What distinguishes Keir Starmer’s government from its predecessors? The Prime Minister’s preferred answer is that it is mission-driven. “The boss really believes in this stuff,” a No 10 aide told me.
Mission-led government – a concept popularised by the economist Mariana Mazzucato – was embraced by Starmer adviser Peter Hyman. Though the former Blair aide has chosen not to join the new No 10 team, the missions endure.
Designed to overcome the UK’s chronic short-termism and anchor policy decisions, they are divided into five categories (some more clearly defined than others): achieving the highest sustained per capita growth in the G7, delivering clean power by 2030, halving serious violence crime, reforming childcare and education to break the “class ceiling” and building an NHS “fit for the future”.
There are persuasive arguments for this approach. In an era of ubiquitous state failure, government has tended to function best when directed towards a clear objective: protecting jobs through the furlough scheme and introducing the Covid-19 vaccine programme, for instance.
But there is an overarching question, one only becoming more insistent: what is the Starmer government’s defining mission? The answer often given is that of higher economic growth – the aim awarded lexical priority. The UK’s GDP is just 2.3 per cent above its pre-pandemic level, the worst performance of any G7 country other than Germany. Higher growth, Starmer and Rachel Reeves constantly remind us, will result in improved living standards and more resources for public services.
Yet only two months into this Labour government, the tensions between its competing aims are becoming clear. For an administration supposedly defined by growth, we have heard strikingly little about it so far. The emphasis has instead been on the “£22bn black hole” inherited by Labour from the Conservatives. This is part of a government-wide strategy set by Morgan McSweeney, Starmer’s chief political aide, to further toxify the Tories’ economic reputation. The Conservatives’ ruthless trashing of Labour’s record in 2010, insiders observe, helped them win three further elections.
“Fixing the foundations” is the slogan that has accompanied early speeches from both Starmer and Reeves. But does this entail a focus on the public finances or on economic growth? That is the dilemma at the heart of this Labour government.
For some, fixing the foundations means ambitious and upfront investment to stimulate growth and rebuild the UK’s frayed public realm. But for others it has become a shorthand for spending cuts and tax rises to reduce government borrowing – a much narrower objective. Reeves announced cuts to rail and road infrastructure schemes in her pre-recess statement; Starmer has recently defended the means-testing of winter fuel payments as essential to “fix the foundations”.
This is not merely a question of rhetoric. The Budget on 30 October and the Spending Review that will follow next spring (and set departmental budgets for at least three years) will make the defining financial judgements of this parliament. “Keir will ultimately have to choose between the missions and the fiscal rules,” one insider warns (the latter require debt to fall as a share of GDP by the fifth year of the forecast period).
Based on current plans, public investment under Labour is projected to fall from 2.4 per cent of GDP in 2024-25 to just 1.7 per cent in 2029-30. Dani Rodrik, the Harvard economist who influenced Reeves’s “securonomics” agenda, told me earlier this year that public investment of 3 per cent is “an absolute minimum for a country like Britain and that’s because so much of the public sector infrastructure outside of London is so in need of investment”.
I asked Reeves at a Chatham House event on 22 May – Rishi Sunak called the election later that day – whether her agenda amounted to “Bidenomics without the money”.
“We are not the US, we do not have the spending firepower, we do not have that reserve currency,” she replied then. “And so what we can do here in the UK is going to be different. It’s going to be a different scale in terms of the financial might that we can put behind it, but actually that’s not necessarily a bad thing because we need to address the structural issues that are holding back investment.”
Reeves went on to argue that measures such as planning reform would help the UK benefit from a “wall of capital” waiting to be unleashed (the Chancellor will host an International Investment Summit on 14 October). She is also expected to use the Budget to redefine the treatment of Bank of England losses from the quantitative easing scheme, potentially saving around £16bn. Reeves can further hope for continued cuts in interest rates, reducing the government’s debt interest bill (which now stands at more than £100bn or nearly 4 per cent of GDP).
But economists are still sounding the alarm. In a letter to today’s Financial Times, figures including Mazzucato and former cabinet secretary Gus O’Donnell (who has informally advised Reeves), warn that “further cuts to public investment must be avoided” in the Budget. “We do not see how the planned ‘decade of national renewal’ can take place if these cuts are delivered,” they write.
This is precisely the fear that Labour ministers privately express. Reeves, critics allege, is mimicking George Osborne not only in style but in substance. Former members of that Conservative administration, such as New Statesman columnist David Gauke, now speak with regret of the early infrastructure cuts imposed in 2010. The government’s growth mission, Labour MPs warn, risks being thwarted by a Treasury that is penny wise but pound foolish.
It’s an age-old complaint. “To reform the Treasury is like trying to reform the Kremlin or the Vatican,” Harold Macmillan observed drolly. “These institutions are apt to have the last laugh.”
It ultimately falls to Keir Starmer to resolve the ambiguity over his government’s purpose. The Prime Minister’s Rose Garden speech spoke not only of an “economic black hole” but, more strikingly, of a “societal black hole” (a theme to which Starmer will return in his Labour conference address). Which ultimately takes precedence? Labour has just a month to answer that question.
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