While Rachel Reeves didn’t actually use the phrase “caution for a purpose” first coined by Gordon Brown, she might as well have done so.
The Shadow Chancellor’s speech at the Labor Party conference in Brighton aimed to balance a seemingly contradictory set of ideas: how to convince voters she can be trusted to lead the economy, while also coming up with striking new policies; how to keep the faithful happy while reassuring business.
Every ghost chancellor in living memory has risen to this challenge, and Reeves has risen to it by delving into the New Labor playbook. In 1997, Brown sought to resolve the trust problem by granting the Bank of England the freedom to set interest rates. Reeves said she would create a value-for-money office, with powers to ensure taxpayer dollars are properly spent.
She felt the need to provide this assurance for two reasons. First, voters clearly need to be convinced of Labor’s approach to managing the economy. Second, she also announced in her speech that she intends to spend £ 28 billion a year for the remainder of the decade to help Britain’s net zero transition. Although she didn’t actually use the words, it represents a new Labor Green deal.
The sums at stake are considerable. The Office for Budget Responsibility (OBR) expects capital spending to be slightly less than 120 billion pounds sterling for the current financial year, Labor plans would therefore imply an increase of 25%.
When he was shadow chancellor in the 2019 general election, John McDonnell said he would cover daily government expenses for things like public sector pay through taxation, but was ready to borrow to invest. Reeves would stick to that formula, with his green investment plans leading to increased public debt.
The OBR’s recent fiscal risk report provides Reeves with political cover for his approach. The spending watchdog said funding the net-zero transition would add 21% of gross domestic product to national debt, but delaying action could double the cost.
Reeves appeared to strike the right note with Business Groups, who also appreciated his promise to remove corporate rates and replace them with another form of taxation – as yet unspecified. Rain Newton-Smith, chief economist at the CBI, said green investing sent the “right signal at the right time”.
There are aspects of the plan that need to be fleshed out. The money would be spent on everything from giga-factories that would provide batteries for electric vehicles to planting trees, and at some point Reeves would have to specify how much is being spent on all items of his green program.
The work also seems to assume that any green investment is, by definition, a good investment, but it’s entirely possible that an independent value-for-money office is saying billions of pounds are wasted. These are problems for another day, however.
Meanwhile, the fact that there was little immediate backlash from the Tories suggests that Reeves stole a march from Rishi Sunak, who has his own green investment plans in next month’s spending review.