After weeks of sinking business confidence following her Budget tax increases, Rachel Reeves came to Davos with a clear goal: to re-set her relations with big investors.
Her charm offensive in the Swiss resort included meetings with business leaders and public appearances in which she upbraided regulators, promised to ease lending rules, prioritised growth over net zero goals, and pledged to tweak non-dom tax rules.
Many listening recognised the UK government’s efforts to change the grim narrative of the past months — but are not yet convinced that it will secure stronger growth. With the public finances under pressure, government borrowing costs up, and the UK economy flatlining in the second half of last year, the Labour government has a significant job ahead to bolster optimism.
“Rachel Reeves is thinking the right way but she’s in a difficult position,” said a senior UK bank executive in Davos. “Labour in the UK have made a lot of good decisions but it is very hard for them and the [bond market] challenges of last week reinforce that issue.”
The chancellor is leading an effort by Labour to pivot away from the gloomy messaging it adopted after winning power — focused on a dire fiscal inheritance from the Conservatives — to a regulation-slashing message that will be attractive to business.
Many investors feel a more upbeat pitch is long overdue. Mohammed Alardhi, executive chair of $53bn investment manager Investcorp, whose investments in the UK include real estate logistics and education, said: “When the government continues to talk about doom and gloom because they inherited bad things from the Conservatives, investors and businesses will believe you and go somewhere else.
“There needs to be better and more positive messaging for the future. Everyone knows there are problems with deficits and budgets.”
The meetings of the World Economic Forum in Davos gave Reeves an opportunity to woo investors rattled by the UK’s poor growth performance.
The chancellor repeatedly brandished her focus on easing regulatory burdens in areas such as technology, planning and financial services as she sought to make a virtue out of Britain’s room for manoeuvre following Brexit.
“We have that flexibility: we can be more nimble. We are taking advantage of that,” she said at an event during the summit.
“While the UK benefits from a stability bump, we would hope to see the appropriate reforms implemented to fuel growth,” said Jo Taylor, chief executive of Ontario Teachers’ Pension Plan — one of the country’s largest investors with stakes in offshore wind projects, energy networks and airports.
Patrick Thomson, who leads JPMorgan Asset Management in Europe, said: “From an investor perspective, everything the government is saying makes sense.” He cited examples including consolidating pension funds, telling regulators to allow more risk taking, reinvigorating the market for listings, reforming planning, and prioritising artificial intelligence.
But the UK’s biggest partner is driving harder, as global markets are buoyed by US President Donald Trump’s pledges to slash regulation and cut taxes and bolster economic growth. The mood among investors towards European countries — including the UK — remains relatively gloomy.
“The outlook is quite bleak for the UK in terms of growth,” said the chief executive of one of the world’s largest pension funds. “I’m not sure Europe is a lot better. It’s all about North America . . . everyone is fixated on the US: it’s the easy shout.”
Trump’s aggressive deregulation push — including appointing Elon Musk to lead the new waste-cutting Department of Government Efficiency, or Doge — has put added pressure on governments across Europe to convince businesses they are easing burdens and cutting red tape as they seek to prop up competitiveness.
“Everyone here at Davos is taking a page out of the Donald Trump playbook,” said Marc Benioff, chief executive of Salesforce, at Davos. “We’ve heard comments from [European Commission president Ursula von der Leyen] and Rachel Reeves and more. Countries are thinking that they need their own Doge — and that means less red tape, deregulation and a priority on growth.”
The UK is awaiting clarity on how Trump’s vows to slash regulation will affect Wall Street. This month the Bank of England delayed its final capital rules for a further year given the uncertainty in the US. Some bankers believe the UK could move faster than the EU in response to the emerging US regime given it is not bound by Brussels procedures.
“We have to respond to the agenda the US president has just set out with our own dynamism,” Jonathan Reynolds, business secretary, told the Financial Times in Davos. “Every country has to do it.”
The past week has shown that the UK government is willing to be aggressive in pursuing growth, with ministers intervening to remove the chair of the under-pressure monopoly regulator, the Competition and Markets Authority.
A big investor in the UK described the removal of Marcus Bokkerink, which was first reported by the FT, as “the most muscular action taken by a UK government to rein in a regulator for some time”.
They added: “It should hopefully put other regulators on notice that they could face similar consequences if the government’s growth agenda doesn’t receive serious attention and follow-through.” The investor name-checked the Financial Conduct Authority as another regulator that should pay “close attention” to the government’s move.
Speaking to reporters on Wednesday, Reeves repeatedly insisted that growth was the government’s number-one mission.
She warned that “too many things are holding back the supply-side of the economy”, decrying “crazy” rules impeding infrastructure planning and alluding to the £100mn price tag on an arch to protect bats from the High Speed 2 rail line.
“If we always say no, lo and beyond will have the same outcome — poor growth and deteriorating living standards,” Reeves added.
Areas where UK officials were eager to use the country’s flexibility include AI, she said, arguing that the country’s regulations were “much more permissive, much more pro-growth than what you see in many other countries around the world, including in the European Union”.
Yet the UK’s freedom of manoeuvre will be constrained by its parallel drive to obtain a “reset” in its relations with the EU in order to break down some of the barriers that have sprung up since Brexit. Uncertainty over how it will navigate between the two massive economies it trades with threatens to hang over the economy.
Allies of Reeves were clear that they had made progress during their frenetic round of meetings in Davos. “It’s going to be months and years of hard work, but we have shifted the dial in the last week and that is what businesses are telling us,” said one. “It’s not job done on growth but we have made a huge amount of progress. We’ve never been more focused and determined.”
“We need that fast and furious approach to delivery on the ground, and those actions need to match the ambition,” said Rain Newton-Smith, the director-general of the CBI.
“It does feel like the building blocks are there but it will take courage and doubling down on the things that really help to drive growth.”
Reporting by Sam Fleming, Harriet Agnew, Ortenca Aliaj, Arash Massoudi and Stephen Morris in Davos
https://www.ft.com/content/23d2d067-d00d-42d9-b5ef-f46586d87bf2
