules reduce hiring, leaving more people – especially the young – shut out of work altogether.
There is a similar tension around the minimum wage. A minimum wage can support incomes, but it is not cost-free. In sectors like hospitality and retail, there are already signs that higher wages are feeding through into reduced hiring and, in some cases, job losses. These trade-offs are real, even if they are politically inconvenient.
Then there is the question of incentives. Britain has built a tax system that increasingly penalises progression and success. Frozen thresholds, the tapering of allowances and sharp cliff edges around benefits mean that for many, earning more does not translate into keeping more and getting on in life.
A huge element of growth depends on people choosing to work harder, invest more and take risks. A system that discourages those choices will, over time, deliver weaker outcomes.
And while the labour market and tax system shape incentives, the planning system shapes what is physically possible. And here, Britain’s record is particularly stark.
We struggle to build everything from homes to infrastructure and energy. Projects that should be routine become drawn-out battles. The result is a chronic shortage of housing, infrastructure constraints that hold back productivity and energy costs that rank among the highest in the developed world.
High energy costs, in particular, are a direct drag on growth. We have witnessed (and likely will now witness further) the squeeze on households and, crucially, on businesses, deterring investment and making it harder for British firms to compete internationally.
On top of all this sits the longer-term challenge of demographics. An ageing population and falling birth rates mean fewer workers supporting more retirees, placing sustained pressure on public finances.
Lower migration (a legitimate and necessary choice given the wider social trade-offs) makes that challenge more acute in the short term. But it also forces a more honest reckoning with the underlying issue: Britain is simply not having enough children to sustain its economic model. Avoiding that reality by relying on migration is not a long-term solution.
Yet this remains one of the least addressed questions in British politics. So far, no major party has been willing to grapple seriously with what it would take to raise birth rates – or to be honest about the consequences of failing to do so.
Growth demands choices politicians fear
Of course, none of this is inevitable. Britain retains enormous strengths – deep capital markets, a global outlook and a track record of innovation. But strengths alone are not enough if the policy environment works against them.
Growth ultimately comes from people – their ideas, their effort, their willingness to take risks and build something new. If we want a more prosperous country, we need to start by trusting the people.
The uncomfortable reality is that growth-friendly policies are often politically difficult. They involve trade-offs, disruption and a tolerance for risk. It is easier to promise growth while pursuing caution than it is to embrace the changes that growth requires.
That is the choice Britain now faces.
