Blueprint for ending UK’s economic stagnation has a glaring omission

Published

1 year ago

December 4, 2023

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If you want a sensible document with some interesting and well-reasoned ideas for what we ought to do about the UK economy (and some brilliant charts), you could hardly do better than read the Resolution Foundation’s book/report on the topic, Ending Stagnation.

It’s a thick tome with plenty of analysis about the problems facing this country – low earnings growth, weak productivity, high inequality and so on – and a bit about our strengths too. And it synthesises much of what you might call the “Whitehall view” about what needs to be done to try to kickstart growth in the economy.

So it suggests raising benefits, lifting public investment, removing some of the countless allowances which allow people to avoid taxes, improving statutory sick pay and trying to lift cities outside London.

It’s a useful checklist, even if much of it will be vaguely familiar to anyone who has followed the economic debate in recent years.

Weak productivity is one of Britain’s biggest problems. If our bang-for-buck (which is ultimately what productivity is a measure of) had been stronger in recent years, then a lot of issues we’re currently plagued with – from high public debt to weak income growth – could have been solved.

And while there’s a good chance this document becomes a sort of Bible, which both Labour and the Conservative Party borrow from, as they seek to construct their policy manifestos ahead of the coming general election – it is not for nothing that both Chancellor Jeremy Hunt and Labour leader Sir Keir Starmer both appeared at the launch event.

Both parties want this election to be fought on economic grounds.

Both parties want the British public to know that they want to increase Britain’s economic growth rate. Indeed, Starmer has even pledged that under Labour, UK per capita growth will outpace the rest of the G7 in the coming years – an ambitious promise, though it’s unclear how he or anyone could achieve it.

And that’s because while there are some obvious ingredients for economic growth, it’s a fiendishly difficult thing to generate, or for that matter to understand.

Reservations about the report

Economists still debate why the US has a perennial productivity advantage over so many of its rich world counterparts. Is it tax policy? Does it come down to investment incentives, to the existence of strong markets, or to something else completely unquantifiable? The short answer is no-one knows for sure.

But if you’re after a decent handbook of some of the most plausible policies for boosting that growth rate, you could hardly do better than the Resolution Foundation’s tome – with a few reservations.

The first is that, this being a left-leaning thinktank, the solutions do incline towards higher taxes. Others will have different views.

Second, while the report suggests government should be investing more and mentions the need for more housebuilding in passing, it could put even more emphasis on the desperate deterioration of Britain’s physical infrastructure.

Third, and most problematic, one of the most important of all economic factors barely crops up in the report at all: energy. Britain has some of the developed world’s highest energy costs.

This is at least part of the explanation for weak productivity and investment in recent years. Bringing down wholesale energy costs would make an enormous difference in boosting activity in this country – not just for manufacturing firms but also for everyone else.

This comes back to something else. It’s tempting, since Britain’s stagnation began at the time of the financial crisis, to assume that it must all be related to what happened in the square mile back in 2008. And this is almost certainly a large part of the explanation.

However, something else happened around then too: Britain went from being a net oil and gas exporter, able to enjoy a large and constant stream of public and private revenues from the North Sea, to being a net importer. It’s going way too far to blame this watershed shift for everything, but it’s equally odd that it isn’t mentioned even once in the Resolution Foundation document.

It all matters, even the boring stuff we mostly ignore. This new document is a fascinating blueprint on some of the things we could do to get this country going again.

But it’s just the beginning of the conversation – not the end of it.

Business

Gail’s backer plots rare move with bid for steak chain Flat Iron

Published

17 hours ago

May 25, 2025

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Gail's backer plots rare move with bid for steak chain Flat Iron

A backer of Gail’s bakeries is in advanced talks to acquire Flat Iron, one of Britain’s fastest-growing steak restaurant chains.

Sky News has learnt that McWin Capital Partners, which specialises in investments across the “food ecosystem”, has teamed up with TriSpan, another private equity investor, to buy a large stake in Flat Iron.

Restaurant industry sources said McWin would probably take the largest economic interest in Flat Iron if the deal completes.

They added that the two buyers were in exclusive discussions, with a deal possible in approximately a month’s time.

The valuation attached to Flat Iron was unclear on Sunday.

Flat Iron launched in 2012 in London’s Shoreditch and now has roughly 20 sites open.

The chain is solidly profitable, with its latest accounts showing underlying profits of £5.7m in the year to the end of August.

It already has private equity backing in the form of Piper, a leading investor in consumer brands, which injected £10m into the business in 2017.

Flat Iron was founded by Charlie Carroll, who retains an interest in it, but the company is now run by former Byron restaurant boss Tom Byng.

Houlihan Lokey, the investment bank, has been advising Flat Iron on the process.

McWin has reportedly been in talks to take full control of Gail’s while TriSpan’s portfolio has included restaurant operators such as the Vietnamese chain Pho and Rosa’s, a Thai food chain.

A spokesman for McWin declined to comment.

Business

AA owners line up banks to steer path towards £4.5bn exit

Published

2 days ago

May 24, 2025

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AA owners line up banks to steer path towards £4.5bn exit

The owners of the AA, Britain’s biggest breakdown recovery service, are lining up bankers to steer a path towards a sale or stock market listing next year which could value the company at well over £4bn.

Sky News has learnt that JP Morgan and Rothschild are in pole position to be appointed to conduct a review of the AA’s strategic options following a recovery in its financial and operating performance.

The AA, which has more than 16 million customers, including 3.3 million individual members, is jointly owned by three private equity firms: Towerbrook Capital Partners, Warburg Pincus and Stonepeak.

Insiders said this weekend that any form of corporate transaction involving the AA was not imminent or likely to take place for at least 12 months.

They added that there was no fixed timetable and that a deal might not take place until after 2026.

Nevertheless, the impending appointment of advisers underlines the renewed confidence its shareholders now have in its prospects, with the business having recorded four consecutive years of customer, revenue and earnings growth.

A strategic review of the AA’s options is likely to encompass an outright sale, listing on the public markets or the disposal of a further minority stake.

Stonepeak invested £450m into the company in a combination of common and preferred equity, in a transaction which completed in July last year.

That deal was undertaken at an enterprise valuation – comprising the AA’s equity and debt – of approximately £4bn, the shareholders said at the time.

Given the company’s growth and the valuation at which Stonepeak invested, any future transaction would be unlikely to take place with a price of less than £4.5bn, according to bankers.

The AA, which has a large insurance division as well as its roadside recovery operations, remains weighed down by a substantial – albeit declining – debt burden.

Its most recent set of financial results disclosed that it had £1.9bn of net debt, which it is gradually paying down as profitability improves.

AA owners over the years

The company has been through a succession of owners during the last 25 years.

In 1999, it was bought by Centrica, the owner of British Gas, for £1.1bn.

It was then sold five years later to CVC Capital Partners and Permira, two buyout firms, for £1.75bn, and sat under the corporate umbrella Acromas alongside Saga for a decade.

The AA listed on the London Stock Exchange in 2014, but its shares endured a miserable run, being taken private nearly seven years later at little more than 15% of its value on flotation.

Under the ownership of Towerbrook and Warburg Pincus, the company embarked on a long-term transformation plan, recruiting a new leadership team in the form of chairman Rick Haythornthwaite – who also chairs NatWest Group – and chief executive Jakob Pfaudler.

For many years, the AA styled itself as “Britain’s fourth emergency service”, competing with fierce rival the RAC for market share in the breakdown recovery sector.

Founded in 1905 by a quartet of driving enthusiasts, the AA passed 100,000 members in 1934, before reaching the one million mark in 1950.

Last year, it attended 3.5 million breakdowns on Britain’s roads, with 2,700 patrols wearing its uniform.

The company also operates the largest driving school business in the UK under the AA and BSM brands.

In the past, it has explored a sale of its insurance arm, which also has millions of customers, at various points but is not actively doing so now.

By recruiting a third major shareholder last, the AA mirrored a deal struck in 2021 by the RAC.

The RAC’s then owners – CVC Capital Partners and the Singaporean state fund GIC – brought the technology-focused private equity firm, Silver Lake, in as another major investor.

A spokesman for the AA declined to comment on Saturday.

Business

US-EU trade war fears reignite as Europe strikes back at Trump’s threat

Published

2 days ago

May 24, 2025

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US-EU trade war fears reignite as Europe strikes back at Trump's threat

Fears of a US-EU trade war have been reignited after Europe refused to back down in the face of fresh threats from Donald Trump.

The word tariff has dominated much of the US president’s second term, and he has repeatedly and freely threatened countries with them.

Money blog: Trump sends message to UK on energy bills

This included the so-called “liberation day” last month, where he unleashed tariffs on many of his trade partners.

On Friday, after a period of relative calm which has included striking a deal with the UK, he threatened to impose a 50% tariff on the EU after claiming trade talks with Brussels were “going nowhere”.

The US president has repeatedly taken issue with the EU, going as far as to claim it was created to rip the US off.

However, in the face of the latest hostile rhetoric from Mr Trump’s social media account, the European Commission – which oversees trade for the 27-country bloc – has refused to back down.

EU trade chief Maros Sefcovic said: “EU-US trade is unmatched and must be guided by mutual respect, not threats.

“We stand ready to defend our interests.”

Fellow EU leaders and ministers have also held the line after Mr Trump’s comments.

Polish deputy economy minister Michal Baranowski said the tariffs appeared to be a negotiating ploy, with Dutch deputy prime minister Dick Schoof said tariffs “can go up and down”.

French trade minister Laurent Saint-Martin said the latest threats did nothing to help trade talks.

He stressed “de-escalation” was one of the EU’s main aims but warned: “We are ready to respond.”

Mr Sefcovic spoke with US trade representative Jamieson Greer and commerce secretary Howard Lutnick after Mr Trump’s comments.

Mr Trump has previously backed down on a tit-for-tat trade war with China, which saw tariffs soar above 100%.

Sticking points

Talks between the US and EU have stumbled.

In the past week, Washington sent a list of demands to Brussels – including adopting US food safety standards and removing national digital services taxes, people familiar with the talks told Reuters news agency.

In response, the EU reportedly offered a mutually beneficial deal that could include the bloc potentially buying more liquefied natural gas and soybeans from the US, as well as cooperation on issues such as steel overcapacity, which both sides blame on China.

Stocks tumble as Trump grumbles

Major stock indices tumbled after Mr Trump’s comments, which came as he also threatened to slap US tech giant Apple with a 25% tariff.

The president is adamant that he wants the company’s iPhones to be built in America.

The vast majority of its phones are made in China, and the company has also shifted some production to India.

Shares of Apple ended 3% lower and the dollar sank 1% versus the Japanese yen and the euro rose 0.8% against the dollar.