By Alistair Smout and Kylie MacLellan
LONDON (Reuters) -Britain’s finance minister Rachel Reeves set out plans on Monday to increase house building, unblock infrastructure projects and attract private investment as part of a new “national mission” to drive economic growth.
After last week’s landslide election win propelled the Labour Party to power after 14 years in opposition, Reeves and Prime Minister Keir Starmer agreed at the weekend on first steps to show they were moving quickly to tackle deep-seated problems.
“We know we can’t turn things around overnight. We face a dire inheritance. But this is our down-payment,” Britain’s first female finance minister said in a speech in Westminster.
Reeves said the government would restore mandatory house-building targets for local authorities, fund the hiring of more planning officers, speed up planning approval for infrastructure projects and prioritise unresolved planning decisions.
To boost the green energy sector she said the government would accelerate the development of large projects by assessing them nationally and not locally, and end an effective ban on onshore wind farms.
“There is no time to waste,” she said.
Reeves and Starmer face one of the toughest to-do lists of any incoming government, needing to drive growth to help finance increased spending on public services without breaking a pledge not to raise the main taxes paid by working people.
That is a challenge given Britain’s economy has been the second-weakest in the G7 since the COVID pandemic, with British economic growth this year set to be below 1%.
Living standards have stagnated since 2010, public debt is at almost 100% of national economic output and tax as a share of GDP is on track to rise to the highest level since just after World War Two.
DIFFICULT DECISIONS
Reeves said she was willing to take difficult decisions to reignite growth even where there may be local opposition to projects.
“We will not succumb to a status quo which responds to the existence of trade-offs by always saying no, and relegates the national interest below other priorities,” she said.
“Those difficult decisions have been ducked and dived and deferred for the last 14 years. I think you can see today that I mean business.”
Reeves said she had ordered a report on the state of the country’s “spending inheritance” and would present the results before parliament’s summer break, before holding a full tax-and-spend budget later in the year.
Raoul Ruparel, who advised former Conservative prime minister Theresa May, said the report was likely to show the budget plans inherited by Labour were not credible, with their reliance on more spending cuts for stretched public services.
“So (it) will pave the way for some more radical changes to tax and spending plans potentially,” Ruparel – now director of the Boston Consulting Group’s Centre for Growth – said.
HONEYMOON PERIOD
Reeves, a former Bank of England economist, said Britain would once again be able to offer business a sense of stability, after many international investors were put off by the 2016 vote to leave the European Union and the rapid succession of prime ministers that followed.
According to official data, inward foreign direct investment was down in four out of the last five quarters.
“What (the election) does is relieve that uncertainty – it allows overseas investors to invest with more security,” said Toby Gibb, head of investment solutions at fund manager Artemis.
Chief investment officer at BlueBay Asset Management, Mark Dowding, said while the speech held no surprises, “the general sense is that there will be a bit of a honeymoon period where investors will want to give Reeves the benefit of the doubt.”
“The focus will now be on the budget in the autumn,” he added.
For voters, a key concern has been the lack of housing for a population that has grown quickly in recent decades as a result of high immigration, pricing many people out of the market.
Aynsley Lammin, an analyst at Investec, said the changes would support a greater supply of new homes, but added that local opposition and a shortage of construction workers needed to be fixed to open the way for more home-building.
(Writing by William Schomberg, Kate Holton and Alistair Smout; additional reporting by Paul Sandle, Aby Jose Koilparambil, Dhara Ranasinghe and Naomi Rovnick; Editing by Catherine Evans and Christina Fincher)
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