Reeves’ speech shows the impact of Covid and Corbynism on Labour thinking

Rachel Reeves’ first big economy speech of the year was an opportunity to lay out the themes the party wants to develop over the 18 months to two years before the next election. Light on policy announcements, it was nonetheless a substantive statement of intent, confirming Labour’s broad direction of travel since she became Shadow Chancellor. If the speech stuck closely to a social democratic script – the economy as a partnership between workers, capitalists and government, public spending as a good – it nonetheless contained evidence of the impact that both Covid and Corbynism have had on Labour’s economic thinking.

1. Goodbye deficit, hello growth

As is often the case, it’s what Reeves didn’t say that is quite striking. But for a passing reference to “getting the national debt falling”, the Shadow Chancellor scarcely mentioned either the government’s debt or its deficit. Thanks to Covid, both have grown to all-time highs: the British government’s debt now stands at almost 100% of GDP, and over 2020-21 alleged fiscal conservative Rishi Sunak borrowed over £300bn.

This switch out of austerity pre-dates Covid: the fiscally conservative former Chancellor, Sajid Javid, added almost £14bn to government spending in his first Budget in late 2019. Projections by the Office for Budget Responsibility show that, even without Covid spending, government expenditure as a share of GDP is set to be higher by the next election than it was when Tony Blair was Prime Minister.

For those of us who spent a decade banging our heads against the brick wall of what economist Simon Wren-Lewis has called “mediamacro”, this is an extraordinary turnaround. Mediamacro said that nothing was more important than shrinking the debt and the deficit and was busily promoted by the Tory government, its media supporters and, sadly, the Institute of Fiscal Studies. Actual macroeconomics has always said that looking after employment and incomes was more important and, as the years of austerity ground fruitlessly on, its wisdom has been confirmed.

Nonetheless, every Labour Shadow Chancellor since Alan Johnson’s brief reign in 2010 has had to dutifully perform ritual obeisance towards the angry but fundamentally stupid gods of the deficit. It took the unholy terrors of Corbynism and Covid to frighten them off, and if Labour’s Treasury team no longer has to bow and scrape quite so much in the general direction of the public sector net borrowing figures before being allowed to speak, this is a huge win for progressives. Reeves and her team have quite rightly taken the opportunity to instead talk about their own priorities, heavily focused on growth.

2. Growth again

Growth! Who doesn’t like growth? Reeves thinks we haven’t had enough of it for the last decade: just 1.8% a year of GDP growth on average, compared to 2.3% a year under the last Labour government. The Bank of England thinks growth will fall even lower, down to just 1%, with other OECD countries growing nearly twice as fast. Reeves reckoned that boosting our growth rate to match other OECD countries would give the government an extra £75bn to spend by 2030.

This sounds good. I understand why rhetorically Reeves wants to focus on growth. It was clear in the Q&A that it gives her a way to sound optimistic and upbeat about the future under Labour in a way that directly confronts Boris Johnson’s (admittedly now somewhat deflated) bouncy perma-optimism, or indeed Rishi Sunak’s Insta-friendly sliders and socks. Reeves herself is determinedly upbeat, rejecting talk of “secular stagnation”, as she mentioned when asked.

Talking up growth is meat and potatoes for social democrats: in a line of thinking running all the way back to at least Anthony Crosland’s The Future of Socialism, more growth means more money for public spending without having to push redistribution too hard.

The problem Labour’s shadow Treasury team will run hard into is that cynicism about growth is now very widespread. If GDP growth in Britain has been sickly and anaemic for the last decade, wage and salary growth has been on its deathbed. This has bred cynicism – a (not entirely unfounded) belief in the economy as a zero-sum game, in which gains can only be made for one person if another loses.

Growth has done nothing for many people. Promising nice things for everyone via private sector growth runs the risk of sounding unconvincing to many, in the same way as promising nice things to everybody via public sector spending did in 2019. Labour will have to show some teeth if its promises on jobs, pay, and public services are to sound convincing. ‘Who pays?’ is the hard cynical question that still needs answering.

3. Eating your greens before your ice cream

Reeves didn’t lay out many specifics, but there were some promising hints in this direction. Promises of fair taxation and, strikingly, the claim that “now is the wrong time to raise taxes on ordinary working people”, alongside attacks on the Tories as the “high-tax” party start to position Labour usefully here. I’d be tempted to go further, and take a leaf out of the Norwegian Labour Party’s election-winning playbook: promise tax cuts for the many funded by tax rises for the few, neatly turning government into a benevolent Robin Hood and simply and cleanly showing how a Labour government will immediately produce real gains for workers. Hints at wealth taxation, too, were again in the mix.

Labour’s problem is that if it needs to talk about tax rises – and, since it wants to talk about public spending but it doesn’t want to be dragged back to a discussion of the deficit, it has to talk about tax rises – the party needs to talk about them now, rather than (say) in an election campaign. Better to take the sting out of those ‘Labour-tax-bombshell’ headlines well ahead of the election than to spring what will be presented by Labour’s friends in the press as a nasty surprise. (McDonnell did this with Labour’s borrowing programme ahead of 2017, putting out the £250bn borrowing figure in early summer 2016. By the time of the election, it was completely priced in. One mistake in 2019 was to surprise the public with more borrowing announcements during the campaign itself.) Get the nasty stuff out of the way now, so you earn the opportunity to talk about the fluffy stuff later.

4. A new political economy?

The most interestingly radical parts of Reeves’ speech, at least in terms of breaks with the past, where around her focus on “trading Britain”. It’s here that the outline of a post-Brexit and post-Corbyn Labour economic programme is taking its most distinctive shape. Much of the rest of Reeves’ speech could have been made by any Labour Shadow Chancellor in the past three decades, from Gordon Brown to John McDonnell: more investment, more public spending, more education and training. They all did some version of this and, whilst various Labour factions like to pretend otherwise, the continuities between all of them are far more important than the differences.

Going further back, every Labour leader and Shadow Chancellor since Wilson has wanted to talk up their commitment to science and technology, and here Reeves was no different – although throwing in a commitment to spread the spending around, perhaps under the influence of those like Richard Jones who have (rightly) talked up R&D spending as a lever for regional prosperity. A green, high-tech reindustrialised North of England is an appealing vision – which is also why Tories including Dominic Cummings have used it.

But the sections on both the “everyday economy”, name checking the work of Karel Williams, and on reshoring production are new. New Labour would not and could not have spoken about rebuilding the economy like this – not with its commitment to the ‘level-playing field’ conditions of Britain’s EU membership, which weighed against intervention to support jobs in Britain, and not with its heavy focus on generating ‘high productivity’ jobs.

Jeremy Corbyn’s Labour certainly did some of this, with Corbyn promising in summer 2018 a policy to support manufacturing in Britain outside of the EU, via government procurement. But the opposition from Labour’s robustly pro-EU wing was vociferous, and the pledge never given much prominence thereafter. And, whilst Corbynism had plenty to say about improving pay and conditions at work, its industrial strategies and green investment plans leaned towards support for the high-tech and the high-productivity jobs of traditional Labour thinking – not the essential jobs of the ‘everyday economy’ such as care work.

Reeves, outside the EU, has no such opposition and clearly feels no great need to nod towards convention. An industrial policy for care work, combined with a procurement policy geared towards support for local businesses could be the glimmerings of something new: an authentically post-EU and post-neoliberal economic policy, geared towards the economy of real needs and values rather than that of merely profit and conventional productivity. This currently sits, perhaps a little awkwardly, alongside claims to be promoting GDP growth and supporting more conventionally export-focused strategies. If there’s evidence of real novelty in Labour’s emerging economic programme, however, this is where it can be found. In the context of adaptation to life with Covid, in particular, a focus on the everyday and the smaller scale could be essential. Against the nihilistic “crony capitalism” – Reeves’ phrase – on lurid display from the Tories, it might just work.