UK's Fiscal Deficit Worsens: The Economist Suggests Leveraging Cheap Advantages to Attract Investment

UK Prime Minister Keir Starmer initially planned to introduce a fiscal bill during his first anniversary in office aimed at cutting benefits for people with disabilities and sickness assistance, with a target of reducing social welfare spending by £5 billion (approximately NT$198.3 billion) by 2030. However, the proposal faced backlash from his own party members. To prevent the bill from failing, Starmer made a last-minute concession just before the vote in the House of Commons on the 1st, retaining the "Personal Independence Payment" (PIP) for people with disabilities, which allowed the bill to pass but only resulted in a saving of approximately £300 million (NT$11.9 billion) in social welfare spending, leading to criticism that the effort was in vain.
The turmoil did not stop there. During a parliamentary questioning session on the 2nd, Starmer failed to guarantee that Chancellor of the Exchequer Rachel Reeves would remain in office until 2029, causing her to tear up and sparking a considerable uproar. Starmer quickly rephrased his comments, suggesting that Reeves "will be around for a long time." Nevertheless, the UK's fiscal deficit issue remains unaddressed, with The Economist citing warnings from the Office for Budget Responsibility indicating that the UK’s capacity to respond to shocks is declining, leading to “frightening” risks.
The Economist points out that the UK’s population is aging and overly reliant on social welfare. On the other hand, tax revenues are already relatively high, and future increases are likely. However, experts believe that if the government can effectively utilize the UK's relatively inexpensive labor, bonds, and real estate, economic growth can still be stimulated.
According to The Economist, the prices of UK bonds are among the cheapest in advanced economies, resulting in higher yields. A Boston-based investment company purchased the UK's "Poundland" at a low price in June, highlighting that global investors are becoming aware of the relatively low asset prices in the UK. A quant investment firm stated that the investment return rates for UK stocks and bonds are the highest among all advanced countries.
Larry Fink, head of asset management firm BlackRock, indicated that the market value of the UK was undervalued in April, and he is increasing investments there. Furthermore, the generally well-educated workforce in the UK is not compensated adequately, particularly in the technology, legal, and human resources sectors. According to JPMorgan Chase, technicians in their Glasgow branch are paid at levels quite close to those in India.
The service sector in the UK significantly contributes to economic growth, with exports of services to the US increasing by about 75% since 2016. Although UK industries are protected by the government, allowing them to avoid technology outflow in international trade, they are still not sufficient to sustain the overall economy. If the government invests in developing artificial intelligence, it may accelerate growth in more industries.
The Economist analyses that the key to stimulating the UK economy lies in leveraging the cheap price advantage to attract foreign capital without exploiting domestic workers. Furthermore, the government should avoid repeating the mistakes of significantly increasing debt, which can lead to downgrades in credit ratings from financial institutions, resulting in capital flight. Additionally, Starmer must cease any actions that undermine the UK’s strengths, as the Labour Party plans to increase employer costs to improve workplace conditions while also promoting social welfare. According to The Economist, if the ruling party genuinely seeks to assist workers, the best approach would be to raise wages.
Furthermore, government reforms must be targeted and effective, pushing for substantial investment in cities like Birmingham and Manchester. Since the 2008 financial crisis, the recovery speed of the UK economy has lagged, and since Brexit, the country has faced diplomatic weaknesses. The Economist believes that Starmer currently has nearly three years to promote the policies he desires, and as long as the government moves away from the mindset of a "Sun Never Sets Empire" and effectively uses the UK's own cheap advantages for economic growth, there will be much to gain in international trade.