There was probably a degree of unintended irony in the Treasury choosing to call the Chancellor, John Healey’s, first major market ‘intervention’ his ‘Growth Speech 2026’, because sustained and meaningful economic growth is something the UK has seen precious little of for far longer than any of us would care to remember.
Indeed, look back across the period since the financial crisis and you begin to appreciate just how accustomed we have become to anaemic growth, to the point where an increase of 0.5% or 0.6% in quarterly GDP can almost be presented as something worth celebrating.
There are obviously some extraordinary figures within the data, most notably the 19.9% fall in GDP during the first Covid lockdown in Q2 2020, followed immediately by a 17% rebound in Q3, but strip out those pandemic movements and the wider record makes for pretty grim reading.
Since Q3 2022, covering 16 quarters, quarterly growth has never exceeded 0.7%, while we have had three quarters of either zero or negative growth, four at just 0.1%, two at 0.2% and another at 0.3%, which tells you plenty about our economy, and the clear truth that successive governments have been unable to improve it.
WHY TAX RISES CAN NEVER BE RULED OUT
Perhaps this is worth remembering when people ask why Healey will not rule out tax increases at next month’s Budget, because frankly it would be ridiculous for any Chancellor to voluntarily remove one of the few fiscal levers available to them before they have even presented the numbers.
The more important question is why successive governments continually find themselves having to make these choices, and the lack of meaningful economic growth over such a lengthy period has to be a considerable part of the answer.
Weak growth limits tax receipts and spending options, while increased borrowing brings increased interest payments, leaving Governments attempting to rob Peter to pay Paul while simultaneously convincing financial markets they remain fiscally responsible.
We saw – rather spectacularly with Liz Truss and Kwasi Kwarteng – what can happen when markets decide they are not convinced, and no Chancellor who witnessed those events is likely to forget the consequences of losing fiscal credibility.
In some ways, Britain increasingly appears to be experiencing its own version of a‘lost decades’ syndrome, because while Japan became synonymous with its lost decade of the 1990s, in the UK we are now approaching 20 years since the financial crisis without having established anything resembling consistently strong economic growth.
WHERE CAN GROWTH ACTUALLY COME FROM?
Which brings us to perhaps the most important question raised by Healey’s speech, because talking about growth and removing barriers to it is clearly welcome, but what are the sectors which can actually generate significantly more economic activity without requiring enormous amounts of government money upfront?
Housing should surely be somewhere near the top of that list.
We absolutely need to build more of the right homes in the right places, and there should be no disagreement about that, but increasing supply is only part of the answer when we already have millions of existing homes which are not being distributed as effectively as they might be.
As I have argued before, one of the most obvious barriers to greater housing market activity remains Stamp Duty, particularly when it discourages existing owners from moving and can make downsizing financially unattractive even when the homeowner would otherwise like to do it.
WHAT WOULD ANOTHER 250,000 TRANSACTIONS DELIVER?
Imagine what an additional 200,000 or 250,000 housing transactions each year might mean for economic activity, because a house purchase is certainly not an isolated financial event which begins and ends with the Stamp Duty receipt collected by the Treasury.
It means mortgage lending and advice, estate agency, conveyancing, surveying, searches, removals, insurance, renovations, decorating, furniture, appliances and tradespeople, with employment and tax receipts generated throughout that activity.
Plus, one transaction frequently facilitates several others, because a downsizer purchasing a smaller property might free up a family home, whose purchaser then sells their existing home, creating a chain which can end with a first-time buyer.
This is why I have never understood the tendency to view changes to Stamp Duty primarily through the amount of revenue the Treasury might initially lose, rather than asking what the net economic and fiscal benefit might be from substantially increased transaction numbers.
There may well be a short-term reduction in Stamp Duty receipts from individual purchases, but what additional VAT, income tax, corporation tax and wider economic activity would those extra transactions generate, and what would be the impact if permanent reform produced higher transaction numbers year after year?
DO NOT REPEAT LAST YEAR’S MISTAKE
None of this means Healey should have announced prospective or potential changes in this speech, and in fact I think the government is absolutely right not to start trailing potential Stamp Duty measures six weeks before a Budget.
We saw last year what happens when buyers and sellers believe they might be financially better off waiting for a fiscal announcement, because transactions can simply be put on hold while everyone waits to see what the Chancellor eventually does.
If there is going to be reform, announce it at the Budget, make it permanent rather than another short-term holiday which merely shifts transactions around, and structure it to encourage greater movement throughout the market.
Healey says he wants to remove barriers to growth, and after almost two decades in which meaningful economic growth has too often appeared out of reach, the government needs to identify areas where relatively straightforward changes can generate substantial private economic activity.
Building more homes is essential, but so is making better use of those we already have, and if the government can generate hundreds of thousands more transactions by reducing the financial barriers which prevent people from moving, then housing seems an obvious place to start.
