During his early years as chancellor, George Osborne became known as “the submarine” for his habit of surfacing only for set-piece events (and retreating under water at the first sign of trouble). Gordon Brown, for similar reasons, was nicknamed “Macavity” after the cat “who wasn’t there”.
After the past fortnight, there is little prospect of Rachel Reeves acquiring such a sobriquet. The Chancellor has been omnipresent: in China, at Davos, on Laura Kuenssberg’s sofa, addressing the PLP, and today delivering a speech in Oxfordshire. Throughout this tour, her message has echoed the opening line of the Spice Girls’ “Wannabe”: “I’ll tell you what I want, what I really, really want”. The answer, of course, is growth.
The Chancellor’s new rhetoric is a conscious attempt at a vibe shift (after falls in business and consumer confidence). True, as the Chancellor’s aides are swift to point out, the theme of growth ran through the first speech she gave in office. But that message was soon swamped by Reeves’ warning of a “£22bn black hole”. The political aim was to toxify further the Tories’ reputation (likened by some to kicking a corpse). The economic aim was to prepare the ground for a tax-raising Budget. Growth may always have been Labour’s ostensible priority but it didn’t feel like it in those early months (and GDP has flatlined).
Hence Reeves’ course correction. In her speech today she announced a panoply of growth measures: expanding Heathrow, Gatwick and Luton airports, reviving the Oxford-Cambridge Arc, reforming antiquated planning laws, and freeing up £160bn in pension fund assets.
Faced with the influential charge that Britain lacks a “growth preference”, Reeves has insisted that her preference is always growth. “My experience is that government has become used to saying ‘no’,” she told Labour MPs on Monday night. “That must change. We must start saying ‘yes’.”
And yet. It doesn’t take long to think of instances when Reeves has said no to growth. The Office for Budget Responsibility has estimated that Brexit will reduce long-run GDP by around 4 per cent. Rejoining the European single market and customs union would be the simplest way to evade this penalty. But these, Reeves’ team emphasise, remain “red lines”. This isn’t just a political pose. Reeves – who saw voters aggrieved by adverts for Polish workers in her Leave-backing Leeds constituency – is insistent on this point in private too. But whatever the justification offered, growth has not come first.
Economists worry that the same is true of Reeves’ fiscal policy. Even sympathisers question whether it was wise to concentrate tax rises on employers (businesses are now cutting jobs at the fastest rate since 2009). Andy Haldane – the man both John McDonnell and Dominic Cummings wanted to make Bank of England governor – has warned of a “doom loop” if new spending cuts are imposed. Reeves’ insistence is that economic stability – defined as meeting her fiscal rules – is a prerequisite for higher GDP (aides dismiss the fleeting “sugar high” that tax cuts would provide). But again, some say, growth has come second.
Then consider how projects such as the Heathrow expansion will – at best – be completed long after this parliament. Does Reeves have a growth plan at all? Yes, counter economists such as the Social Market Foundation’s Aveek Bhattacharya, and it’s hiding in plain sight.
Measures such as a higher minimum wage (now £12.21 or two thirds of median earnings), stronger workers’ rights and that £20bn rise in employers’ National Insurance are designed to break the UK’s reliance on low-wage, low-productivity jobs. Businesses will be incentivised to invest more in labour-saving technology (a preoccupation of Reeves’ economic adviser John Van Reenen). Think fewer hand car washes – which grew by 50 per cent between 2003 and 2018 – and more automated ones.
Is higher unemployment a price worth paying for higher living standards? Reeves would never utter such a heretical thought. But some inside government muse that “becoming more like France” – where the typical household is 9 per cent richer than its UK equivalent – wouldn’t be the worst outcome.
The biggest challenge for Reeves remains governing during an era in which the forces that previously drove growth – such as the liberalisation of global trade, the dramatic expansion of women in the workforce and the boom in cheap credit – have passed. With Donald Trump in the White House, Britain’s fate – more than usual – may depend on factors outside of its control.
But Reeves has made her choice – higher growth will be the ultimate test of the Chancellor’s success. To a significant degree, she can now only hope for the best.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[See also: Why doubts are growing over Kemi Badenoch]
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