Has Rachel Reeves stolen Tory clothes? And the big question

It is certainly a laudable enough objective, and business has long been clamouring for a plan which will deliver growth.

Of course, former prime minister Boris Johnson and his then chancellor, Rishi Sunak, made quite the big deal about their “plan for growth” back in spring 2021.

It would be difficult to contend other than that this Tory plan failed miserably to deliver.

So talking about growth is one thing. Delivering it is quite another.

And, while it is early days and Labour may need some time to communicate its supposedly coherent plan to stimulate growth, there are some gaping holes in what it is currently proposing.

What was eye-catching, but sadly not at all surprising given Labour’s declaration that it will not take the UK back into the European Union, single market or even the customs union, was that Ms Reeves’ speech on Monday did not contain any references to “Brexit”, “Europe” or “exports”. Ms Reeves did not mention the “European Union” either.

However, these omitted subjects are surely most pertinent in the context of any attempt to “kickstart” growth.

Rejoining the single market would, were it actually sought and achieved, provide quite the kickstart.

And it is perhaps something of a feat to talk about growth without mentioning exports, which have been so hampered by the UK’s hard Brexit.

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When Jeremy Hunt delivered his Budget in March, the Office for Budget Responsibility declared that recent trade data “remain broadly consistent with our assumption that Brexit will reduce the UK’s trade intensity - exports plus imports as a share of GDP (gross domestic product) - by 15% in the long term”.

Talking of Mr Hunt, it was interesting indeed to hear Ms Reeves in her speech use a favourite phrase of the erstwhile chancellor: “sound money”. Mr Hunt talked about “sound money” in his March Budget, and was trumpeting this phrase back in autumn 2022. The phrase has also been used by new Prime Minister Sir Keir Starmer in recent years.

This common language and political messaging all adds to the difficulty in seeing that much distinction between the incoming Labour government and the Conservatives when it comes to the economy and public finances.

And the impression of a surprising lack of distinction between the two parties was reinforced by Ms Reeves’ pledge to “tackle economic inactivity and get people back to work”. If people were asked to guess who this declaration had come from, you would imagine many might venture it was Mr Sunak or Mr Hunt. The same could be said of Mr Reeves’ talk about “the hard work of reforming our public services” and her pledge to “reform our skills system, for a changing world of work”.

No mention of the enormous part the loss of free movement of people between the UK and European Economic Area has played in fuelling Britain’s skills and labour shortages crisis. Just the same insular, parochial focus we have seen from the Tories.

It is hard to shake the notion that Ms Reeves and Labour have stolen many of the Tories’ clothes in the context of the economy and public finances. This is dispiriting, given the enormous drag on growth and living standards delivered by the Conservatives.

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Ms Reeves declared on Monday: “Now I know there are some who will argue that the time for caution is past. That a large majority in Parliament means we have the licence to row back on the principles of sound money and economic responsibility.

“I know that many of you aren’t used to hearing this after recent years. But I believe that the promises that a party is elected on should be delivered on in government and we will do so. We do not take lightly the trust of voters who have been burned too often by incompetence, irresponsibility, and recklessness.”

There should, it is true, of course not be “incompetence, irresponsibility, and recklessness”. That tends to cost everyone dear.

However, that does not mean the public purse strings should be pulled so tight that it restricts growth by starving the economy of potential boosts to aggregate demand, such as major additional investment spending, that could actually stimulate both growth and tax revenues.

Ms Reeves, it is interesting to note, highlighted the degree to which the UK has lagged other major economies and flagged the cost of this in terms of tax revenues.

She said: “New Treasury analysis that I requested over the weekend shows that, had the UK economy grown at the average rate of other OECD (Organisation for Economic Cooperation and Development) economies this last 13 years, our economy would have been over £140 billion larger.

“This could have brought in an additional £58bn in tax revenues in the last year alone. That’s money that could have revitalised our schools, our hospitals, and other public services.”

Clearly, some of this lost growth was down to the Conservatives’ ill-judged and savage austerity programme, which started as soon as David Cameron arrived as prime minister and George Osborne became chancellor in 2010, backed by the Liberal Democrats.

The austerity visited upon the UK, through savage welfare cuts which are embedded and protracted public sector pay freezes and caps which have made millions of workers worse off, is a permanent thing.

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It is difficult indeed to think a Labour government would have gone down such a foolish route, so Ms Reeves is right to highlight the Tories’ shortcomings on the economy if you are looking at things from the perspective of austerity.

However, what the Chancellor did not mention was the extent to which Brexit has proved a huge drag on UK growth since the referendum result became clear in June 2016.

Of course, Sir Keir argued vociferously and eloquently against Brexit in late 2019.

So you could certainly say key Labour figures were still soundly on the money about Brexit and its actual effects even a good few years after the referendum result. Not so much now, sadly.

Sir Keir has embraced the Tory hard Brexit. If Labour wants to continue down this path, which it clearly does, it owes it to the electorate to be up front about the grim effects on growth and exports and tax revenues.

First Minister John Swinney, in a speech in late June, highlighted the Scottish Government’s calculation of the cost to devolved public spending in Scotland.

He said: “It’s been estimated by the National Institute [of] Economic and Social Research that the UK economy is already 2.5% smaller than it would otherwise have been. Other estimates are higher.

“But, taking this lower estimate, that would mean around £69bn has been wiped from the economy. That in turn means £28bn less in tax revenues that could have been invested in public services like the NHS. For Scotland, it means a loss of £2.3bn in public revenue.”

Mr Swinney added: “Given that the Scottish Parliament controls around 60% of spending that means that at a conservative estimate we have around £1.6bn less to spend on the NHS and other public services in Scotland because of Brexit.”

Some of the initiatives flagged by Ms Reeves on Monday make good sense, such as trying to boost housing provision, and launching a new national wealth fund. She announced yesterday that the £7.3bn national wealth fund would be established in less than a week, having on Monday highlighted the part which former Bank of England governor Mark Carney had played in this project after agreeing in March to lead a task force on it.

However, the problem is that all of what Ms Reeves and Labour are proposing does not look anywhere near enough in itself to make a big difference to growth, especially given the hard Brexit and Labour’s seeming desire to wear the Tories’ clothes when it comes to the public finances.

The Institute for Fiscal Studies think-tank noted on June 4: “As we have seen, Labour has committed to the same debt rule as the Conservatives, and that rule makes no distinction between investment and day-to-day spending. It is also the rule that binds.”

The big question right now is surely around where a significant and sustainable fillip to UK growth is going to come from, and Ms Reeves and Labour have yet to provide any kind of convincing answer to this.