The costs of Labour’s growth boosterism

The Chancellor now understands that the politics of her role are as important as the economics.

Photo shows Rachel Reeves posing for a photo in London — Photo by Jose Sarmento Matos/Bloomberg via Getty Images

Since becoming Chancellor of the Exchequer, Rachel Reeves has made avoidable political mistakes. There have been economic mistakes as well, but Reeves would say her options were constrained from the beginning by the government’s dire inheritance and its desire to settle long-standing pay disputes with public-sector unions. The political mistakes were her own, however, such as removing the £300 winter fuel allowance from most pensioners. She publicly defends that decision but now understands that the politics of her role are as important as the economics: she must make her own political decisions rather than allowing unelected Treasury officials to make them for her.

The proposal to remove the winter fuel allowance was a perennial favourite of the Treasury – even George Osborne, the self-styled austerity chancellor of the coalition years, rejected it. Its removal continues to cause serious problems for Labour MPs, especially those in the volatile Red Wall heartlands where Nigel Farage’s anti-system Reform UK is strong, and in Scotland, where the SNP is increasingly confident of retaining power at the Holyrood elections next year.

Reeves’ response to scepticism about her first Budget and overall performance so far has been a burst of hyperactivity. She went to China in search of investment, somewhat bashfully (British media was excluded from the trip) and not with the same neo-mercantilist ambition of Osborne. Her trip was a statement of intent nevertheless: we are pragmatic, and we are open for business, even to Xi Jinping’s China, especially to China! In Davos recently, Reeves announced she would amend the Finance Bill to alleviate anxieties of wealthy non-domiciled residents, some of whom were reportedly leaving the UK because of the government’s proposed tax rises and change to their status. She lent her support to a third runway at Heathrow Airport, long opposed by environmentalists as well as Ed Miliband, the government’s net-zero evangelist. Reeves also told the Times that Britain should learn from Donald Trump’s “boosterism”.

The overall effect seems to be one of panic – or at the very least a lack of strategic coherence. Reeves, who cites the Harvard economist Dani Rodrik as a key influence, says that growth is the “number one mission” of the government. But what does she mean by economic growth? For a start, as Paul Johnson of the Institute for Fiscal Studies has pointed out, Reeves lacks a theory of growth. The Nobel laureate in economics Simon Kuznets described economic growth as a “controlled revolution”: each epoch generates its own distinctive form of growth and the model you pursue matters. Is growth concentrated in one part of the country – London and the wealthy south-east, say? Dependent on mass immigration? The extraction of natural resources or industrial production? What is more important: GDP growth or GDP per capita?

In May 2023, in Washington, Reeves gave a speech in which she declared the death of hyper-globalisation and the emergence of a new Washington consensus defined by geopolitical competition and economic nationalism. “Securonomics”, as she called her approach to the new era, would be characterised by active industrial policy and a strategic state powering a nation’s productive capacity – what Rodrik calls “productivism”.

“[We must] use all the powers of the government to buy, make and sell more in Britain,” she wrote in the pamphlet A New Business Model for Britain. There was no mention of courting China or of new runways at Heathrow, but later she said to me (I was with her in Washington), “The old model – of the fastest, the cheapest, not mattering about who owns things – has passed.”

Reeves used to be interested in what she called the everyday economy. “An industrial policy that increases private affluence by focusing on the already wealthy and high productivity areas will only lead to more public squalor, anger and division,” she wrote in a paper she co-authored in 2019.

In short, she favoured “levelling up”, which has disappeared from the Labour lexicon. Then later she championed “securonomics”, but that was when she thought Labour would align with a second-term Biden administration. What’s the model now? Or is the growth imperative so great that it will be pursued at all costs – at any cost? Perhaps she will tell us.

Who will be Labour’s booster-in-chief? Keir Starmer is by instinct a prosecutor not a promoter. His tone is cautious, sombre, even haunted. He is no booster. Nor is Reeves, by nature. But this could be the role she may be forced to take on because senior ministers seem to have no script to follow or story to tell about what connects everything the government is trying to do, from education and health reforms to domestic economic policy and foreign policy.

Above all, Labour does not have an answer to the urgent question of these times. What defines the national interest in an era in which Trump – as he signs executive orders to remove the US from multilateral organisations and threatens any state that displeases him with punitive tariffs – will change the rules of global power by breaking them?

This appears in the 31 January – 6 February 2025 issue of the New Statesman magazine