Britain’s renewal: the next chapter of this Labour Government
Some thoughts from me on the next steps for our Labour government, and how we can kickstart growth. You can also click here for a follow-up article in City AM.
It was nearly a month ago that Andy Burnham became the eighth Labour Prime Minister. In his first weeks in office, his government has scrapped VAT on domestic electricity bills from October (here), restored the £2 cap on most bus fares (here), announced cuts to business rates for pubs, clubs and live music venues (here), announced measures to stymy the perpetuation of vape and betting shops on the high street (here), and signalled the start of the shifting power and money away from Westminster to local areas (here).
I nominated Andy for the leadership because this next phase of the Labour Government demanded experience, ambition and a clear diagnosis of what has gone wrong in this country, matched with an equally clear plan to put it right (you can read my note about that in full here). Now, that we're living in this moment, we can't pretend it is business as usual. This new phase of the Labour government - with up to three years before a general election must be called - requires a much sharper edge and a far greater sense of urgency and purpose than we have shown so far.
The economic and political environment that Labour is governing in demands nothing less. Growth, ultimately, remains much weaker than we aspire to (up 0.4% in Q2, 2026 - so faring better than many in the G7 for now), the public finances remain tight (with spending pressures on defence, pensions, and public services showing no signs of abating), trust in mainstream politics is skating on thin ice, and the patience of an electorate that gave Labour a clear mandate for change in 2024 showing evidence of finiteness. Accordingly, every month this government spends managing rather than transforming is a month that fuels the argument that mainstream politics cannot fix the country's problems. We don't have time to lose.
John Healey, the new chancellor, used his first address to HM Treasury staff this week to set out five priorities that will define this government's economic policy: fiscal stability, growth in every postcode, backing Britain, wealth creation, and making life more affordable for people in all four nations of the United Kingdom (it's worth reading in full). All five are right and commendable. I also think they only become a serious governing programme once we are honest about what has to sit underneath them, and about the urgency with which we propose to pursue them.
Too much decision making power has indeed sat too closely with too few people in Westminster and Whitehall for far too long, and too much opportunity has been concentrated in too few places and too few hands.
That is why real term living standards have barely improved since the financial crisis, and why too many people across this country feel the system is designed around somewhere else, by people who do not understand the challenges facing their communities. I felt that keenly enough to leave a job I enjoyed at the LSEG to enter public life, and I hear the same frustration on the council estates of Bletchley and in the villages of north Buckinghamshire when I’m canvassing my constituents at the weekend.
This is neither just a northern grievance nor a southern one. It is a fundamentally British one, and Andy and John – along with the rest of the government frontbench and we in the whole Parliamentary Labour Party – now bear the collective responsibility to answer it.
Three ideas underneath five priorities
I think of the task ahead through three themes, and I believe they should sit underneath all five of the Chancellor's priorities rather than compete with them: security, sovereignty and opportunity.
By security, I mean people building their lives on stable foundations: decent work, a realistic prospect of an affordable home (be they a home-buyer or a renter), stable prices in the supermarket, the petrol pump, or on their electricity meter, and a welfare state that catches people when they fall but also expects them to get back up. At a national level, security means resilience: in our food and energy supply; in our public finances; in our strategic industries, which stay principally in British hands; and sovereign capability in defence, AI and technology is preserved and strengthened in a more dangerous world.
By sovereignty, I mean Britain exercising real agency over its own economic destiny. That means harnessing the vast pools of domestic capital sitting in our pension funds, insurance funds and savings accounts, rather than watching a market architecture divert them abroad by default. It means running a serious industrial strategy and building a state capable of executing one.
And by opportunity, I mean one's postcode should never determine one's destiny. Everyone should be given the tools to write their own life story. Our tax system should reward work and productive long term investment rather than penalising effort. Entrepreneurship and workers' rights must reinforce rather than compete with each other, and the wealth a growing Britain generates should be shared widely: a genuine stake in common prosperity, not a concentration in a few hands.
Growth, ultimately, sits at the heart of all three. Without it, nothing else is possible. Growth comes from a confident private sector working with a stable, consistent government that has a clear vision. This Government needs to go even further in making business feel respected, valued and supported in Britain - not as a betrayal of Labour values but as the only credible route to a more just society.
The old divide between a bigger state and a smaller one is also increasingly beside the point. The role of government is not to replace private enterprise but to create the conditions in which entrepreneurs, investors, researchers and communities can succeed together. The objective should not be a larger state or a smaller state for the sake of it. We should want a more capable one: a state that removes barriers, unlocks investment, and gives people and businesses the confidence to take risks, while trusting places and people closer to the ground to make more of their own decisions.
Three tasks for the new Chancellor
Lying underneath his own five stated priorities, I believe the new Chancellor has three overarching tasks. The first is to set out an economic growth plan that confronts the three scarcities holding back growth in Britain: land, energy and capital.
Land is scarce because our planning system makes it artificially so, blocking the homes, laboratories, grid connections, reservoirs, and data centres our modern, globally competitive economy needs. Energy is scarce in the sense that matters most to growth, which is not physical supply but cost and speed of connection, with British industry paying some of the highest electricity prices in the developed world and firms waiting years for a grid connection that should take months. Capital is scarce because too much of our own savings, sitting in pension funds and ISAs, is either deployed unproductively in cash accounts, or anywhere but Britain, for reasons of unintended consequences of previous policy decisions, acquired habit and a market architecture built over the past 30 years.
A credible growth plan must relentlessly attack all three scarcities in parallel, because relieving only one simply leaves the other two as binding constraints. None of it works, though, without a people strategy sitting underneath it: making sure people in every part of the United Kingdom, from Cornwall to the Highlands, have the skills to thrive in a changing labour market, while operating a sufficiently tight migration system required to attract the global talent where we have real skills shortages, in areas like advanced engineering, life sciences and artificial intelligence – but also health and social care.
The second task is controlling public spending, and doing so as a permanent discipline rather than a lone Parliament exercise. The pressures that have pushed spending from around 38% of GDP in the mid 1990s to roughly 46% today - an ageing population, rising health costs, and a more dangerous world - will not ease over the next decade. They will intensify.
The job, admittedly a daunting one, therefore of John and his HM Treasury team is not simply to hold the line in this Parliament. It is to build the institutional and political discipline that constrains the underlying rate at which spending rises for decades to come, through structural reform of health, welfare and pensions rather than repeated short-term fixes that have characterised previous administrations. A Chancellor who controls spending only for one Parliament will have managed a problem; a Chancellor who bends its long-run trajectory has solved one. It is the responsibility of the Parliamentary Labour Party to recognise this challenge and support John and his team.
The third task is to re-establish the Labour Party, unmistakably, as the party of business and enterprise. Fairly or unfairly, this reputation has suffered real damage since 2024, and rebuilding it needs more than warm words at a business dinner. But speaking to business leaders of all types, across a range of sectors, both locally in my constituency and those operating nationally, there is still bullishness and optimism for the future.
There is a genuine appetite and willingness for this Labour Government to be successful, and they want to work with us to make it so. So it will need ministerial teams at both HM Treasury and the Department for Business, Innovation, Science and Trade who treat entrepreneurs and investors as partners in the project of national renewal rather than a source of revenue to be tapped whenever the public finances come under strain. This is exactly why the wealth creation priority that John set out so explicitly matters so much. It can't be a rhetorical add on to speeches, but a real statement of intent about whose side this government is on; it should run through every tax, regulatory and investment decision this Government makes.
Fiscal stability as a foundation, not a constraint
But the reality is that this government inherits a difficult starting position. As I indicated above, the economy has barely grown in real terms for two decades. Productivity has flatlined and business investment has lagged comparable developed economies for years. Our tax burden, already high by historical standards, also weighs on business through its sheer complexity.
We raised around £1.1 trillion in tax last year, close to 39% of national income, a level this country has not consistently experienced since the early 1980s. Government debt remains close to the size of the entire economy, and a significant share of it is held by overseas investors. Every time growth disappoints, the pressure on public finances increases.
Our tax base is also more fragile than people often acknowledge. The top 10% of income taxpayers contribute more than 60% of all income tax receipts. While it is absolutely right that those with the broadest shoulders contribute the most, excessive concentration risks becoming a structural weakness rather than evidence of a fair system working well. We are quite likely to need to find ways to broaden our tax base rather than simply reaching for higher rates on the same small group of people, some of whom are highly mobile.
At the same time, the world around us has changed. The war in Ukraine, uncertainty about long term American strategic commitments and renewed competition between major powers mean we can no longer indulge in the idea that defence spending is discretionary. Reaching the 3.5% of GDP defence target requires something in the region of £36bn a year in additional spending on top of a baseline of around 2.3% to 2.5%. Given other spending pressures on government, the challenge is sobering.
Yet, every pressure facing the Government points in the same direction. We cannot invest properly in defence, modernise public services, support economic growth or provide targeted tax relief unless the foundations of the economy are secure first. That is why John's promise that fiscal discipline is his first duty matters so much, and why he was right to describe it as the bedrock of economic stability and national security together.
The Chancellor's fiscal rules, requiring day to day spending to be covered by revenue and debt to fall as a share of the economy, are not a concession to markets. They are the precondition for everything else this government wants to do. Breach them, or even look like flirting with breaching them, and gilt yields rise, investment gets crowded out, and more public money goes on servicing debt rather than improving people's lives. We therefore need to see fiscal stability through the prism of what makes our Labour Government's ambition possible, instead of the party-pooper.
Delivering growth in every postcode
The prime minister has spent almost a decade demonstrating something Westminster has been slow to accept: when power is genuinely devolved, places often make better decisions than Whitehall does on their behalf. Greater Manchester's progress did not come from a smarter strategy document written in London. It came because local leaders were trusted with the powers, resources and accountability to bring businesses, universities, councils, voluntary organisations and trade unions together around a shared economic mission.
I represent a constituency that sits geographically close to Westminster, yet for many of my constituents the centres of power feel every bit as distant as they do elsewhere in the country. When I speak to people in Bletchley, Winslow and Buckingham, they talk about the same things people talk about across Britain: good jobs, safe neighbourhoods, strong schools, reliable infrastructure and a fair chance to build a better life regardless of where they were born. Decisions about transport, skills, housing and local growth are usually made better closer to the communities they affect than from an office in Whitehall. In Milton Keynes (alongside our neighbours in Luton and Bedfordshire), as elsewhere across the emerging Oxford-Cambridge Growth Corridor, we are already working out what that could mean in practice.
One of the most important outcomes of this government should be that devolution becomes the default assumption, not a special concession granted occasionally and reluctantly. It is also where the land scarcity I mentioned earlier gets solved (or not). Planning reform, brownfield release and faster grid connections are decided as much by local delivery as by national legislation, and places with genuine power and accountability tend to build more, faster, than a planning system run entirely from Whitehall. But growth in every postcode also needs a more productive state behind it, because none of these ambitions will succeed if government itself remains inefficient. That means using artificial intelligence properly across public services, reducing unnecessary bureaucracy, and redesigning processes that have not changed in decades. AI represents a genuine competition between countries: those that combine world class research with rapid adoption will gain a real productivity advantage, and Britain has the foundations, in our universities, our financial sector and our technology expertise, to be one of them. Our challenge is turning those advantages into widespread adoption rather than pockets of good practice.
Government departments that have not changed their operating model in twenty years must be required to do so at the 2027 Spending Review, with no uplift to departmental budgets without a credible plan to adopt AI at scale, cut administrative costs, and free frontline professionals to do the work that only they can do. Every major department, agency and public body should have published specific productivity targets, and Spending Reviews should reward genuine efficiency rather than simply rolling forward last year's baseline. The Competition and Markets Authority needs the resources and mandate to act decisively, and utilities, rail and broadband should feel real accountability for how they perform, not just for how they report.
Backing Britain
Backing Britain starts with capital, the third of the three scarcities. UK pension funds manage more than £3 trillion in assets, yet the proportion invested in UK equities has collapsed from around 39% in 2002 to roughly 6% today (h/t William Wright of New Financial's report which you can read here), largely because of a mechanical shift toward passive global index tracking rather than any real judgement about British companies. Savers themselves believe, on average, that 41% of their pension sits in UK companies, and nearly two thirds say they would accept somewhat lower returns for more domestic investment (h/t New Financial in another report). With strategic sectors from steel to semiconductors increasingly in foreign hands, this is not just a question of returns. It is a question of sovereignty.
The right answer can't be crude government direction of where pension trustees invest. We ought to be aiming for active incentive, rather than blunt instruction. Requiring default pension funds to adopt a UK-weighted approach to listed equity, with individual savers retaining full freedom to opt out could be one approach. Alongside that, Britain should build the equivalent of France's Tibi initiative, channelling institutional capital into late stage technology and growth companies through the British Business Bank, while the National Wealth Fund takes on the strategic investments that private markets alone cannot yet make investable. Done well, this stops being an argument about mandation at all. Funds invest in UK assets because the deals are good and the access infrastructure exists, not because someone told them to.
Backing Britain should also show up in how government itself spends and lends. The Government has already made the right call by recognising that its enormous purchasing power should be used as a lever for economic growth. From January 2027, businesses bidding for government contracts worth around £90 billion a year will be judged on their commitment to creating high-quality British jobs, tackling local skills shortages, and supporting young people into apprenticeships and work placements. That approach has rightly won support from the Federation of Small Businesses (FSB), The Business Services Association, Amey and others. It reflects a simple principle: government should not just ask what a contract costs; it should ask what that investment does for the country. When public procurement helps build skills, create good jobs, strengthen supply chains and give young people a route into work, every pound of public spending can do more than one job.
That same principle should extend to how we finance growing firms. The UK economy increasingly runs on intangible assets such as intellectual property, brands and software, yet lenders still ask founders for personal guarantees secured against their homes, exposing entrepreneurs to risks that fall disproportionately on those without existing family wealth. A dedicated IP-backed lending window through the British Business Bank, alongside a serious look at bringing personal guarantee lending within Financial Conduct Authority oversight, would let more founders borrow against what their business is actually worth rather than what they necessarily own themselves personally.
Backing Britain also means facing honestly into how we pay for security in a more dangerous world. Reaching our defence spending targets needs a financing framework that signals sustained commitment to markets and to NATO allies while reducing the rollover risk built into defence procurement. There’ll be lots of conjecture over the coming months about how the Government meets its Defence Investment Plan commitments. I believe a dedicated Defence Gilt, targeted specifically at older retail investors, deserves serious consideration. Many older savers want to pass on a secure country to their children and grandchildren, and plenty would trade a future inheritance tax liability for a lower coupon today. Framed in this way, the real question is not whether headline borrowing rises. It does. The question is whether we can lower the cost and extend the duration of that borrowing while giving a credible answer to the savers most affected by pension inheritance tax reform. Executed correctly (and, dare I say, elegantly) it should complement the welfare reform (more of which later) - and spending control that I explained above - that the UK inevitably needs, rather than as a substitute.
Wealth creation
Britain is one of the best places in the world to start a business. Our universities produce world class research, our financial markets are deep, and we have an extraordinary pool of entrepreneurial talent. But we fail too often at the point where success really begins. Too many promising companies get sold overseas, list overseas (I was at LSEG when Arm opted for the Nasdaq over the London Stock Exchange - the pain felt by my colleagues was palpable despite their and the government of the day's best efforts) just as they reach the stage where they could become major British employers or a globally consequential company. And when that happens we lose much more than a headquarters. We lose future tax revenue, supply chains, intellectual property (past, present and future), management experience and the next generation of founders who might otherwise build again here.
So what to do? We could introduce a Scale-Up Reinvestment Relief, modelled on the French apport-cession approach, allowing founders and early executives who reinvest the proceeds of a business sale into new UK companies to defer their capital gains tax liability, with full relief available where the entire proceeds go back into a new venture.
We should continue reforming EIS and VCT, building on the much-welcomed increase in gross asset, annual investment, and lifetime limits, so that the current seven year age limit stops penalising sectors such as life sciences and advanced manufacturing, where commercial success often needs patient capital over many years, and link eligibility to genuine commercial milestones instead. We should simplify EMI and CSOP so more employees can hold a genuine stake in the businesses they help build. A country where workers share in growing businesses is not only fairer. It is more dynamic too.
We should also extend full expensing, currently limited mostly to plant and machinery, so businesses can deduct the full cost of a wider range of productive investment in the year they make it, giving firms a clearer incentive to invest now rather than defer. And we should roll out e-invoicing in phases, starting with business to government transactions, so that manual, fragmented invoicing stops slowing down payments to small suppliers who can least afford to wait for them.
None of this works without even deeper capital markets to match it. Hundreds of billions of pounds sit in cash ISAs earning returns that struggle to keep pace with inflation, while British businesses need patient capital to scale. We should publish a Long-Term Retail Investment Strategy spanning at least a decade, merge Stocks and Shares, Innovative Finance and Lifetime ISAs into a single Investment ISA and committing to stability in the rules around it, since constant tinkering is itself a barrier to participation.
I made this case in Parliament in 2025 (here in case you missed it), and the underlying facts have not changed: too many households hold too much of their savings in products that quietly lose value in real terms every year, while a lingering confidence gap keeps first time investors on the sidelines despite plenty of underlying appetite.
Closing that gap depends as much on financial education and stable, predictable rules as it does on any single product change. We should properly review the merits of the Stamp Duty Reserve Tax on share transactions one of the highest such taxes anywhere in the developed world, which raises costs for ordinary investors and makes buying British much less attractive relative to international companies. As analyses conducted separately by Peel Hunt and Oxera Consulting LLP have shown, removing one of the clearest barriers to buying - and backing! - British, could help incentivise more domestic buyers of British stocks, increase liquidity, lift valuations, entice a new cohort of British IPOs, and boost long-term growth.
With a view to pre-empting the challenge of more and more retirees as a proportion of the total population, we should begin serious preparatory design work on a UK State Pension Fund, so that we can safeguard the financial security for tomorrow's British retirees (as proffered by Sir Nicholas Lyons previously here) and reduce our reliance on overseas holders of government debt by establishing a new natural buyer of gilts. This is not a project for a single Parliament or a single Government, but serious countries (like Sweden, and Germany more recently - you can read a bit about that here) think in generations rather than electoral cycles, and we should too.
Making life more affordable and simpler, in every part of the UK
John's fifth priority, making life more affordable across all four nations, is where fiscal discipline and fairness have to meet in the same policy. Scrapping VAT on domestic electricity from October is a first, welcome, tangible example. But the deeper task is tax reform that broadens the base, reduces unnecessary complexity, and removes the distortions that stop people working, moving or investing.
Business rates place a disproportionate burden on firms with physical premises while digital businesses contribute comparatively little to local funding. A modest online sales levy, collected through existing mechanisms, could help fund a meaningful reduction in business rates for high streets and town centres in every part of the country. Stamp Duty Land Tax discourages people from moving for work or downsizing, creating economic costs far beyond the revenue it raises, and over time Britain should move toward a fairer property based system that lets housing and labour markets function properly. The High Income Child Benefit Charge creates marginal tax rates above 60% for some households, and moving to household based assessment with a smoother taper would better reflect how modern families actually live. Over the longer term, we should examine the merits of merging Income Tax and National Insurance into a simpler, more transparent system that helps people fully understand what they contribute while protecting the principles behind the welfare state.
Affordability also depends on getting welfare reform right; Labour should always be, unambiguously, the party of work. A welfare system that traps people away from employment is not compassionate. It denies people the independence, purpose and security that work provides, and at a time of demographic ageing Britain needs more people able to contribute, not fewer. People experiencing health conditions that prevent work deserve genuine access to treatment and employment support, not simply a place in a benefits system with little prospect of improvement, which means real investment in NHS pathways and occupational health.
Get this right, returning welfare spending toward its 2024/25 levels in the first instance, would not only free up tens of billions for the NHS, infrastructure, defence and debt reduction, but, most importantly, bestow a genuinely participation-first system which leaves more people working, paying tax, saving, and living with the dignity that only work provides. I've been hugely impressed by the work already done by Alan Milburn (whose interim report you can read here) and Sir Stephen Timms (whose interim report you can read here) in their respective reviews commissioned by the Department for Work and Pensions (DWP); I'm looking forward to their final recommendations later this year. The Government will need to move forward with them at pace.
We should also be honest about the long-term sustainability of the Triple Lock. It has broadly delivered on its purpose of securing state-led pensioner incomes. Yet, a permanent commitment to a formula that can rise faster than wages will, at some stage, create seriously difficult choices for younger generations already facing pressure on housing, student debt and earnings.
While it is right that the Government maintains its commitment of retaining the Triple Lock for the duration of this Parliament, we should look at moving toward an earnings linked state pension in the next (various iterations of this have been proposed by Institute For Fiscal Studies, Policy Exchange, Resolution Foundation and the Centre for British Progress), with a CPI floor preserved for years when inflation outpaces wages, so that we can create a fairer long term settlement between generations without abandoning real terms protection.
The same logic applies to the State Pension Age, which should track life expectancy through a clear statutory formula rather than remaining a recurring political football (and avoiding rather silly stories in the media, as we saw this month), with long lead times so that people can plan and protections built in for those in physically demanding occupations (and so that future British Governments can avoid facing similar problems faced by the WASPI campaign). We should also consider the merits of extending means testing to universal pensioner benefits that today pay the same to a wealthy retiree as to a pensioner in poverty (that is: freedom passes, and NHS prescriptions and eye tests), redirecting the savings toward an enhanced Pension Credit, which remains badly underclaimed, and toward the NHS and social care services that lower income pensioners depend on most.
What this moment demands of this Labour Government
I did not expect a change of Labour leadership so soon. But moments of change also create moments of opportunity, and they force Labour, as the governing party to ask honestly whether it is doing enough, quickly enough, to justify the trust placed in it. None of what I have set out here will satisfy everyone, and some of it, on pensions and welfare in particular, will be genuinely difficult to argue for. But, as the prime minister has himself said recently, for too long, successive governments have dodged issues viewed as too difficult (such as social care, the context in which he made these remarks). I suspect we have now run out of road on a lot of these issues; the alternative to not acting now, risks being forced into far more unpalatable and unjust trade-offs in the future.
Britain does not have to choose between rewarding entrepreneurs and sharing the benefits of growth more widely. It does not have to choose between fiscal discipline and an ambitious government. And it does not have to choose between empowering places like Greater Manchester or Milton Keynes (or indeed any other community across the UK), and having a coherent national economic strategy. Done properly, these things strengthen each other, and that is precisely what security, sovereignty and opportunity, working alongside the Chancellor's five priorities, should deliver.
This Labour Government now carries the responsibility of proving that. We won't satisfy every faction, interest group or every commentator, and we shouldn't try to. Governing is about making the choices necessary to meet the challenges of the time in the long-run, not about pleasing everyone along the way. I look forward to playing whatever part I can in that work, drawing on my own years in financial markets before I came to Parliament, and representing a constituency that wants exactly what every person in this country wants: a good job, a safe neighbourhood, well-run public services, and a fair go at building a better future for themselves and their family.
We have less time than we would perhaps like before we ask the British people to renew our mandate at a general election. That's why we've got to make every day count.
