Growth and the relentless search for it has been a key feature of the election campaign. For most parties, this was seen as the key way to square the circle of difficult fiscal circumstances.

Essentially, because there is very little money available in the coffers, getting the economy growing is the route to improving public services, without increasing the tax burden any more than is already forecast.

In addition, if the economy grows more quickly, then the denominator for both the debt to GDP ratio and the tax to GDP ratio is bigger: which makes sticking to the much-discussed fiscal rules much easier.

Labour have said they will stick to the main fiscal mandate, which sets out that debt as a proportion of GDP will be falling between the fourth and fifth years of the forecast period. Despite Rachel Reeves setting out that they will “borrow to invest”, signing up to this debt rule significantly limits the extent to which this will be possible. The current outlook for public sector investment is pretty dire: which means the new UK Government would have to increase investment considerably just to maintain a mediocre-by-international-standards level of public sector investment in real terms.

Therefore the extent to which the new Government can spend money to stimulate the economy is limited, by both the overall situation and their decision to stick to the debt fiscal rule.

READ MORE: Labour landslide but Keir Starmer boxed in on economy

So, what are Labour proposing to get growth going?

Labour has committed to a “mission driven”, modern Industrial Strategy, including the establishment of a statutory Industrial Strategy Council.

Industrial strategy does not always achieve the stated aims of policymakers – a common criticism of such strategies is that governments are poor at “picking winners”. Often, though, the failures are because governments give these interventions too many outcomes to achieve, which means they do not achieve any of them.

Other potential issues with industrial policies include the fact that they encourage protectionist tendencies, which can cause other issues like trade disputes; and the time lags between devising a strategy and it bearing fruit, which can be problematic in a political environment which encourages short-term thinking.

However, despite these drawbacks, many are likely to welcome a clear overall economic strategy, after many years of a guiding strategy for the economy being absent. Of course, having a strategy is not enough and will not generate growth in itself: and many of the priorities which are set out in an industrial strategy may well take many years to come to fruition.

Labour also outlined plans for an additional £23.7 billion in ‘green’ measures for the next Parliament – which means just under £5 billion a year, a fairly modest sum in the scheme of things, and a significant reduction from the £28 billion a year ‘Green New Deal’ plan initially outlined by Rachel Reeves in 2021.

The most eye-catching measure is the creation of GB Energy, which is to be based in Scotland. GB Energy is not expected to be a direct energy producer, but rather an investment vehicle for backing low-carbon projects, both at local level and through strategic co-investment with the private sector.

Labour have said they will plough £8.3 billion in capital into GB Energy, which the manifesto claims will be funded by increasing the Energy Profits Levy (EPL). It’s unclear whether the level of capitalisation depends on the level of receipts from a tax whose revenues are forecast to dwindle quite quickly – but perhaps this hypothecation was simply what Labour felt they had to do as part of a manifesto, rather than the actual mechanism for funding what should presumably be a long-term investment in the UK Energy system.

Keir Starmer and Rachel ReevesKeir Starmer and Rachel Reeves (Image: PA)

A key focus is reforming the planning system. There are not many specifics about what this may mean for local autonomy, it is a clear part of their plan to deliver growth (and build many houses). Of course, planning is a devolved matter, so it will be important for the new UK Government to work with the devolved administrations if they want this economic transformation to happen across the UK.  

Labour have many proposals for changing the labour market in their manifesto, which has encompassed at various points through the campaign their “New Deal for Working People”, which they say they want to introduce legislation on within the first 100 days. So, while many of the economic policies already mentioned may take many years to yield economic growth, the labour market are reforms that the Government could potentially introduce legislation for quickly to be able to point to quick progress on the economy. 

This “Deal” will include banning zero hours contracts, ending fire and rehire, introducing basic rights (like sick pay and parental leave rights) from day one of employment, and making the minimum wage account for the cost of living. These are all reserved areas, so would impact workers in Scotland.

In the campaign, it seemed clear that the Labour party wanted to signal they want to forge a closer and less costly trade relationship with the EU, which they felt would improve our trade with the block. In addition, they have committed to publish a new trade strategy, which will seek targeted trade agreements aligned with industrial strengths (presumably to complement and underpin their Industrial Strategy).

Many of the policies that have been covered in this article have the potential to impact on the drivers of productivity and therefore increase economic growth. The trouble is that they are unlikely to have an impact in the short-medium term, which may mean that the new UK Government may not be able to rely on growth to help them out of their fiscal bind.

Of course, they may get lucky: macroeconomic conditions should improve over the second half of 2024, with likely interest rate cuts coming before the end of the year. But, if they do not, something else may have to give – on tax, on spending or on their fiscal rules.

Mairi Spowage is the Professor of Practice and Director of the Fraser of Allander Institute