UK Chancellor Reeves’ Big Push for Growth

Political analysis

Britain’s got a serious problem: deep-seated, structural lack of economic growth. It’s dogged the UK economy since the financial crisis. The economic shocks of Brexit and Covid have made it worse. And the path out requires committed, long-term reform.

Rachel Reeves and Keir Starmer promised they would change Britain, and we would have the fastest growth in the G7. “Low growth is not our destiny,” as the chancellor said. That doesn’t happen easily or quickly though—growth won’t come “without a fight.”

On winning the election, and with debt at historic highs and little room for tax increases or borrowing, the new government knew immediate action was needed. Within days of taking office, Starmer and Reeves moved quickly, announcing initiatives on housebuilding, planning, and energy infrastructure—signals that they were serious about unlocking investment. These efforts were supported by a Green Paper on Industrial Strategy, an international investment summit, and the Mansion House reforms for financial services—laying the groundwork for economic change.

Not so. While these measures will take time to filter through, growth remains stagnant, and the government has struggled to reassure business after a tax-raising budget and new worker protections.

The chancellor’s speech yesterday is not a change in strategy. In fact, most of it was signaled clearly before the election. But she has made a conscious decision to focus on the story of what growth can bring as well as the simple raw numbers and percentages. And she has taken the brakes off her plans.

It was an assured performance from Reeves, reiterating her determination to turn around this government’s economic inheritance. As she has said for many months, she repeated her mantra of stability, investment, and reform. In her language, stability is the new normal—it is “the prerequisite for growth.” And with unwavering commitment to this approach, she hopes to give confidence to international investors.

Yesterday’s measures and her wider approach are a big bet on supply-side reforms. If the infrastructure push, regulatory shake-ups, and financial sector reforms don’t deliver medium- to long-term growth, the entire economic strategy will be discredited—and with it, this government’s mandate to govern.

The political question is whether it will deliver visible improvements—better infrastructure, higher wages, and more jobs—before the next election. Those at the center know the economic benefits might take time to feed through, but they want to see “cranes in the sky” well before the next election.

Can the government push these reforms through in the face of inevitable backlash—not just from those left behind but also from Labour MPs in marginal seats, wary of the local impact? Government figures welcome the political fight as proof of their determination to get things done. But all fights involve pain.

Reeves is also taking a gamble on regulators—pushing them to prioritize growth over red tape. But deregulation carries risks: If a major failure hits financial markets, consumers, or the environment, Labour will own the fallout.

At the moment these are just announcements—consultation, policy, legislation, and spending will follow. Getting government and regulators to focus will mean that No. 10 and the Treasury will continue to dominate Whitehall for years to come. While Prime Minister Keir Starmer said he would allow Secretaries of State to govern, this accelerated growth strategy will only work if it is driven by a strong center.

At the same time, Reeves is betting on devolved authorities to drive delivery. The Office for Investment and National Wealth Fund will work with local leaders to build a pipeline of projects. And the Green Book is being reviewed to make sure that Treasury accounting rules don’t discriminate against investment, particularly investment outside of London and the South East—a longstanding criticism of so-called “Treasury brain.” Certainly this is an important political calculation, given that a big challenge for Labour is to hold on to both those “Red Wall” seats it won back at the last election, and also the new gains it made amongst more prosperous voters in the South and East—many of whom will benefit from the development of the Oxford–Cambridge Arc that featured heavily in the speech.

Starmer and Reeves know they have little choice but to go faster. The alternative isn’t just stagnation—it’s failure. As the prime minister put it, anything less would mean wallowing in the “tepid bath of managed decline.” 

Labour Party reaction 

Given that these measures require the active support of Labour MPs, their reaction is important. The influential Labour Growth Group of more than 50 backbench MPs quickly put out a statement saying, “The Chancellor has the backing she needs to deliver this ambitious vision. This movement on the Labour backbenches is determined to return prosperity to Britain.”

One MP we spoke to simply said “I’m very happy today,” while another said, “The Chancellor did a good job, and it was reassuring that she was demonstrating that she had grip.” Another was positive about the government showing it is on the front foot, though another felt that responses across the Labour Party would be “nuanced” once the detail is interrogated, and that there isn’t necessarily a uniform view across the Parliamentary Labour Party.

The most prominent Labour critic is the Mayor of London, Sadiq Khan, who remains opposed to a third runway at Heathrow Airport. It was significant that Reeves name-checked Andy Burnham as a “brilliant” Metro Mayor—the government sees Metro Mayors as critical to delivering regional economic growth. Chancellor Reeves yesterday showed her relentless pursuit of growth will not be halted by internal critics whether they be mayors or MPs. Put another way, this is “country first, party second” as Prime Minister Starmer said on the steps of Downing Street the day after the election. 

Summary

In her heavily trailed speech, Chancellor Rachel Reeves unveiled plans to boost economic growth in the UK. She outlined three key elements to this work: stability, reform, and investment. She reiterated that both she and Prime Minister Starmer view economic growth as the priority of this government.

Stability

• Reeves’ priority is to bring stability back to public finances, which she stated is an essential foundation for the government’s “Plan for Change.”
• She noted that the new fiscal rules are non-negotiable and defended her decisions in the Budget. She stated that “there is no alternative to restoring economic stability and driving economic growth.”

Reform

• The Treasury is focused on removing constraints on the supply side of the economy to make it easier for businesses to trade and build.
• Reeves highlighted that these reforms will be done in the national interest, which means building on the UK’s “special relationship” with the US and resetting the UK’s relationship with the EU.
• Reeves also wants to build a stronger relationship with fast growing economies such as China and discussed the Business and Trade Secretary’s upcoming visit to India to restart conversations regarding the Free Trade Agreement and Bilateral Investment Treaty.
• Reeves said the government is reforming the employment system to create a “national jobs and careers service” as well as “fundamental reform of the welfare system” to address the rising cost of health and disability benefits.
• She outlined that the Immigration White Paper will bring forward concrete proposals to bring the overall levels of net migration down. The government is looking at visa routes for some of the most highly skilled and talented people.
• Reeves said that the consultation on pension system reforms is already completed, and the final report will be published in the spring. She also announced that the government will introduce new flexibilities for well-funded Defined Benefit pension schemes to release surplus funds where it is safe to do so.
• Reeves said that the UK’s largest regulators have provided her with a “range of options to drive growth in their sectors” as well as proposals for how they can be more agile and responsive to businesses. She announced that an Action Plan will be published in March “to make regulation work much better for our economy.”
• She also talked about significant reforms to planning systems for data centers, airports, and housing developments. She stated that under this Parliament, 1.5 million homes will be built, and decade-old green belt policies will be reformed, making it easier to build on grey belt land.
• Reeves spoke about opening up the planning system to build more infrastructure like onshore wind farms or data centers for AI revolution and outlined plans to reduce environmental requirements placed on developers when they pay into a nature restoration fund that the government has created.
• She reiterated the government’s plans to introduce a Planning and Infrastructure Bill in the Spring, which will “rapidly streamline the process for determining applications…make the consultation process far less burdensome and…fundamentally reform our approach to environmental regulation.”

Investment and Innovation

• A further GBP 65 million investment will be made to the National Wealth Fund for Connected Kerb to expand their electric vehicle charging network across the UK. A GBP 28 million equity investment will also be made in Cornish Metals, providing the raw materials needed for wind turbines, solar panels, and electric vehicles.
• Chancellor Reeves noted that the government will publish a refreshed carbon budget delivery plan later this year which will set out their plans to deliver carbon budgets.
• She said she will remove barriers to deliver 16GW of offshore wind by designating new marine protected areas to enable the development of this technology in West Yorkshire and East Anglia, crowding in GBP 30 billion investment in home-grown clean power.
• She stated that the government will “move forward with the next stages of the Industrial Strategy ahead of its publication in the Spring.”
• Reeves outlined that Labour is “exploring options” to work with the private sector to “deliver the infrastructure that our country desperately needs,” including the Lower Thames Crossing.
• To drive growth and deliver value for money for taxpayers, the government is exploring options to privately finance this project and have made a new Investment Rule to ensure they do not just count the costs of investment—they count the benefits too. The government is now investing 2.6% of GDP on average over the next five years, compared to 1.9% planned by the previous government.
• Reeves announced the government’s commitment to improve connectivity in the North, including plans for a new mass transport system in West Yorkshire.
• She said that the Spending Review and 10-year Infrastructure Strategy will be published in the Spring.
• According to Reeves, the government will introduce a new approach to planning decisions on land around train stations, “changing the default answer to yes.”
• She also stated that the government will work with devolved governments to ensure the benefits of growth can be felt across the UK, partnering with them to deliver the Industrial Strategy.
• Reeves announced plans to review Treasury rules around infrastructure project spending, which could unlock billions of pounds of investment for the North. The Office for Investment is also set to work with local areas to develop a commercially attractive pipeline of investment opportunities for a global audience. This will start with the Liverpool City region and the North East Combined Authority.
• She highlighted the government’s support for Andy Burnham’s plans to redevelop Old Trafford and announced the government’s decision to move forward with the Wrexham and Flintshire Investment Zone. This will focus on the area’s strengths in advanced manufacturing, backed by Airbus and JCB to leverage GBP 1 billion of private investment in the next 10 years and up to 6,000 jobs.

Airport Expansion

• Reeves confirmed that the government is supporting a third runway at Heathrow and is inviting proposals to be brought forward by the summer. The government will take forward a full assessment through the Airports National Policy Statement to ensure the project is “value for money.” Any associated surface transport costs will be financed through private funding.
• Reeves announced that the government will work with Mayor of South Yorkshire, Oliver Coppard, and Doncaster Council to recreate South Yorkshire Airport as a thriving airport.
• Prologis and Manchester Airport Group have been working in partnership to build a new advanced manufacturing and logistics park at East Midlands Airport, unlocking GBP 1 billion of investment and 2,000 jobs at the site.
• There are plans to expand into airports including Luton, Gatwick, and Heathrow. The government has already given support for expansion at City Airport and Stansted.
• The government is investing GBP 63 million into the Advanced Fuels Fund over the next year. The details of how the government will deliver a revenue certainty mechanism were published yesterday.

“Europe’s Silicon Valley” between Oxford and Cambridge

• Chancellor Reeves confirmed that the government is taking action to go further and faster on the “Oxford-Cambridge growth corridor.”
• East West Rail will run new services between Oxford and Milton Keynes starting this year, and road upgrades are being planned to reduce journey times between Milton Keynes and Cambridge.
• The government has already received proposals for new towns along the railway with 18 submissions for sizeable new developments.
• At Tempsford there will be a mainline station, reducing journey times to under an hour to London and to under 30 minutes to Cambridge.
• The government will also ensure the right infrastructure is in place, such as a new hospital—Cambridge Cancer Research Hospital—and water infrastructure. According to Reeves, the government is investing GBP 7.9 billion over the next five years for water infrastructure.
• Reeves announced that the Environment Agency has now lifted objections to new development in Cambridge after interventions to address water scarcity. This is expected to free up space for 4,500 new homes, schools, and offices.

• She set out plans for the UK’s first “AI Growth Zone” in Culham, Oxfordshire, in a move to speed up the planning process and development for AI infrastructure. 

   

Reaction roundup

Rain Newton-Smith, CEO of the CBI: “It’s crunch time for growth and today the chancellor has heeded business’ call to go further and faster. This is most evident in ministers grasping decisions that have sat on the desk of government for too long. This positive leadership and a clear vision to kickstart the economy and boost productivity is welcome.”

Shevaun Haviland, Director General of the British Chamber of Commerce: “The chancellor has laid down a clear marker on her intent to push for growth and these proposals can light the blue touchpaper to fire up the UK economy. Expanding our international airport capacity, investing in modern roads and railways, and rebalancing the planning system all send signals that the UK is building for a better future. These pledges will make businesses and international investors sit up and take notice. They can lift the gloom that has settled over the economy and give firms real confidence.”

Tim Alderslade, CEO of Airlines UK: “We welcome the strong recognition from the chancellor of aviation’s unique role enabling economic growth in all parts of the UK. Airlines support more airport capacity to grow the economy and foster trade, but expansion must be affordable, improve operational resilience for passengers and freight, and be compatible with our net zero commitments. Airlines are making progress towards net zero and the industry now needs government help to align any additional capacity with further policy support to incentivize the production of SAF and deliver urgent modernization of airspace as quickly as possible.”

Abdallah Nauphal, CEO of Insight Investment: “The government’s plan to allow defined benefit pension schemes to share their surplus assets is very welcome. Companies with schemes in surplus can keep their employees’ retirement income secure, while unlocking significant potential for improved benefits for members and additional finance for companies. Overall, this could release up to GBP 100 billion to drive growth across the wider UK economy. With effective guardrails in place, the excess capital in defined benefit schemes could act as a bridge to the longer-term benefits that would be unlocked by reforms to LGPS and defined contribution pensions. It would also mean defined benefit schemes could continue in their role as natural long-term investors in the gilt market, which underpins the taxes we pay, the cost of doing business in the UK, and the cost of mortgages.”

Dale Vince, owner of Ecotricity and Labour donor: “New runways are a mistake; we don’t need them. This is the old economy; it grew 0.1% last year while the green one grew 9%. This is where the biggest opportunity for growth is, and it’s sustainable in all senses of the word. That’s the right kind of growth.”

Kenton Jarvis, CEO of easyJet: “I welcome the government’s pro-growth agenda and their recognition of the importance of aviation and the crucial role it plays as an enabler of economic growth. As an island nation, this industry provides much-needed connectivity as well as creating many skilled jobs which contribute to the wider prosperity of the country…Expansion at Heathrow will provide consumer and economic benefits and represents a unique opportunity for easyJet to operate from the airport at scale for the first time and bring with it lower fares for consumers.”

Doug Parr, Policy Director at Greenpeace: “A third runway at Heathrow is unlikely to boost the UK economy but will certainly boost noise, air pollution, and climate emissions.”

Sadiq Khan, Mayor of London: “I remain opposed to a new runway at Heathrow Airport because of the severe impact it will have on noise, air pollution, and meeting our climate change targets. I will scrutinize carefully any new proposals that now come forward from Heathrow, including the impact it will have on people living in the area and the huge knock-on effects on our transport infrastructure. Despite the progress that’s been made in the aviation sector to make it more sustainable, I’m simply not convinced that you can have hundreds of thousands of additional flights at Heathrow every year without a hugely damaging impact on our environment.”

Mel Stride MP, Shadow Chancellor: “The biggest barriers to growth in this country are Rachel Reeves, Keir Starmer, and their job-destroying budget—and nothing in the chancellor’s speech proved otherwise. What’s worse, the anti-growth chancellor could not rule out coming back with yet more tax rises in March. This is a Labour government run by politicians who do not understand business, or where wealth comes from. Under new leadership, the Conservatives will continue to back businesses and hold this government to account.”

Daisy Cooper MP, Deputy Leader of the Liberal Democrats and Treasury spokesperson: “The chancellor’s blinkered approach on Europe is holding back British businesses and stifling growth. If this government was serious about boosting growth, it would start negotiating a new UK-EU trade deal with a bespoke customs union at its heart. This is the single biggest lever ministers could pull to turbocharge our economy. The refusal of the chancellor to even consider it shows a worrying lack of ambition.” 

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