What theme will define this autumn? No 10 knows what it wants the answer to be: investment.
As well as Kemi Badenoch’s decision to pick a fight with mothers and Robert Jenrick’s decision to pick a fight with the armed forces, aides were struck by how little attention this issue received at the Conservative conference. “They had no argument over the lack of investment that has left the UK unprepared for economic opportunities,” one told me. Strategists eye a potentially potent dividing line.
It’s one that was established by Rachel Reeves’s Labour conference speech in which she declared: “Growth is the challenge. And investment is the solution.” On this, No 10 and No 11 are aligned (a contrast with some previous administrations). Recall that Keir Starmer has long argued for the principle of borrowing to invest for both economic and social reasons.
In her speech, Reeves paved the way for a revision of her fiscal rules to free up billions to invest in transport, green energy, housing and prisons. The Chancellor is widely expected to exclude the losses to the Treasury from the Bank of England’s quantitative easing programme (freeing up around £15bn). More radically, she could adjust the debt rule to account for state assets – such as the student loan book and NatWest shares (raising around £50bn) – or exclude new institutions such as the National Wealth Fund and the publicly-owned GB Energy from the government’s balance sheet.
It’s a necessary shift if Labour is to deliver on its mission of boosting economic growth. Remember that based on current plans, public investment 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”.
But there are risks as well as opportunities for Reeves. First, having raised political expectations of a shift in investment, she must now match words with deeds. Second, she must maintain the confidence of the markets. While the Truss debacle has proved a political gift to Labour, it was also a warning – there are hard limits to UK fiscal policy (some investors have warned they will only tolerate £10bn to £20bn of extra borrowing).
This, incidentally, is the defence that senior aides make of Labour’s most contentious decision: the winter fuel payment cuts. To gain the permission of markets to borrow to invest, they argue, it is necessary to bear down on day-to-day spending.
At a Conservative fringe meeting earlier this week, Michael Gove declared: “One of the things that has been revealed over the last few weeks is that Labour doesn’t have a political economy of its own”.
Reeves, unsurprisingly, would dispute that. And as time goes on, the government’s choices are becoming clearer. On infrastructure spending, public ownership and workers’ rights it has positioned itself to the left of New Labour; on welfare spending it has positioned itself to the right. The question now is whether the Budget can deliver the political boost the government needs – and the economic boost the country does.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.
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