Chancellor Jeremy Hunt likes to tell business leaders not to worry about political instability and more policy upset. He claims to be carefully building policy that will survive – win or lose the next election. If the shadow chancellor, Rachel Reeves, succeeds him, accepting nearly all his proposals, be reassured, he says, there will be continuity rather than change. In the run-up to her important Mais lecture last week, the pre-briefings seemed to warrant his judgment.
She would reaffirm her iron attachment to fiscal rules and budgetary discipline, we were told. After all, she had beaten a wholesale retreat from Labour’s cornerstone £28bn green spending commitment. In successive fiscal “events”, she has accepted all the proposed tax cuts, not even reinstating the cap on bank bonuses. There was chatter describing her as “continuity Hunt”. Even Margaret Thatcher, we read, would be invoked as a change agent she admired. Unite sharpened its claws, writing off the lecture even as Reeves spoke as “for the birds”. Only a “sustained rise in public investment in infrastructure”, declared general secretary Sharon Graham, “can turn the tide on decline”. Two days later, columnist Owen Jones resigned from the Labour party, citing the refusal to challenge catastrophic Tory policies in “a race to the bottom”.
In the event, Reeves confounded all of them to an extent I found astonishing. Far from admiring the free market economics of Thatcher and Nigel Lawson, she tore into it. It had not produced lasting productivity gains: in the long run, productivity had steadily fallen away as inequality had deepened, productive capacity shrivelled and economic resilience had been whittled away. The famous economist and sociologist Karl Polanyi, back in 1944, had argued in The Great Transformation that it had been attempts to impose the rule of markets on society – the imposition of the Gold Standard, running balanced government budgets, enforcing wage flexibility and minimal welfare provision – that had produced a powerful backlash in the form of both communism and fascism. Reeves thought Polanyi’s views “prescient”, tracing the rise of today’s destructive rightwing populism to the revival of free market economics that “[writes] swathes of Britain … out of our national story” and allows “hope for the future to wither”.
She damned the austerity of the 2010s – not borrowing for investment when interest rates were low – as an act of “historic negligence” and recognised that New Labour had been wrong, through its commitment to light-touch financial regulation, to indulge the rapid credit growth that inevitably culminated in the financial crash. She even recognised that Brexit was an ongoing economic policy debacle: she backed the Office for Budget Responsibility’s (OBR) estimates that it was lowering GDP by 4%. She singled out Thatcher’s election in 1979 not to admire it, but to acknowledge that, although intellectually, economically and socially wrong, it had represented an inflection moment in a period of economic and social upheaval, when one set of ideas – postwar Keynesianism – was exhausted and gave way to another. Now was a similar inflexion moment. A new “productivist” economic paradigm was surfacing in a parallel time of upheaval, but one that stressed the role of an agile state in promoting vital economic growth and social cohesion through higher public investment, an active industrial policy and quality public services. More economic resilience, institutional stability and social inclusiveness were all part of the alchemy.
Far from sticking to Hunt’s fiscal rules, she would change them to promote a surge in public investment. Rather than aim to balance all public spending and revenues year by year, she would strip public investment out of the equation and only aim to balance “day to day” spending and revenues over the economic cycle. Public investment would be further boosted by a new fiscal rule that would require the OBR to regularly monitor the quality and improvement of the overall government balance sheet as public investment was lifted by higher public borrowing. The only rule she would retain is that the national debt should fall five years after every annual fiscal event, but it could rise in years one, two, three and four. Given that the OBR is legally obliged to base its five-year forecasts on announced future spending plans, this is a rule that can always safely be met.
A new British infrastructure council would direct public investment to where need and paybacks were higher, with the central commitment to achieving net zero by 2050. It would work in tandem with an industrial strategy council – both on a statutory footing – to crowd in private investment to areas where Britain had a potential strategic advantage, especially in green technologies. The aim would be to promote new centres of industrial and business agglomeration across the Midlands and north, with wholesale reform of planning to fast forward the building of houses, an expanded electricity grid and new roads. Exploitative work practices would be removed via Labour’s “new deal for working people”. Spending on R&D would be fixed over 10 years, rather than being constantly chopped and changed. Plans to create bigger pension funds capable of spreading risk and thus investing in British enterprise would be turbocharged. Devolution of decision-making would be accelerated. And there would be “an urgent resource injection into our public services: to cut NHS waiting lists, tackle the crisis in dentistry, transform mental health services, recruit and retain teachers, and provide breakfast clubs in every school”.
Altogether, this was neither all for birds, a race to the bottom nor continuity Hunt, even if there were omissions. More fundamental change to our savings and investment system, and more promotion of fast-growing small- and medium-sized firms are needed. Companies themselves need to think more in terms of achieving a great intrinsic purpose, rather than short-term profit maximisation. Education and training are an underfunded mess. Universities face an impending financial crisis. One in five local authorities is in danger of going bust over the next two years. The sheer scale of poverty in the UK is mind-boggling.
But Keir Starmer and Reeves face an unremittingly hostile rightwing media and they dare not risk a Truss-style run on the pound. Their retreat after retreat, watering down after watering down, has been disheartening. Yet I left the Bayes Business School after Reeves’s lecture upbeat and encouraged. Labour could get elected, as long as its coalition of support holds – and it might, just might, be the government that feasibly and practically triggers the much-needed investment revolution, lowers inequality and revives the green agenda. Reeves does get it, only is careful and subtle about her response. The Mais lecture is an important moment.
• Will Hutton is an Observer columnist
