There’s a clear message that Keir Starmer and Rachel Reeves want voters to hear from this Labour conference: there will be no return to austerity. It’s a line that was used repeatedly during the general election campaign and that has now been revived.
In her keynote speech today, Reeves will say: “There will be no return to austerity. Conservative austerity was a destructive choice for our public services – and for investment and growth too.”
But this prompts an important question: how is austerity defined? When I asked Reeves’ team what they meant by ending austerity, they made three points: first, that Labour cannot be accused of implementing it when raising public-sector pay by £9.4bn in real terms. Second, that austerity was a political choice with the ideological objective of a smaller state (one not shared by Labour). And third, that Labour is already spending more on public services: the abolition of non-dom status will fund higher NHS spending, and the imposition of VAT on private-school fees will fund 6,500 more teachers.
They refused, however, to rule out real-terms cuts to government departments in the Budget and the Spending Review. When pressed on the same point on the Today programme this morning, Reeves would only commit to “real-terms increases to government spending in this parliament”. That’s quite a low bar: given an ageing population even the most austere government would struggle to reduce overall spending (Margaret Thatcher, for instance, only managed it in two years).
The fiscal challenge for Labour, as ever, is that it has committed to ending austerity but also to freezing the main rates of income tax, National Insurance, VAT and corporation tax. Reeves’ mantra is that higher economic growth is the way to ensure better-funded public services. But the arithmetic remains daunting even assuming a significant rise in GDP.
But there’s also a political challenge. Though Reeves is already raising public spending (as her aides point out), the vibe around this government is a far more austere one. That partly reflects a deliberate emphasis on the “tough choices” to come in the Budget and the Spending Review. But it also reflects a political choice: the decision to remove winter fuel payments from 10 million pensioners. Labour, which faces a potential conference defeat on the issue later this week, has been defined by a cut rather than a spending increase.
Regardless of the merits or demerits of that policy, some ministers fear it has muddled the government’s message. On the one hand, Starmer has said that “those with the broadest shoulders should bear the heavier burden” – a hint of progressive tax rises to come (with capital gains tax, inheritance tax and pension tax relief all options). On the other, Labour is removing winter fuel payments from pensioners with incomes as low as £11,300 a year.
That has made it far harder to establish a narrative of “tough but fairer choices” – social democracy in a cold climate. The Budget on 30 October will be the moment that Reeves truly defines her approach. But for now, she faces an awkward question: if austerity was an avoidable choice, why weren’t the winter fuel cuts?
[See also: Rachel Reeves casts herself as the anti-Osborne]
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