Judging by some reports, you might think that Rachel Reeves is a recent convert to economic growth. The Chancellor has certainly emphasised that aim recently – as she seeks to repair fractured relations with business – but it was always central to her approach.
In Reeves’ Mais Lecture, delivered in March 2024, the word “growth” appears 58 times. “The central challenge is our growth challenge,” the then shadow chancellor declared, noting that the UK economy would be £140bn larger had it grown at the OECD average over the past decade.
This wasn’t just political positioning. Reeves’ emphasis on growth situated her within a distinctive centre-left tradition – from Harold Wilson’s “white heat” to Neil Kinnock’s “supply-side socialism” to “Bidenomics” (though we don’t hear so much about that now). In the early weeks that followed Labour’s victory there was a certain technocratic swagger to the government – Reeves and her cadre of economists would show those Tory dilettantes up.
Yet that, so far, hasn’t gone to plan. Labour hoped that it would reap a “stability dividend” as a change of government prompted businesses to invest. But the economy has stagnated since Reeves entered the Treasury – even contracting at points – and the outlook isn’t improving. As Bloomberg revealed last night, preliminary forecasts from the Office for Budget Responsibility show that the £9.9bn of “headroom” that Reeves maintained against her main fiscal rule has been wiped out (owing to lower growth and higher borrowing costs).
Unless that changes, the Chancellor will be forced to pencil in future spending cuts when she delivers her Spring Statement on 26 March. The Treasury has been clear that Reeves’ fiscal rules are “non-negotiable” and that it wants to avoid further tax rises. But expect economists such as Andy Haldane to warn that further cuts risk condemning the UK to a “doom loop”.
What does the parlous outlook mean politically? Expect Reeves and her team to seek to use it to their internal advantage – further prioritising growth over net zero (the future of the Rosebank North Sea oilfield is one litmus test).
Meanwhile, the struggle among cabinet ministers for scarce resources – a kind of political Hunger Games – will intensify. Watch those who lead unprotected departments – Education, Justice, Transport, Local Government – closely, as well as John Healey, the Defence Secretary (pushing for a firm commitment to spend 2.5 per cent of GDP). Finally, expect an animated debate on the backbenches (one member of the Labour Growth Group predicts that Europe will be its “first major row” with the government).
In the aftermath of the general election, there was talk of “the death of deliverism” – the risk that Labour gets economic growth but not political credit. Now, MPs reflect, that would be a nice problem to have.
And there’s a fundamental question for Labour. This was meant to be the “growth government” – one that would leave the rest of the G7 in the dust. If that ambition proves impossible, then what alternative story do ministers tell?
Some inside Labour suggest there’s an alternative narrative about fairness in cold times – a protective state that shields voters from the worst (Reeves’ earlier emphasis on “securonomics” is, ironically, well-suited to this). But after Labour’s embrace of “growth, growth, growth” that would be quite the pivot.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
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