The Spring Budget: Navigating the potholes ahead

The Spring Budget reported positively on the economic context, with projected trends on inflation, economic growth and debt all going in the right direction

The economy has proved more resilient than expected, the output is returning to pre-pandemic levels, and the UK retains a fundamentally dynamic business environment.

The Spring Budget’s four E growth focus – education, employment, enterprise and everywhere – will require a fine balance between what is needed for today and what is needed for the future. Unlike halving inflation by the end of the year, the four Es will take a decade or more to deliver truly.

Behind the short-term headlines, there are clear signs that the approach to achieving growth is changing on two particular topics. The first is a move to a more top-down innovation policy, as shown in the recently published science and technology framework, which identified five technology areas the government wants to prioritise. Second, there will be a more local, place-based approach to growth through devolution, as evidenced by the Freeports programme and the newly announced Investment Zones. Whilst each of these initiatives is welcome, there are inherent tensions and potholes in the road ahead that will need careful navigation.

The UK public wants greater direction from the government

On innovation policy, many people have asked for greater direction from the government about its priorities for growth and what it sees as the specific areas and opportunities that will differentiate the UK on a global stage. There is rightly nervousness about doing this, with some questioning whether it is the role of government to intervene in something that should be left to the private sector. But recently, there has been a clear shift towards a more top-down policy. The new science framework explicitly states, “where necessary, the government must be prepared to intervene to shape markets”. The challenge, though, is how to do that in a way that doesn’t crowd out other areas of potential growth. This should build on previous examples of pro-innovation regulation and environments for experimentation, like the Future Mobility Testbed in the West Midlands.

The other area of future tension will come from a greater focus on local initiatives, which will require the central government to step back and leave local bodies to make decisions on investment. What if some of these initiatives fail? Will the public judge this to be the fault of Whitehall at the next election or recognise it’s the locally elected bodies now calling the shots in these areas? And will the government be able to offer more flexibility to local bodies to allow them to tailor their approach to what is likely to have an impact based on what works in these localities?

For example, the Investment Zone policy offer allows qualifying Zones to use their £80m funding envelope flexibly across various fiscal incentives and funding opportunities. However, the policy model is otherwise broadly comparable with the offer available to Freeports, which includes some constraints. For example, businesses wishing to benefit from the Freeport grants need to use 600 hectares of land to qualify. This may be fine for a new manufacturing plant but is more challenging for investment in the creative industries which may not need another large studio. This underlines that to enable more distinctive solutions based on local circumstances and insight; the centre will need to loosen its grip on decision-making.

Balancing the need for staff today against investing in skills for tomorrow

One final pothole on the road to growth is getting the balance right between the need for staff today and investing in the skills for tomorrow. A lot of focus now is on securing employment capacity through retaining the talents of people in their 50s and encouraging the economically inactive back into the workforce. However, despite concerns about technology replacing jobs, new skills will be needed, and new professions will emerge in areas such as Digital, AI and Quantum. The labour market innovation pilots will be increasingly important in delivering these new skills across the workforce at all ages.

The UK’s productivity puzzle, with weak economic growth, key skills gaps and stresses in many services, has been persistent and profound. To build on the signals in the Spring Budget, we need to be inspiring, including and iterating actions that deliver prosperity everywhere and for everyone. We believe that means encouraging more experimentation, welcoming disruptive thinking, and accelerating the pace of moving ideas into implementation, allowing places to carefully pick and double down on the distinctive areas in which they will help the UK prosper in the future.

Written by Tim Pope, local government expert, and Conrad Thompson, regulation and innovation expert at PA Consulting