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King’s Speech: Setting a new economic direction? 

King’s Speech: Setting a new economic direction? 

image: @Anetta Zalewska | iStock

The King’s Speech announced a roadmap for a better and brighter future for the country, focussing on economic growth, further strengthening the NHS, stricter measures on crime, energy security, and the UK’s international standing on global issues, but how does the Government plan to do this?

This year’s King’s Speech set out the government’s ambitions and plans for the next 12 months. The government drafts the speech, although it is read aloud by the King. It is a modern reflection of a centuries-old tradition in which the monarch sets out the direction of parliament’s actions for the next parliamentary year.

Key themes from the King’s speech

The speech outlined a roadmap for a better and brighter future for the country, focussing on economic growth, further strengthening the NHS, stricter measures on crime, energy security, and the UK’s international standing on global issues.

Most of the legislation announced in the speech will have a longer-term impact. The speech needs to address the immediate concerns of the average household and add more hope for the most vulnerable in society.

The King’s speech started, “My Ministers will support the Bank of England to return inflation to target by making responsible decisions on spending and borrowing”. This is perhaps an odd phrasing, as the Bank of England is operationally independent of the Treasury and those controlling the fiscal remit; rather, it hints at the government’s vision on spending. We can infer that the government remains concerned by the slow rate of growth in the economy, as it is mentioned three times.

The indication is that growth is the primary measure of success in the economy; this is very similar to the pronouncements from Lizz Truss just over one year ago (A year on from Liz Truss’s mini-budget, the UK economy is still stuck in first gear  (Richard Partington: The Guardian); however this time the vision of how to achieve growth is much more classical. Hidden in the wording is a hint that the government would prioritise reducing inflation over government spending and might remain open to austerity-style activity if it supports the Bank of England’s action to control inflation.

What is the Network North proposal?

A key point in the speech that lacks clarity is the ‘Network North’ proposal, which replaces the recently abandoned extension of High Speed Two north of Birmingham. The government notes that £36 billion will be invested in a wide area across the Midlands and North. The phrase “prioritising improving the journeys that people make most often” makes us wonder if the bulk of the funding will go to large cities or contribute to the ‘levelling up’ of some of the UK’s poorest parts and most socially deprived parts. (The English Indices of Deprivation 2019 (publishing.service.gov.uk). Hartlepool and Middlesbrough in the North East and districts of Blackpool (North West) and Coventry (the least well-off in the West Midlands) could stand to gain if included in the Network North funding allocation. Some of these areas lack sufficient public transport to facilitate labour mobility, and as a result, long-term unemployment remains a perpetual problem.

Looking beyond the UK, the speech places hope on future trade deals, in particular the UK’s agreement to join the CPTPP trade bloc, which consists of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Japan is the UK’s 16th largest trading partner; all other members have less significant trading relationships with the UK. If South Korea opts to join the bloc, this would be beneficial to the UK as they are the 19th largest trading partner, according to Bloomberg data. This by no means substitutes for access to the European Union Single Market but is a positive step in promoting free trade and reducing the cost of imports.

What does it mean for the average household?

There is no immediate action that has been announced to alleviate the plight of nearly 4 million people who are living in abject poverty in the UK right now. The speech did not include anything to address the rising costs of essentials, a threadbare social security social security system, and the high levels of household debt. There was no indication of further spending on public services other than long-term investment in the NHS.

The NHS also gets a mention in the speech, not in terms of its funding immediately but its long-term resourcing. Currently, the health service has a 10% vacancy rate (12% in London), meaning one in ten jobs needs to be fulfilled. The ambition is to create a training pipeline within the UK, whereas the current practice is to try and fill vacant posts through international recruitment.

The plan also mentions that the NHS will aim to improve its ability to retain staff. However, some will see this in terms of future pay increases, not just working conditions as the plan suggests.

Economic growth was mentioned without referring to the growing income inequality across the country and the failure of the current levelling-up policy to provide the infrastructure, skills, and employment to the regions over the last 13 years of the Conservative government. Governments promise to support the Bank of England’s policy of rising interest rates to curb inflation, which will further fuel the rising household debt levels and cause significant pain to nearly 2 million households coming off fixed-term mortgage rates next year.

The NHS waiting list remains high at nearly 7 million people waiting to be seen by a doctor, and the ‘longer-term staffing plan’ does not solve the current crisis. Currently, the tax burden is the highest it has been in the last 70 years, and there was no mention of any tax relief or subsidy that would support the average household.

What does the speech mean for UK businesses?

The speech provided very little direction and ambition to UK businesses. Apart from amendments to competition law, there was no mention of an industry 5.0 vision for the UK, where investment would pour in and future jobs would be created. The UK is missing out on innovations in Green Tech to other European countries and the USA. The current Government needs to invest in or be able to attract the Green Tech investment required for sustainable economic growth in the UK.

The current business environment in the UK is uncompetitive with one of the lowest productivity levels in the industrialised world, and there should have been a mention of how we are planning out HE institutions to deliver the skills and competencies to upskill our current workforce to address the issue of low productivity and for the jobs of the future.

Overall, the King’s speech offers us a snapshot of the government’s ambitions as the words are set by the government and only read aloud by the King. By reading between the lines, we see continued acceptance of austerity measures and little new commitment to public spending.

Questions remain around levelling up, short-term funding for the NHS and Education as well as the cost of living measures, and a reexamination of the regulation of retail energy markets.

This piece was written and provided by Dr Michael Harrison – Senior Lecturer in Economics and finance – Royal Docks School of Business & Law – University of East London, and Dr Shampa Roy-Mukherjee – Associate Professor in Economics and Vice Dean – Royal Docks School of Business & Law – University of East London.

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