Reeves’ summer of fun won’t deliver growth

This article was first published in CityAM.

Instead of attempting to stimulate demand, Reeves should focus on helping hospitality from the supply-side, writes Matthew Bowles

After a bank holiday weekend that featured record-breaking May temperatures, Britain’s leisure economy hardly looks in need of emergency stimulus.

Yet last week, the government announced its “Great British Summer Savings” – a temporary VAT cut of 20 per cent to five per cent on selected family days out, designed to make leisure activities marginally cheaper over the summer period. Children aged five to 15 in England will also be able to travel “free” (there’s that word again) on local bus services throughout August. 

The policy has been presented as part of a broader effort to support household budgets and stimulate some level of economic activity. But what sticks out is the scale of the scheme: £300m.

No such thing as a ‘free’ breakfast

The gap between the economic weight and the announcement that saw Rachel Reeves heckled in a Morrisons forecourt is increasingly characteristic of recent British governance. We are entering a phase in which new policy seems almost entirely focused on signalling activity, where doing something is preferable to doing nothing.

Take the expansion of “free” school breakfast clubs, frequently presented as a central pillar of child poverty strategy. Or consider fuel duty, frozen repeatedly since 2011, with each extension framed as direct relief from cost pressures. Perhaps most memorably, the pandemic-era “Eat Out to Help Out” scheme offered a heavily subsidised boost to hospitality demand in the immediate aftermath of lockdowns. Each policy had its own internal justification, but collectively they share the common features of being relatively low-impact examples of behavioural engineering, as well as complex to administer relative to their economic impact.

Most of these interventions operated on the demand side with the government subsidising consumption or attempting to redistribute costs. They may have shifted behaviour temporarily or eased pressure on specific sectors but did little to raise productivity or investment over the medium term.

Reeves should focus on supply-side

To be fair to the Chancellor, not every Treasury decision has followed this pattern. The government’s decision to use post-Brexit trade freedoms to reduce tariffs on over 100 food products was a more serious attempt to lower costs through liberalisation. It reflected a recognition – still surprisingly rare in British politics – that cheaper imports and freer trade can exert downward pressure on prices far more effectively than state-planned consumption schemes.

Yet the contradiction remains difficult to ignore. At the same time as Reeves announced temporary discounts for summer leisure activities, the Labour government is continuing to make it difficult for the leisure and hospitality sectors themselves. Higher employer National Insurance contributions, a substantial rise in the National Living Wage and the additional burdens under the Employment Rights Act 2025 all raise costs. In effect, the government is attempting to stimulate demand for sectors, whilst steadily eroding conditions in which they are able to operate.

This matters because there are currently too many schemes, too many initiatives and too many pieces of incremental policy. The British economy, however, is lacking in growth momentum. Productivity remains weak and business investment remains subdued. This can be traced back to the Financial Crisis. In such an environment, the temptation to prioritise micro-interventions, and avoid making difficult macroeconomic choices, becomes particularly strong.

Jimmy Carter offers lessons from the past

There is historical precedent for this pattern, which emerges during periods of economic strain rather than strength. In the late 1970s, then-President of the United States Jimmy Carter faced a deteriorating economic environment defined by stagflation: high inflation combined with weak growth. Conventional tools for alleviating this problem were increasingly ineffective without producing severe trade-offs.

Interest rate tightening risked deepening unemployment. Fiscal expansion risked worsening inflation. At the same time, declining political confidence – partially a result of having a Democrat party split between moderates and progressives – reduced the appetite for large-scale reform. The result was not paralysis, but a growing emphasis on small-bore policy responses.

A series of energy shocks led the Carter administration to place increasing emphasis on conservation and behavioural change. Public campaigns encouraged households to reduce energy consumption, lower thermostat settings and adjust their daily habits. Carter’s own televised fireside chats, including the widely noted suggestions that Americans ought to “wear a sweater”, became symbolic of a broader governing style in which communication and administrative messaging were elevated alongside, and sometimes in place of, structural economic resolution.

Alongside this, the administration pursued a set of incremental policy responses under the 1978 National Energy Act (eerily similar to Miliband’s Energy Independence Bill), combining regulatory adjustments and targeted incentives rather than any fundamental shift, designed to reduce American dependence on foreign energy and promote the use of domestic and renewable energy sources. The creation of the Department of Energy and the later establishment of the Synthetic Fuels Corporation reflected an attempt to demonstrate action once economic levers were deemed too difficult to push and pull.

Reactive policies are short-sighted

Britain today is not in precisely the same position as the United States in the late 1970s, but the political logic is similar. When growth is weak and productivity stubborn, governments will naturally turn towards marginal policies that can be announced quickly, rather than design ambitious reforms which yield visible results far more slowly. What is notably absent is sustained focus on reforms most closely associated with growth, such as housing supply and infrastructure delivery, or providing the right conditions for increased business investment. 

Over time, this risks creating a style of governance in which responsiveness becomes its own objective. This is what has been seen over the past few years in Britain: a state that is permanently busy, but increasingly irrelevant to growth itself.

A nation can only carry on this way for so long. We may be heading into Reeves’ ‘Summer of Fun’, but we are almost certainly in the autumn of her era of economic policy.