For a chancellor targeting a decade in power, Rachel Reeves is in a hurry. After 14 years in the wilderness for Labour, and several centuries of Britain awaiting its first female chancellor, it’s not surprising she is keen to get on with the job.
So far, two ideas have predominated: blaming the Conservatives for the worst economic inheritance since the second world war, and laying the foundations for national renewal at breakneck speed.
Reeves says there isn’t any time to waste to get Britain on track for the highest sustained levels of growth in the G7. But it is a task that will involve tough trade-offs and challenges, and will come to define Keir Starmer’s government.
In the scramble to look busy, ministers have been hurriedly working behind the scenes to reshape the institutions of Whitehall and get the government machine aimed at Reeves’s primary objective.
One quick win was the creation of a new council of economic advisers, housed within the Treasury and led by top London School of Economics academics John Van Reenen and Anna Valero.
More changes are due in Wednesday’s king’s speech, including the government’s legislative plans for workers’ rights, planning reform, the NHS and Great British Energy, Ed Miliband’s prized low-carbon power company.
Sources say we can expect a big announcement on infrastructure, too. The government is keen to show it is committed to getting mega-projects built after the stop-start failures of the Tory years. There is a rush to finalise plans, including the potential abolition of the National Infrastructure Commission, which would be replaced with a new body.
Elsewhere, Starmer is setting up “delivery boards” packed with external experts for his five key “missions” for government: growth, energy, crime, education and health.
The challenge, though, is whether the reforms will succeed in getting Britain’s economy back on track. Successive governments have carried out similar tyre changes on the Whitehall motor, only to end up with the wheels spinning on the road to prosperity.
This time Labour is preparing to rely heavily on the private sector, in acknowledgment of tight constraints on the public finances. After the Tories’ Brexit-era “fuck business” approach, there is obvious latent potential to unlock. However, the government ought to be realistic about how far this might go.
For decades, the UK has trailed comparable rich nations on business investment – a fact made worse by the economic vandalism of austerity, Brexit, and the churn of Conservative prime ministers.
Figures from Capital Economics show total investment in the UK has shrunk from 26% of GDP in the late 1980s to 18% today – a bigger decline than the rest of the G7. That suggests Labour is aiming to get from the bottom of the investment league table to the top: the equivalent of Leicester City winning the Premier League in 2016, a 5,000-1 dream come true.
Bringing about stability will help. The UK now stands as a beacon of relative calm in an increasingly volatile world. There will be further tailwinds as inflation cools, and the Bank of England is likely to cut interest rates soon.
Reeves’s new national wealth fund could help encourage investment in some certain parts of the economy, as part of a broader modern industrial strategy – details of which are said to be in the pipeline.
However, Labour’s manifesto implies cuts to public investment as a share of GDP from the current starting point, putting even more weight on the private sector to lead the charge in Britain’s unlikely Leicester-inspired campaign.
Unlocking more private capital could require the government to be bolder with its own investment plans. To do so without deviating from Labour’s tax promises, Reeves could use the review of public spending she commissioned last week to pave the way for changes in the government’s fiscal rules.
The chancellor is also said to be keen to revamp the Office for Budget Responsibility, including a request for reports on the long-term impact of capital spending decisions. Currently, the Treasury watchdog publishes five-year forecasts. But this fails to capture the benefits from big infrastructure programmes, which can take longer to materialise. Such a change could help strengthen the case for investment.
There is ample evidence that this might be a good idea, including from Van Reenen and Valero, who were among the authors of a report earlier this year calling for a temporary boost to public borrowing to drive investment in sustainable technologies and infrastructure.
“[It] would prove cost-effective and beneficial to living standards and economic competitiveness by increasing productivity and economic growth,” they wrote.
In the early days of Labour’s putative decade in power, this could have the biggest effect on growth.
