Labour’s botched development plan: Reeves should use the tax system to incentivise invention, enterprise, and innovation: ALEX BRUMMER

Away from the political rhetoric, layered on with a trowel in her Spring Statement, the Chancellor offered the nation two routes to growth.

Britain, in Rachel Reeves’s own words, will become a defence ‘superpower’. And Labour’s planning reforms and housing targets will bolster growth by 0.2 per cent by the end of the forecast period.

The choice of defence spending as a growth driver has nothing to do with Labour’s manifesto ambitions and everything to do with Donald Trump.

The President’s decision to dump on Nato forced Keir Starmer and Reeves to recognise the UK’s defence industries as a spearhead rather than a social pariah.

In BAE Systems, Rolls-Royce and Babcock, Britain already had defence champions. They have been empowered already by Russia’s war on Ukraine, hostilities in the Middle East and the AUKUS pact bringing together the US, Australia and UK in the Pacific.

The bulk of the £2.2billion uplift in spending for 2025-26, as already announced, will come from a severely trimmed budget for overseas development, reduced to 0.3 per cent of output by 2027. 

Reeves is pledging £400m to unleash UK defence technology from July this year with novel armaments using autonomous systems and AI

David Cameron’s boast of lifting the UK’s aid budget to the UN target of 0.7pc, making Britain a powerhouse of international development, is now light years away. 

Nevertheless, Britain’s defence spend set against the 3.4 per cent of GDP in the United States and 5.3 per cent in Israel (battling on multiple fronts) is a mere bagatelle.

To speed things up, Reeves is pledging £400million to unleash UK defence technology from July this year with novel armaments using autonomous systems and AI. 

But the UK’s benign neglect of defence and national security firms, sold to private equity and foreign buyers, has left a great hole in the ability to gear up high-tech defences.

Satellite champion Inmarsat ended up in American hands. Submarine sonar innovator Ultra Electronics was gobbled up by private equity barons Advent (using the Cobham name) and Cambridge-based cyber-security experts Darktrace was sold to another private equity outfit, Thoma Bravo. 

Recently the future of Chemring, which provides advanced aerospace defences, has come under threat.

UK defence technologies finally are to get their day in the sun. But it feels like shutting the stable door after the horse has bolted. 

Moreover, in typical Labour fashion, it seems to believe that throwing public money at the mummified Ministry of Defence is the solution. 

Far better if Reeves were willing to use the tax system to incentivise invention, enterprise, and innovation across the whole economy by deepening R&D tax breaks.

The second Labour driver for growth is even more pedestrian. Long-needed planning reforms are welcome. This week’s approval for the Lower Thames Tunnel at a cost of £9bn is the kind of long-term investment which the nation craves.

But there are big questions about the Government reaching its target of building 300,000 houses a year as pledged in the manifesto. 

It is a stretch given that housing starts are forecast by the Office for Budget Responsibility to fall from 265,000 in 2023-24, the last year of Tory rule, to just 192,000 in this fiscal year. 

Overriding planning objections will be a great leap forward. Building on ‘grey land’ might help, although watchers of the Netflix series Toxic Town, focusing on birth defects on a housing estate in Corby, might have doubts about rushing fences.

The biggest barrier of all to people climbing the housing ladder is an unhelpful tax system. The removal of exemptions to stamp duty by Reeves is a great obstacle to easing blockages in the residential market. 

The abolition of Tory-backed schemes such as Help to Buy won’t help. The easy choice is building on greenfield sites, such as rural areas in East Sussex, where there are insufficient jobs.

Labour’s conviction that government can deliver growth by diktat is a fiction. Some nine months into government, industry has yet to unveil Labour’s much heralded industrial strategy. 

Omens are not good. Faced with seeding a £450million AstraZeneca vaccine plant in Britain, the Government failed to pony up the cash. Britain’s biggest listed company decided to double down on the US and China instead.

When it comes to using tax breaks to encourage endeavour and entrepreneurship, the Starmer government is clueless.