The UK Budget

Today, on October 30th, 2024, Chancellor Rachel Reeves will announce her highly anticipated UK Budget. While much of the attention will be on immediate measures like tax hikes and cuts to public spending, any substantial impact from investments made today will take years to fully materialize. This reality underscores the need to consider the long-term prospects of the UK economy, rather than focusing solely on short-term fixes.

In a recent Balance Sheet livestream, Prof. Simon Deakin , from Cambridge Judge Business School, highlights a key point: investment in public infrastructure is vital for the UK's future, and contrary to common belief, it does not "crowd out" private investment. In fact, it can foster a healthier economic environment that encourages private sector growth. His insights remind us that today’s Budget isn’t just about managing deficits—it’s also an opportunity to lay the foundation for long-term economic resilience.

Addressing the Productivity Challenge

A central issue in the UK’s economic landscape is low productivity. According to Deakin, this problem stems from years of underinvestment, especially since the global financial crisis of 2008. The UK’s productivity lags behind both mainland Europe and the US, which translates into stagnant wages for many workers. Low productivity results in longer working hours with less output per hour, making UK workers among the least productive in the developed world.

Reeves’ Budget needs to tackle this head-on, not just with temporary spending but by making commitments to long-term investments in key areas like education, technology, and infrastructure. These will take time to bear fruit, but are essential for reversing the productivity decline. Prof. Deakin emphasizes that while AI and other technological advances have improved productivity in certain sectors, their widespread benefits across the economy have yet to be fully realized.

Public Investment as a Catalyst

Deakin also points out that public investment plays a critical role in driving private sector growth. There is a misconception that government spending somehow limits private sector opportunities. In fact, as Deakin explains, public sector investment often provides the necessary infrastructure that enables businesses to thrive. For example, major public infrastructure projects like Crossrail in London have generated huge opportunities for private companies by improving transport links and boosting productivity.

In places like Cambridge, where public investment in research and innovation infrastructure has attracted global companies in pharma and AI, the benefits are clear. Deakin argues that such models can be replicated across the UK, but only if the government commits to consistent, long-term investment in public services and infrastructure beyond London and the South-East.

Rebalancing the UK Economy

One of the key goals for Reeves' Budget should be rebalancing the UK’s regional disparities. Currently, investment and growth are concentrated in London, Oxford, and Cambridge, leaving many parts of the UK underdeveloped. By decentralizing public investment, the government can create regional hubs of innovation and growth, similar to Cambridge’s success in tech and life sciences.

As Deakin notes, there is nothing inherently unique about Cambridge that prevents this success from being replicated elsewhere in the UK. It’s about creating the right public-private partnerships and supporting both public infrastructure and education to provide the skilled workforce businesses need to thrive.

Conclusion

As the Budget unfolds today, it’s critical to remember that while immediate changes to taxes and benefits will dominate the headlines, the real test of this Budget will be in its vision for the future. Investment in public infrastructure, education, and technology will set the stage for long-term growth. As Prof. Deakin rightly points out, public investment doesn't hinder private growth—it supports it. What’s needed now is a Budget that not only fixes today’s problems but also builds the foundation for a stronger, more resilient economy in the decades to come.

You can watch the full episode here

What’s your take on the long-term prospects of the UK economy? Let’s discuss!

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