Today marks a decisive shift in the politics and policy of this government. Both the strategy and substance are changing, and Labour are taking risks with both.
Labour has always talked about growth as a key mission but until now the emphasis was squarely on laying the blame on the previous administration. It went too far in that regard, giving the impression not just of being slowed but trapped by the Conservative economic legacy. Today, with just one brief reference to ‘the nightmarish inheritance’ in Keir Starmer’s article in The Times, the Prime Minister is instead bullish.
Starmer’s optimism is not just about the future but the here and now: ‘this is how every new era of growth starts’. This is not a phrase that the Treasury allows the Prime Minister to write lightly. When Labour was last in office, the discussion over whether and when to talk about green shoots was difficult. Alastair Darling was cautious about betting the government’s reputation on the vagaries of the global economy. By contrast, Starmer and Rachel Reeves are nailing themselves to the mast: their political fortunes openly depend on growth.
Their formula for growth has not changed: economic stability combined with planning reform. What is striking is the directness and forcefulness with which government is taking on the NIMBYs, dismantling the legal mechanisms used to object to developments, and pressuring regulators to favour growth. Like Margaret Thatcher’s reforms to the financial sector, this is intended to be a big bang moment.
There is ‘no conflict between growth and net zero’, Reeves insisted in her speech, but there is a willingness to admit trade-offs exist between the two. Taking on the green NIMBYs is not a handbrake turn on net zero, but backing the third runway at Heathrow is a signal that when the government’s missions to boost growth and to address climate change collide, economic growth is more likely to come out on top. This is a tricky balancing act. The risk in leaning into that narrative is that it lends credibility to Reform’s more extreme argument that we can’t afford the climate transition, but the government’s position of supporting emissions reduction, while resisting the excesses of environmental protection is firmly in line with public opinion.
Every government talks of cutting red tape (a phrase that is largely meaningless) but the language about curbing ‘regulatory over-reach’ is more significant, especially after the sacking of the Chair of the Competition and Markets Authority. It sends a message to regulators that they should not stand in the way of growth but how to interpret that message is by no means clear, as former CMA strategy director Stuart Hudson wrote recently for the Social Market Foundation. Are regulators supposed to champion consumers and competition, or is the implicit instruction that they should not do anything that might deter foreign investment from the world’s biggest oligopolies?
It is a technical but significant and welcome decision that the government will now seek to enable Defined Benefit pension schemes to use the surpluses that they have accrued (thanks to higher interest rates) in a more productive way. Allowing companies to use that money more productively could mean they invest more, increase wages, or raise the employer contribution in their Direct Contribution pension schemes.
Both Starmer and Reeves talked about their strategy in the terms of economic theory (something that Starmer rarely does). He describes ‘a supply-side expansion of the nation’s productive power’. Removing regulatory barriers, cutting red tape, and supply-side expansion: the remarkable thing about these goals is that they are the same goals of recent Conservative governments, under both Rishi Sunak and Liz Truss. The big difference this time is that Labour is not promising tax cuts.
This may be viewed as a weakness – what is supply side reform if businesses are hit by a growing fiscal burden? But Labour sees this as a strength. In its view, tax cuts only offer a short term “sugar high”. Starmer and Reeves have chosen the harder path, grinding away at regulatory barriers to growth. But having staked everything on that approach, including the economy and their political careers, there is reason for optimism that they might actually make progress this time.
