Britain’s hollow growth strategy

This is my latest comment from Fund Strategy.

Many readers will assume I am delighted about the news of Britain’s strong GDP figures as well as the prime minister’s upbeat speech on growth. Those who follow these comments more carefully will expect me to be more sceptical.

Admittedly the headline GDP figures were good. GDP grew by 0.8% in the third quarter, according to the provisional estimate after a 1.2% spurt in the second quarter. However, a note of caution is needed. Much of the growth was in construction; which increased by 4.0% in the third quarter and 9.5% in the second. Once the effects of fiscal stimulus subside it is hard to see construction contributing anything like that to overall growth.

David Cameron’s speech, and the accompanying National Infrastructure Plan, are a triumph of headlines over substance. A cursory reading yields the sound bite that the government wants: “a bold plan for growth”. But a closer look reveals the opposite.

It is easy to support growth in principle but the cautious climate means that ambitions are quickly scaled back.

Given the scale of state involvement in the economy, even after the latest round of cuts, it is easy to write an impressive sounding list of government projects. Some projects may cost millions or even billions of pounds but it does not follow that the level of spending is sufficient compared with what is needed.

Overall capital spending is to be cut by 29%. This figure alone suggests that there will be far less spending on infrastructure than in the recent past.

In addition, many of the measures “announced” by David Cameron were revealed by the previous government. This includes a high-speed rail programme to Birmingham, which will not even start construction till 2017 and a “superfast” broadband which is set to be 10% of the speed of that in Korea.

A closer look at the infrastructure plan is also revealing. For instance, in relation to energy the emphasis is on meeting targets to reduce carbon emissions, improving energy efficiency, developing affordable low carbon energy and increased security of supply. The most important factor – generating more energy – receives scant attention. The government says it favours more nuclear power stations but makes it clear there will be no public subsidy.

Then there is what is not mentioned. For instance, the Conservative manifesto promised to block plans for a third runway at Heathrow as well as second runways at Stansted and Gatwick.

Unfortunately, the bold rhetoric about growth swiftly melts away when subjected to scrutiny.