When preparing to become Labour’s chancellor in 1964, James Callaghan used to go up to Oxford for economics lessons at Nuffield College. The present shadow chancellor, Rachel Reeves, is already steeped in economic knowledge, including that of the UK’s economic history, as her recent Mais lecture at Bayes business school made clear.
I was amused by some of the pre-lecture media speculation that Reeves might express her admiration for Margaret Thatcher. On the contrary, she let it be known, in an aside not in the printed text, that distaste for Thatcherism was one of her motives for going into politics.
It is now a commonplace that the wounded chickens of Thatcherism are coming home to roost. It is a myth that Mrs Thatcher injected a new entrepreneurial dynamism into the British economy: whole sections of manufacturing industry were damaged or even destroyed by her early flirtation with what I dubbed “sado-monetarism”. In the end, Thatcher resorted to membership of the European single market in 1986 as a means of attracting crucial overseas investment from countries such as Japan. These valued their access to the wider European market from a safe base in the UK.
Alas, thanks to the all too successful campaign run by the egregious Nigel Farage and his predecessors, the safe base was removed by the ill-conceived referendum of 2016.
One of the many benefits of our membership of the EU was steadily tightening anti-pollution rules – which no longer apply, as the scandalous dumping of raw sewage into our rivers reminds us.
The damage resulting from the chickens of deregulation coming home to roost is all around us. The scale of the problems facing a putative Labour government is so manifest that Keir Starmer and Reeves lose no opportunity to warn that, if elected, it will take them two terms to repair the damage.
Starmer and Reeves are doing their best to shake off any echoes of Corbynism and to woo the City and big business. They are desperate not to diminish their impressive lead in the polls. Reeves’s emphasis on the importance of “fiscal rules” leads many people to wonder whether there is any significant difference between what they offer and the present government’s approach.
Well, her Mais lecture provided a welcome answer. While wanting to have strict rules about balancing current expenditure with tax receipts, Reeves recognises that investment which brings benefits in the long term does not have to be paid for in one year! The canard, promoted by too many Tory politicians, that capital expenditure must be balanced by taxation year-by-year is one of the reasons why the UK has underinvested for more than a decade, resulting in what my old friend the late Prof JK Galbraith famously described as “public squalor”.
Contrary to what the pre-Keynesian brigade still argue, public sector investment does not land future generations with the cost: it lands them with the benefits.
It is interesting that the former top civil servant at the Treasury Lord Macpherson has said that the financial constraints facing the next government may not be as severe as widely feared. He ought to know, and his qualifications for fiscal responsibility are second to none.
Reeves places great emphasis on long-term investment. This will be a necessary condition of a rescue plan for this economy. But – I knew, gentle reader, that you were waiting for this – we also need to remove the trade barriers that have increasingly been restricting growth since Brexit.
Having criticised the inhibitions on investment that have characterised the 14 years of government since 2010, Reeves added: “A rushed and ill-conceived Brexit deal has brought further disruption, with the Resolution Foundation estimating that new trade barriers are equivalent to a 13% and 21% increase in tariffs for our manufacturing and service sectors respectively, and the OBR finding that long-run GDP is expected to be 4% lower.”
So what will a Labour government do about it?
If it wins handsomely, the party can stop being so timid about the “red wall” voters who were conned into voting for Brexit. For sustained growth we need the investment and reduction in trade barriers that rejoining the EU would facilitate.
I find Lord Mandelson’s view that our former EU partners would not wish to engage with a UK request to rejoin seriously defeatist. We may be on the verge of war with Putin’s Russia. The EU needs us back.
On a lighter Easter note, I like the story, told by herself, that Reeves, a junior chess champion, once cheekily asked the great Russian grandmaster Garry Kasparov for a game. When one of her aides said it was a bad idea because she had another appointment, Kasparov apparently said: “This won’t take long.” It didn’t.
