Rachel Reeves’ pivot to optimism is barely disguised austerity
September 23, 2024 4:16 pm
Is austerity over? That is the question that hung over Chancellor Rachel Reeves’s speech at Labour conference. The doom and gloom talk of a “painful Budget”, and the endless refrain of “tough choices”, was minimised. Instead, Reeves told Labour conference: “My ambition for Britain knows no limits because I can see the prize on offer if we make the right choices now.”
But is this the same substance dressed up in more optimistic language? Old wine in new bottles? Austerity with a smiley face? Is “right choices” the new branding for “tough choices”?
On her extensive media round this morning, Reeves promised “no return to austerity”. Asked what she meant by that, Reeves told BBC Radio 4’s Today programme, “there will not be real-terms cuts to government spending”, but notably that was over the Parliament, rather than at the Budget. Her spokesperson confirmed as much after her speech.
Professor Simon Wren-Lewis, who was one of a number of senior economists who wrote an open letter to the Chancellor expressing their concerns about Labour’s economic strategy, believes the benchmark should be higher: “Austerity is about levels of public provision, not changes. We have acute austerity today. Labour’s task now is to start ending it, which means the share of public spending in GDP rising significantly over time.”
We won’t know for sure what funding increases will be for public services until the Budget, when nerds like me can pore over the Budget Red Book and OBR analysis, but Reeves’s team are refusing to rule out cuts in departmental spending this year.
Without saying it clearly, the message seems to be that austerity is back but only temporarily, and unlike Tory austerity it will somehow “fix the foundations”.
Reeves told Sky News this morning “we will balance the books”, emphasising that sustained economic growth must be built on the bedrock of stability. But stability for who? There’s nothing stable in the millions of households that aren’t making ends meet due to low wages, poverty-level benefits and, lest we forget, the lowest state pension in Europe.
The winter fuel payments cut will feel like austerity for pensioner households as energy prices are hiked by 10 per cent from next month. Treasury officials are also ominously briefing that there are “savings to be realised in the welfare budget”.
The austerity that public services have endured for a decade and a half is a drag on economic growth. Long and lengthening NHS waiting lists are keeping working-age people out of work, the lack of adequate social care means many working age people are forced to give up work or reduce hours to look after loved ones. The same applies in many other areas of the public sector. Investment could help spur growth.
While the emphasis has shifted to jam tomorrow, the pain today is undoubtedly still present. It was the same misguided mentality that meant pre-election Labour downgraded its Green Prosperity Plan – the £28 bn of extra investment that Reeves had announced in the same hall three years ago. When it was launched at party conference in 2021 it was billed a key driver of growth, and in 2023 when Starmer announced his “mission” for the UK to achieve the highest sustained growth in the G7, the cornerstone was still “a Green Prosperity Plan that will provide the catalytic investment needed to become a clean energy superpower”.
But then, after months of briefing and counter-briefing, it was explained that because the economy was bad, the proposals had to be watered down – even though the plan was supposed to be the solution to the economy being bad.
Reeves’s contention seems to be, “we can’t do good things until we get growth”, but the good things are what drives growth – by delaying them, you delay growth.
This same inertia has infected Labour’s early months in government. For all the rhetoric about investment and industrial strategy, Labour has largely stood idly by as steel works collapsed in Port Talbot and Scunthorpe, the Grangemouth refinery announced it would close, and as Harland & Wolff shipbuilding circles the plughole.
Reeves spoke of “things made here in Britain, and exported around the world”. Steelworkers and shipbuilders not included. If there is an industrial strategy it’s not yet clear what it is. Reeves said she will publish an industrial strategy next month, but that will be little comfort to those industrial workers losing their jobs today.
By not reversing austerity now (whether branded as “tough choices” or “right choices”) Labour risks continuing on the downward spiral, rather than lifting us out of it.
The more optimistic language can’t disguise this fundamental contradiction at the heart of Labour’s economic strategy – and Reeves’s warmer words can’t hide that contradiction.
Andrew Fisher is a former executive director of policy for the Labour Party
