Rachel Reeves gave the most comprehensive outline of her economic policy to date in America last month (the subject of Jason’s cover story this week). And it was still vague.
Labour’s £28bn green prosperity plan was first announced at party conference in 2021 – given the reluctance with which the party has announced policy, it’s remarkable this vast spending commitment came so early. But when the fund is discussed in the press now, it’s heavily caveated with a reminder that all of Labour’s policies must comply with the party’s fiscal rules, which constrain a government’s finances.
Jason writes: “Starmer and Reeves have not explained how they would fund the proposed £28bn a year for capital spending on green growth. Would it come from taxation or borrowing?… Reeves made no mention of the £28bn annual commitment in her Washington speech and spoke to me about it only in abstraction; it could be that it has already been dropped. ‘The green prosperity plan will only be possible if we have an iron grip on public spending and tax receipts,’ she said.”
Part of the problem is that Labour’s fiscal rules are extremely ambiguous. For instance, Rule 3 is, in full: “Labour will have a target to reduce the debt.” In other words, we’ll get back to you on that.
Fiscal rules are at once the most important thing in politics and the least. They set the boundaries of budgets. They determine how much money chancellors give to public services. They’re what the media uses to judge whether a chancellor is on track to deliver. They’ve also been changed nine times in the past 15 years.
We shouldn’t therefore place too much emphasis on them. But they can point to the principles that will govern a party’s approach to the economy. For example, Labour’s rules suggest it will take a more long-term view on when the national debt needs to fall by, giving the government time to see a “return” on capital investment in the form of economic growth.
Politically, this “strategic ambiguity” is to be expected. As Jason writes, ambiguity is necessary in politics, particularly this far out from a general election. But it becomes a liability in the full glare of an election campaign.
This piece first appeared in the Morning Call newsletter; subscribe to it on Substack here.
[See also: Keir Starmer’s five missions]
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