Thanks for the article. While your case is very well made, the correlation between high growth and stock returns seems to be mixed anyway, so it's enough for me to just say that the valuations are very attractive and that sentiment will probably improve at some point. The fact that people are calling the UK investable now is just a bonus.
Yes, very good point. GDP growth doesn't equal stock market returns, although I think the general negative sentiment on the UK post 2016 hasn't helped valuations. I agree that sentiment should improve at some point, for mean reversion alone.
I was among those 88 who read your ‘Bull Case for the UK.’ At the time, I chose not to counter your position, mainly because my deep disdain for the socialist Labour front bench risked overshadowing my fundamental argument. Yet, in light of Labour’s first budget—which is marred by glaring economic blunders and is fast proving more calamitous than Liz Truss’s ill-fated attempt—I feel compelled to share some thoughts. From reckless public spending and poorly structured tax hikes to a worrying disregard for market confidence, Labour’s mishandling of fiscal policy is astonishing.
From the outset, the PR has been rather stupid, thus undermining confidence across all business sectors. I'll say nothing of an unqualified front bench (lacking business sense) that does not instil confidence. I authored recently wrote "Labour's Growth Strategy: A Comedy of Errors", detailing "economic slapstick." This included the estimated financial impact the hike in national insurance is expected to have on a cross-section of PLC. https://smallcompanychampion.substack.com/p/labours-growth-strategy-a-comedy
Additionally, Labour's first budget has proven to be a catastrophic misstep, arguably surpassing even the infamous Liz Truss debacle in its economic short-sightedness.
Top five economic blunders
Ill-timed tax hikes
Rachel Reeves' decision to raise taxes by a staggering £40 billion, including a significant 1.2 percentage point increase in employers' National Insurance contributions, has dealt a severe blow to businesses already grappling with economic uncertainty. This move threatens to stifle job creation and wage growth at a time when the economy desperately needs stimulation.
Unsustainable spending increases
While politically appealing, the budget's £70 billion boost in public spending, particularly in the NHS and education sectors, risks overheating the economy and fuelling inflation. This massive expenditure, not fully offset by tax increases, will likely lead to increased borrowing and potential long-term fiscal instability.
Misguided growth projections
Reeves' reliance on overly optimistic growth forecasts, including a projected 2% GDP growth for 2025, appears to be wishful thinking rather than sound economic planning. The OBR has already cast doubt on these projections, suggesting that the budget's policies may hinder long-term growth prospects.
Neglect of fiscal discipline
By abandoning previous fiscal rules and adopting a more relaxed approach to borrowing, Labour has potentially undermined market confidence in the UK's economic management. This shift could lead to higher borrowing costs and increased market volatility, reminiscent of the Truss era.
Failure to address structural economic issues
The budget's focus on short-term spending increases and tax hikes fails to tackle fundamental issues plaguing the UK economy, such as low productivity and regional inequalities. This oversight may result in missed opportunities for genuine, sustainable economic growth.
Thanks Elric for the detailed comment, for presenting an alternative view - and for being one of those 88 readers! I don't wholly agree with you though, although if you're biased by "deep disdain for the Labour socialist front bench", I'm biased by deep disdain for the Conservative Party after 14 years of inept economic management. I don't think Labour has made quite the errors of Brexit and austerity yet. Where we differ is that I still think tax rises were needed, they just went about it the wrong way; and I think the spending increases were necessary too (although based on conversations at Christmas, the train driver pay increase has really not landed well!) Also the fiscal rules had been abandoned multiple times before and I think Labour should probably be a bit looser as they risk boxing themselves into a corner again. On the structural economic issues, you're spot on. They do have time to turn it around but I agree that the PR has been rubbish to date. Reeves may need to go (I heard Rory Stewart say he'd sack her on the latest podcast).
I share your disdain for the so-called “Con-servatives,” but, truth be told, I don’t trust any of our political class. They all make lofty pledges and then fail to deliver. Labour, for instance, portrayed themselves as the sensible grown-ups, vowing to clean up politics—only to engage in even worse sleaze than the Conservatives, complete with suspiciously large favours from Lord Alli. On top of that, Reeves has been caught lying about her qualifications, and I’m certain Starmer knew but still deemed it perfectly acceptable to present a repeatedly embellished CV to the public.
I must also admit I’m a Brexiteer, primarily for economic reasons. Unfortunately, we’ve been saddled with feeble politicians too easily swayed by the UN, WEF, and the so-called climate agenda, all while failing to remove the stifling red tape that hinders genuine economic growth. They’ve neglected British businesses when they should be championing them.
Worse still, Labour’s first budget—touted as a fresh start—has proven even more disastrous than Liz Truss’s ill-fated attempt. It's poorly conceived measures will stifle growth and shrink our disposable income. In the end, Labour’s empty promises do little to repair the damage done by politicians of every stripe, leaving us once again to bear the brunt of their mismanagement.
And now, Reeves has pledged to tackle government waste. Perhaps she could start by finding a more sensible use for the £11.7 billion they’re funnelling into what I’d call “climate scam heaven”—money that, by their own estimate, might otherwise prevent around 4,000 pensioners from freezing to death. It would also make sense to reduce corporate taxes to attract major businesses while ensuring that tech giants like Alphabet, Amazon, and PayPal actually pay the tax they’ve been dodging every year.
I give Rory a wide birth.
Anyway, I do not wish to take anything away from your exceptional editorial.
Interesting article though you omitted one obvious, but deeply unpopular, strategy to get the Government's fiscal position under better control, namely increase the retirement age to say 70 as soon as practicable. Is it sensible in an aging society to provide retirement benefits for 20 years on average.
Appreciate the thoughtful and sober analysis. This is exactly the kind of content I'm on substack for - keep doing what you're doing!
Thank you!
Thanks for the article. While your case is very well made, the correlation between high growth and stock returns seems to be mixed anyway, so it's enough for me to just say that the valuations are very attractive and that sentiment will probably improve at some point. The fact that people are calling the UK investable now is just a bonus.
Yes, very good point. GDP growth doesn't equal stock market returns, although I think the general negative sentiment on the UK post 2016 hasn't helped valuations. I agree that sentiment should improve at some point, for mean reversion alone.
Hello Victoria,
A fabulous read. Thank you.
I was among those 88 who read your ‘Bull Case for the UK.’ At the time, I chose not to counter your position, mainly because my deep disdain for the socialist Labour front bench risked overshadowing my fundamental argument. Yet, in light of Labour’s first budget—which is marred by glaring economic blunders and is fast proving more calamitous than Liz Truss’s ill-fated attempt—I feel compelled to share some thoughts. From reckless public spending and poorly structured tax hikes to a worrying disregard for market confidence, Labour’s mishandling of fiscal policy is astonishing.
From the outset, the PR has been rather stupid, thus undermining confidence across all business sectors. I'll say nothing of an unqualified front bench (lacking business sense) that does not instil confidence. I authored recently wrote "Labour's Growth Strategy: A Comedy of Errors", detailing "economic slapstick." This included the estimated financial impact the hike in national insurance is expected to have on a cross-section of PLC. https://smallcompanychampion.substack.com/p/labours-growth-strategy-a-comedy
Additionally, Labour's first budget has proven to be a catastrophic misstep, arguably surpassing even the infamous Liz Truss debacle in its economic short-sightedness.
Top five economic blunders
Ill-timed tax hikes
Rachel Reeves' decision to raise taxes by a staggering £40 billion, including a significant 1.2 percentage point increase in employers' National Insurance contributions, has dealt a severe blow to businesses already grappling with economic uncertainty. This move threatens to stifle job creation and wage growth at a time when the economy desperately needs stimulation.
Unsustainable spending increases
While politically appealing, the budget's £70 billion boost in public spending, particularly in the NHS and education sectors, risks overheating the economy and fuelling inflation. This massive expenditure, not fully offset by tax increases, will likely lead to increased borrowing and potential long-term fiscal instability.
Misguided growth projections
Reeves' reliance on overly optimistic growth forecasts, including a projected 2% GDP growth for 2025, appears to be wishful thinking rather than sound economic planning. The OBR has already cast doubt on these projections, suggesting that the budget's policies may hinder long-term growth prospects.
Neglect of fiscal discipline
By abandoning previous fiscal rules and adopting a more relaxed approach to borrowing, Labour has potentially undermined market confidence in the UK's economic management. This shift could lead to higher borrowing costs and increased market volatility, reminiscent of the Truss era.
Failure to address structural economic issues
The budget's focus on short-term spending increases and tax hikes fails to tackle fundamental issues plaguing the UK economy, such as low productivity and regional inequalities. This oversight may result in missed opportunities for genuine, sustainable economic growth.
Thanks Elric for the detailed comment, for presenting an alternative view - and for being one of those 88 readers! I don't wholly agree with you though, although if you're biased by "deep disdain for the Labour socialist front bench", I'm biased by deep disdain for the Conservative Party after 14 years of inept economic management. I don't think Labour has made quite the errors of Brexit and austerity yet. Where we differ is that I still think tax rises were needed, they just went about it the wrong way; and I think the spending increases were necessary too (although based on conversations at Christmas, the train driver pay increase has really not landed well!) Also the fiscal rules had been abandoned multiple times before and I think Labour should probably be a bit looser as they risk boxing themselves into a corner again. On the structural economic issues, you're spot on. They do have time to turn it around but I agree that the PR has been rubbish to date. Reeves may need to go (I heard Rory Stewart say he'd sack her on the latest podcast).
Hi Victoria,
I share your disdain for the so-called “Con-servatives,” but, truth be told, I don’t trust any of our political class. They all make lofty pledges and then fail to deliver. Labour, for instance, portrayed themselves as the sensible grown-ups, vowing to clean up politics—only to engage in even worse sleaze than the Conservatives, complete with suspiciously large favours from Lord Alli. On top of that, Reeves has been caught lying about her qualifications, and I’m certain Starmer knew but still deemed it perfectly acceptable to present a repeatedly embellished CV to the public.
I must also admit I’m a Brexiteer, primarily for economic reasons. Unfortunately, we’ve been saddled with feeble politicians too easily swayed by the UN, WEF, and the so-called climate agenda, all while failing to remove the stifling red tape that hinders genuine economic growth. They’ve neglected British businesses when they should be championing them.
Worse still, Labour’s first budget—touted as a fresh start—has proven even more disastrous than Liz Truss’s ill-fated attempt. It's poorly conceived measures will stifle growth and shrink our disposable income. In the end, Labour’s empty promises do little to repair the damage done by politicians of every stripe, leaving us once again to bear the brunt of their mismanagement.
And now, Reeves has pledged to tackle government waste. Perhaps she could start by finding a more sensible use for the £11.7 billion they’re funnelling into what I’d call “climate scam heaven”—money that, by their own estimate, might otherwise prevent around 4,000 pensioners from freezing to death. It would also make sense to reduce corporate taxes to attract major businesses while ensuring that tech giants like Alphabet, Amazon, and PayPal actually pay the tax they’ve been dodging every year.
I give Rory a wide birth.
Anyway, I do not wish to take anything away from your exceptional editorial.
Best wishes,
Elric
Interesting article though you omitted one obvious, but deeply unpopular, strategy to get the Government's fiscal position under better control, namely increase the retirement age to say 70 as soon as practicable. Is it sensible in an aging society to provide retirement benefits for 20 years on average.
Yes. I'm 40 and have always assumed I won't draw a state pension until 70 at least.
Well done on an excellent synopsis
Thank you!