A regular on television, radio and podcasts, Vicky is Chief Economic Adviser at the Centre for Economics and Business Research (CEBR and Chair of the Economic Advisory Board of the British Chambers of Commerce. She is also a Visiting Professor at King's College London.
She was previously Joint Head of the UK Government Economic Service, Director General for Economics at the Department for Business, Innovation and Skills (BIS) and the Senior Managing Director at FTI Consulting.
She is a former Partner and Chief Economist at the accounting and consulting firm KPMG and has held senior economic positions across the banking and the oil sectors. She is co-founder of GoodCorporation, a company set up to advise on corporate social responsibility. She was the first female Master of the Worshipful Company of Management Consultants. She is also on the steering committee of the Greek-British Symposium and on the Steering Council of komvos-node.org.
Her latest book, Mismanaged Decline,What Politicians won’t tell you about the Economy, jointly written with Prof Andy Ross, was published to coincide with the recent Budget and was the subject of one of Radix’s monthly webinars which can be heard here.
The Budget is upon us, so let’s reflect on the nation’s mood. Andy Burnham’s optimistic, ‘vibes’-based leadership has differentiated him from the generally downbeat messages of the Starmer administration, and seems to have improved Labour’s standing in the polls. That hope was also a catalyst for the silent coup that propelled Burnham, over just a few short weeks, from Mayor of Greater Manchester to Prime Minister. The central idea - that a new leader (and perhaps a new Chancellor) would rejuvenate a party which had suffered crushing council election defeats in May - seems to have borne fruit, although recent mishaps from Reform UK on the right and the Green Party on the left are helping to boost the polls for Labour.
Now, however, comes the true test. Can John Healey convince Labour backbenchers that their seats are safe while contemplating cuts in welfare? The £24 billion of fiscal headroom that Rachel Reeves thought she’d left behind has been eaten away by higher interest costs, and Healey seems to be inclined to halve what headroom remains. Can he keep markets happy while doing so? And still convince voters that enough money will be found, somehow, for defence?
The answer is - maybe.
One route open to Healey is to blame global events. Oil prices have been higher than anticipated, for longer. The problem of increasing debt-servicing costs is now felt worldwide, from the US to France, with French bond yields now almost level with the UK’s. We are no longer outliers.
The second is to look to the International Monetary Fund. Its praise for Reeves’ plans, to cut both the deficit and the debt-to-GDP ratio over the longer term, is worth banking for now (even if it was for Healey’s predecessor). Yet these plans will still have to be revisited at the spending review, due late next year.
Third, the Chancellor could raise tax on perceived excess profits. This plan would please those MPs who want to see some redistribution, without harming the economy too much - and would appease the markets, which worry about the size of the government deficit. Taxes on banks and on gambling. Some less generous allowances for pension contributions. Perhaps an extra squeeze on energy companies profiting from high oil and gas prices. All are options open to Healey.
Fourth, focus on investment and jobs. We could hear promises of a ‘La La Land’, where the government intervenes to help all: adequate defence funding; sovereign AI; more power (and money) to institutions like the British Business Bank and the National Wealth Fund. Plus greater support for poorer councils across the country; extra devolution of tax and spending; more support with business rates, or VAT cuts for high street shops. Meanwhile, ease bureaucracy on businesses and cut compliance costs - especially for small- and medium-sized enterprises. If the government follows some (or all) of this route, it will be interesting to see whether these cuts also extend to stopping the Making Tax Digital initiative, which is widely seen as damaging to entrepreneurship.
Fifth, increase efforts to bring down the cost of living. This one isn’t easy. Removing green levies and VAT on electricity from household energy bills may help, but any temporary relief will be lost if global energy prices stay elevated. Cutting standing charges from bills, as is being suggested, will help households that don’t use much energy - but it’s bound to result in higher unit costs for everyone. What may help is a general review of energy pricing, including decoupling electricity prices from the (usually expensive) marginal cost of gas.
All these measures would take some time to have an impact, as would developing a proper universal care system, or stemming the projected growth in welfare payments. And all would require extra spending up front. Growth, therefore, should remain the primary objective as the means for bringing these often contradictory aims into balance. Although the economy has proved more resilient than expected, this cannot be guaranteed to last. Consumer confidence is dropping. Business confidence, hit by rising input costs, including those for labour, is fragile.
So, what gives?
Playing around with reclassifying some borrowing needed to support cost-of-living and employment initiatives can only take you so far. Faster, sustained growth - hopefully, as Burnham wants, in ‘every postcode’ - is what is needed to improve the nation’s finances. But for the UK, battling alone in a turbulent geopolitical environment, it isn’t easy.
The government needs to think bigger. AI alone won’t do it. In fact, AI’s overall impact on work and wellbeing could set things back. Andy Burnham is now stepping into territory that was given a wide berth by his predecessor. Increasingly, people are being persuaded that a closer relationship with Europe will indeed be part of the solution. It is entirely possible that the promise to look at all options for the UK’s future relationship with the EU, including rejoining, could lift the nation’s mood, making the Chancellor’s job that much easier. It may even make Burnham’s term last longer, if an early election is called.
Vicky Pryce, writing here in a personal capacity, is Chair of systems-change think-tank Radix Big Tent, Chief Economic Adviser at CEBR, Chair of the Economic Advisory Council for the British Chambers of Commerce, and Visiting Professor at King’s College, London.
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