New Times,
New Thinking.

Labour must learn the right lessons from Bidenomics

Public investment is vital but not enough on its own to drive economic growth.

By James Murray

One hundred and fifty miles up the Hudson river from New York City, the ground is being prepared to build a wind turbine factory on the outskirts of Albany.

The project in the New York state capital was first announced four years ago. Its vision is for steel turbine towers to be manufactured at this upstate location, then floated down the river on barges and out to sea where they would form part of a new array of offshore wind turbines.

It seems emblematic of the kind of project the US Inflation Reduction Act was intended to stimulate. The act is the centrepiece of President Joe Biden’s plan to create jobs and drive the transition to clean energy, offering tax credits and incentives for domestic manufacturing. Indeed, the act helped the project in Albany overcome some of its earlier difficulties and secure ongoing private sector investment.

Yet when I visited the site last summer it was clear the project was facing hurdles that will sound familiar to many of us in Britain: from regulatory and planning delays, to cost inflation and supply chain issues.

The truth is that, whether in the US or the UK, investment is just one part of the puzzle. Investment requires a wider infrastructure – an effective planning system, regulatory certainty, skills training, stable supply chains – for projects to get off the ground. Without that infrastructure in place, any investment will struggle to make the impact it should.

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My visit to the wind turbine factory site in New York state followed a visit to Washington DC, where the deputy secretary to the US Treasury, Wally Adeyemo, kindly agreed to meet me. We discussed the importance of “friend-shoring” between Britain and the US, and some of the successes of the Inflation Reduction Act.

In the act’s first year, as the White House has noted, it has supported 110 large-scale manufacturing announcements – including semiconductors, electric vehicles, batteries and parts for solar and wind – and created hundreds of thousands of new jobs.

When people in Britain try to learn from Biden’s approach, however, they often arrive at one of two conclusions. One is to reject Biden’s approach outright, perhaps on ideological grounds, in the manner the current Chancellor, Jeremy Hunt, has done by dismissing it as a “distortive global subsidy race”. The other is to conclude that all we need is more public investment. This fails to recognise the Biden administration’s key focus on drawing in private investment, and the need for wider reforms to ensure any investment succeeds.

Labour believes that the lesson from the US experience is that Britain needs a government prepared to actively help drive growth, through a plan that uses any public investment to support and draw in greater investment from the private sector.

We have made clear our ambition to put such a plan into action – one in which we use strategic public investment, within our fiscal rules, to unlock greater private investment in the UK. That is clear through the design of Labour’s planned “national wealth fund”, intended to support and de-risk new industries and new technologies such as gigafactories. The shadow chancellor, Rachel Reeves, has set out her expectation that for every £1 of public investment the fund makes, it must seek to leverage in £3 of private capital.

At the same time, we should learn from the US the critical importance of reforming our country’s infrastructure. That is why, as Rachel has set out, to get Britain building we need to speed up planning, coordinate an expansion of energy grid capacity, provide regulatory certainty and stability, and make skills training more flexible.

Under Labour’s plan, Britain would have a government working to draw in private-sector investment to all regions and nations of the UK, championing the national interest with a modern industrial strategy, and fixing infrastructure from planning and the energy grid, to skills and supply chains.

Under the Conservatives, the UK government has distanced itself from any real responsibility for driving investment in future industries, and ministers have all but given up on any meaningful reform of infrastructure to underpin greater economic growth and a shift to energy independence.

That would change under Labour. Under our plan, we would get economic growth up, get energy bills down, and we would make people across Britain better off.

[See also: Liam Byrne: “New Labour economics is history”]

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