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Economist Says Labour Is Walking A Fiscal "Tightrope" With Economic Offering

Rachel Reeves and Keir Starmer (Alamy)

5 min read

Rachel Reeves and Labour are walking a "very difficult tightrope" between fiscal discipline, and offering change come the general election, an economist has said, as her "iron clad" economic package has been welcomed by campaigners and party figures.

Shadow Chancellor Reeves presented her economic vision to Labour party conference in Liverpool on Monday, stating the “lifeblood of a growing economy is business investment” and set out a number of measures involving planning reform and “rebuilding the economy in the interests of working people”.

The measures announced have been largely welcomed by business leaders, who felt Reeves had struck a “balance” between offering reassurance and hope – but that it remained to be seen whether Labour could get economic growth “happening” if they get into government at the next general election.

Paul Johnson, director at the Institute for Fiscal Studies (IFS) told PoliticsHome that economic policy has been “absolutely fundamental” to this year’s Labour conference, and that the party are walking a “very difficult tightrope” balancing fiscal responsibility while presenting to the public that they will represent a change come a general election. 

Johnson explained that Labour is “in particular being very careful about how much is available to be spent, what might happen to taxation, in really difficult circumstances, because we know that spending money is likely to be fairly tight but taxes are already at all time high".

He added: “So it's a very difficult tightrope that I think the party, and Rachel Reeves in particular, are trying to walk while showing themselves to be fiscally disciplined.

“Not looking like they're going to be increasing taxes, but also doing enough to show that that will involve a real change. 

“That's where I think the focus on growth comes from, growth is absolutely the right thing to focus on.”

Del Goddard from the Labour Business group, which was founded as the Labour Finance and Industry Group in 1972 to encourage business engagement with the Labour opposition party, told PoliticsHome that in his view, Reeves had successfully spun a narrative that would mean businesses could trust Labour to deliver growth and economic prosperity. 

“It’s about the ability to tell a story,” he said. 

“From what I gather, she does actually have that ability to inspire the confidence that what she’s saying she understands. 

“She has to judge, to the whole country, how far she can create the narrative. While content is important, all these other things are important to get faith in somebody.”

He said that while Reeves had focused largely on fiscal rules in her speech, she had been “very quiet” about investment – but that rather than focusing on huge investment projects, it was important for Labour to focus on “little things” to get the economy working. 

“If Labour is serious about growth, it has to be serious about engaging with business, they need the conditions to prosper,” he said.

“They have to get the connection between social and economic work together and where you actually get it happening, even if it’s the little things.”

Dr George Dibb, associate director for Economic Policy at the IPPR think tank said that the speech showed a “logical development” from previous policy announcements and long-term plans, but it “also recognised that [...] if you’re campaigning, that doesn’ necessarily set people’s hearts alive with excitement”. 

He explained that he thought that the longer-term plans were balanced with shorter term policies such as proposals on the minimum wage.

“You can talk to people and say how your life would be different from day one. 

“Balancing that short and long term stuff in the speech is really interesting,” he added.

In her speech, Reeves said Labour would “take on our antiquated planning system” by accelerating the building of “critical infrastructure". 

“Since 2012, decision times for national infrastructure have increased by 65 per cent, now taking four years. With Labour, that will change,” she said.

“So today I am announcing our plans to get Britain building. A once in a generation set of reforms, to accelerate the building of critical infrastructure for energy, transport and housing.

“To fast-track battery factories, life sciences and 5G infrastructure – the things we need to succeed in the decades to come.”

Responding to Reeves’ speech, Sam Richards, founder and campaign director for pro-growth campaign group Britain Remade, said they welcomed reforms to planning, but warned the “devil will be in the detail”.

"There is no path to energy security or economic growth, and the jobs that come with it, that doesn't involve fixing our broken planning system,” he said.

“We welcome any proposals that will unblock our outdated planning system so that Britain can create jobs and growth by building the infrastructure our country desperately needs.

"But the devil will be in the detail and we will continue to hold Labour to account to deliver the planning reform we need if they form the next government.”

Some Labour shadow ministers told PoliticsHome they felt the speech had succeeded in putting across to the party that the need for fiscal responsibility was of paramount importance – while also instilling excitement about Labour's policy agenda. 

However, while the "concepts" were there, one shadow minister said more needed to be done on exactly how and where Labour's vision for growth and its green agenda would create jobs for British people.

"We are getting there on the concepts, but we need to get to the 'how'..." they said.

Asked whether they knew when Labour would deliver on more of these details, they said they did not know, but that they hoped it would be soon before the next general election.

At the end of Reeves' speech, a short video was played of Mark Carney, the former Governor of the Bank of England, endorsing Reeves as a possible future chancellor. 

“Rachel Reeves is a serious economist," he said.

“She began her career at the Bank of England, so she understands the big picture, but, crucially she understands the economics of work, of place and family. 

“And, look, it is beyond time we put her energy and ideas into action.”

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