Report by HRI researchers
Kenichiro Yoshida
Chief Researcher
Global Intelligence and Research Office
As expected, the Labour Party won the House of Commons election held on July 4, 2024, winning 411 seats, far more than the majority of the 650 seats in the House (Table 1). On the following day, July 5th, Sir Starmer was appointed Prime Minister by the King. The Labour Party took power for the first time in 14 years.
The Conservative Party, which had been in power for 14 years, had lost the support from voters through various misadventures, such as the internal political division caused by Brexit under the May administration and the turmoil in the financial markets caused by the expansionary mini-budget under the Truss administration.
On the other hand, the Labour Party increased its seats as its leader, Sir Keir Starmer, tried to moderate the party, which had been leaning left under former leader Mr. Corbyn, and to catch the votes against the Conservatives.
Table 1: Results of the UK general election
Source: House of Commons
In the King's Speech delivered by King Charles Ⅲ in the House of Lords on July 17, 39 new bills were presented in line with the Labour Party's manifesto. The main points are shown in Table 2.
The emphasis of the policy speech was on accelerating economic growth. The first bill proposed at the beginning of the speech was the "Budget Responsibility Bill”. The bill stipulates that any major tax or spending changes must be assessed by the Office for Budget Responsibility (OBR) before being enacted into law in order to curb unbridled fiscal expansion. It also includes the promotion of green investment through the establishment of a National Wealth Fund (NWF) with a total funds of 7.3 billion pounds (see below for details).
At the same time, the acceleration of housing and infrastructure construction was emphasized. The "Planning and Infrastructure Bill" was proposed to improve people's lives and revitalize the economy by building 1.5 million homes over five years and through planning reform to ensure the smooth execution of construction.
Other notable bills include the establishment of two state-owned enterprises. The first is the establishment of Great British Railways (GBR) through the "Passenger Railway Services (Public Ownership) Bill" and the "Rail Reform Bill" and the gradual nationalization of existing railway operators. The establishment of the GBR was a measure decided under the Conservative government and continued by the Labour government. The objective is said to be to reduce costs by unifying management and improving efficiency in the face of a decline in the number of rail passengers after COVID-19. In addition, the suspension of the extension of the high-speed rail network, which was announced under the Conservative government, was followed by the new government.
The second is the establishment of Great British Energy (GB Energy), a state-owned energy company under the “Great British Energy Bill”, which aims to make the UK a clean energy superpower by decarbonizing the electricity supply by 2030. GB Energy will use its £8.3 billion fund to invest in net-zero projects in partnership with the private sector.
In addition to the above, the government has also introduced policies aimed at resolving issues from the era of Conservative government, such as strengthening border controls and reducing waiting times for the National Health Service (NHS), as well as policies typical of a leftist government, such as strengthening workers' rights. Given the Labour Party's overwhelming dominance in parliament, it is highly likely that the measures will be enacted into law.
Table 2: Summary of Labour’s policy speech
Source: Made by HRI based on the website of HM Government
In terms of the policy toward the EU, Prime Minister Starmer aims to improve relations with it. While clearly rejecting the idea of rejoining the EU or returning to the single market and customs union, PM Starmer has stated that he will "reset" the relationship with the EU, which has grown distant under the Conservative administration. The Trade and Cooperation Agreement (TCA), which was agreed to with the EU by former PM Boris Johnson in December 2020, is subject to review every five years, with the next review scheduled to take place in 2025. PM Starmer is expected to use this as an opportunity to seek stronger ties with the EU.
Labour's Minister for the Constitution and the EU Relations, Mr. Thomas-Symonds, arrived in Brussels shortly after taking office to begin discussions with the EU. In addition to holding regular meetings with the EU in the future, the minister has stated that he aims to seek a new security pact covering defense, migration and energy. According to a report in the FT, talks are underway for a UK-EU summit to be held in late August or early September.
Trade between the U.K. and the EU is currently tariff-free under the TCA, as long as the goods are traded in accordance with the rules of origin. In addition, PM Starmer is aiming to relax Sanitary and Phytosanitary measures (SPS) on food trade with the EU, in particular the Veterinary Agreement. According to the Center for Business Prosperity at Aston Business School in the U.K., if the agreement simplifies quarantine measures, it is estimated that agri-food exports from the U.K. to the EU would increase by 22%.
It is difficult to make a quantitative estimation at this stage for the effect of the new administration's policies on the U.K. economy, since it is necessary to comprehensively consider expenditures and revenues from the next fiscal year's budget proposal. However, it is likely to have a positive impact on the U.K. economy. The key point could be the effect of investments by the National Wealth Fund, which will receive 7.3 billion pounds (0.27% of GDP), and GB Energy, which will receive 8.3 billion pounds (0.31% of GDP), and the extent to which these will attract private investment and boost capital investment.
The National Wealth Fund is expected to be responsible for environmental investments such as port upgrades (GBP1.8 billion), construction of gigafactories including EV batteries (GBP1.5 billion), promotion of green steel (GBP2.5 billion), and investment in carbon capture and other decarbonizing technologies (GBP1 billion). A task force has already been established.
The government has also announced that the £8.3 billion allocated to GB Energy will be invested over a five-year period in partnership with the Crown Estate, a royal-owned real estate company, to develop offshore floating power generation using the seabed and other royal-owned land, attracting £60 billion in private investment.
However, the funds will be spent in installments in a multi-year budget through 2029, the term of the Parliament. Therefore, the impact on the UK economy is likely to be gradual. Details will need to be confirmed from the new administration's budget, which is scheduled to be announced at the end of October, and the OBR's subsequent economic and fiscal outlook.
Figure 1: Investment Plans of the UK's National Wealth Fund
Source: Green finance Institute
Kenichiro Yoshida
Chief Researcher, Global Intelligence and Research Office, Hitachi Research Institute
Engaged in research on economic and financial conditions in the United States and Europe. After graduating from Hitotsubashi University's Faculty of Commerce, he worked at Mizuho Research Institute and served as the Chief Representative of Mizuho Research Institute's London Office before assuming his current position in 2021.
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