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20 March 2024

Rachel Reeves buries New Labour economics

The shadow chancellor outflanked the last Labour government from the left on workers’ rights, public ownership and investment.

By George Eaton

The day started with some suggesting there was nothing to distinguish Rachel Reeves’s economic approach from that of Margaret Thatcher. It ended with Reeves outflanking not just Thatcher but New Labour from the left. 

In her 8,000-word Mais Lecture, delivered last night at City University in London, the shadow chancellor offered her most explicit repudiation yet of the model pursued by Tony Blair’s and Gordon Brown’s governments. Though she praised New Labour’s record on public service investment and poverty reduction, Reeves warned that the project failed to recognise that “globalisation and new technologies could widen as well as diminish inequality, disempower people as much as liberate them, displace as well as create good work”. 

She added that the labour market “remained characterised by too much insecurity” and that “key weaknesses on productivity and regional inequality” persisted. This is not merely an abstract critique – it leads Reeves and Keir Starmer to embrace radically different economic prescriptions.  

Before the 1997 general election, Tony Blair boasted that his government would “leave British law the most restrictive on trade unions in the Western world”. Starmer, by contrast, has vowed to “level up workers’ rights in a way that has not been attempted for decades”.

In her Mais Lecture, Reeves indicated that Labour would not, contrary to speculation, abandon its New Deal for Working People. She reaffirmed commitments to abolish zero-hour contracts and to guarantee all workers full rights from day one, including protection from unfair dismissal, sick pay and parental leave. 

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Unlike New Labour, which extolled the benefits of a “flexible” labour market, Reeves warned that “flexibility is too often manifested as insecurity, corrosive of individuals’ physical and mental health, their ability to plan ahead, and the time they are able to spend with loved ones”.

This is far from the only dividing line with New Labour. Public ownership was such a taboo for Blair and Brown that the latter hesitated to nationalise Northern Rock in 2007. An excessive faith in the market – and a desire to keep borrowing off the government balance sheet – also led to profligate private finance initiative contracts. Reeves, however, declared that investment would be “driven by new institutions”: a National Wealth Fund and the publicly owned Great British Energy (Labour would also renationalise the railways as private contracts expire). Just as Thatcher challenged the Keynesian consensus from the right, so Reeves is challenging the Washington consensus from the left. 

None of this is new policy, so what accounts for the enduring perception that Reeves and Starmer are pursuing Blairism 2.0? Some of it reflects personnel: the prominence of New Labour veterans such as the campaign coordinator Pat McFadden, and Matthew Doyle, Starmer’s director of communications, and shadow cabinet ministers such as Peter Kyle and Liz Kendall. Yet since winning is the aim, even non-Blairites concede that it is natural to learn lessons from the last Labour leadership to win a general election.

Starmer and Reeves are also pragmatists: they are mindful that their party normally loses and often clothe radical policies in conservative language (a strategy also deployed by Joe Biden during the US presidential election). While vowing to extend workers’ rights, they use conciliatory rather than antagonistic rhetoric towards business.

The substantive critique of Starmerism is not that it is Blairism redux but that it is “Bidenism without the money”. The US president’s Inflation Reduction Act included $375bn of subsidies for green industries; Labour is committed to only £4.7bn of new investment a year (or £23.7bn across the next parliament).

While Reeves’s fiscal rules allow room for greater investment than the Conservatives (by targeting the current budget deficit rather than the overall deficit), she confirmed that Labour would accept the Conservatives’ debt rule – to reduce debt as a share of GDP on a rolling, five-year basis. 

Having ruled out most major tax rises, the party aims to fund higher public spending by improving the UK’s dismal economic performance. Reeves pledged to put “planning reform at the very centre of our economic and our political argument”. Precisely because its economic inheritance would be far worse than that of New Labour, the party has little choice but to attempt a supply-side revolution from the left.

Higher growth is a worthy and necessary ambition. Had the UK economy grown at the OECD average over the past decade, as Reeves noted, it would be £140bn larger today, equivalent to £5,000 per household and an additional £50bn in tax revenues.

But should growth disappoint, Labour will face a familiar dilemma in office: who pays the price? Where should taxes be raised and where should spending be cut?

“We hope to succeed,” said one shadow cabinet minister after Reeves’s lecture. The unanswered question remains: what happens if Labour doesn’t?

[See also: Labour’s Thatcherite revolution]


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