The Reeves-set: What business should take from the Chancellor’s growth gamble
Former Labour Treasury team adviser, Luke Downham, sets out how businesses can maximise the opportunities arising from Labour’s economic reset.
Today’s growth speech from the chess-loving Chancellor felt like a fresh opening gambit in a new political game.
Just under seven months into Labour’s term after 14 years out of office, it’s difficult not to interpret the speech as another re-set moment for a government now betting the house on seeing Britain’s ailing economy turned around, and quickly.
As a former adviser to a Labour Treasury Minister, both in opposition and government, I have seen first hand Rachel Reeves’s work to get the economy growing. From last year’s Mais lecture outlining her “securonomics” agenda, this speech felt like a fork in the road.
What has changed?
For the first time in her political career, last month Reeves came under pressure. While markets have calmed, nerves in the Treasury possibly haven’t. There is recognition that more needs to be done, spurring Reeves to go further and faster.
Today’s growth package on airport expansions, delivery of the long-debated “Oxbridge arc” to create the UK’s equivalent of Silicon Valley, de-regulation of planning to “get Britain building” critical infrastructure, loosening of rules governing pension fund investments, and a renewed push on private investment to distribute growth sum up Reeves’s economic approach. Pull every growth lever possible. End the dither and delay that is holding Britain back.
Reeves would argue that her “stability, reform, investment” strategy remains intact. The November Budget represented stability; her speech today represents reform; and investment will follow as the logical next step. Tying this approach together is the doubling-down on growth, as major changes to tax and spend represent an even greater political risk for a Chancellor boxed in by her fiscal rules.
Businesses will welcome much of what was set out today, not least in removing many of the regulatory barriers that are holding up critical infrastructure and housebuilding projects across the country.
Yet, elements of her speech felt reactive, not least resurrecting the decades-old debate of Heathrow’s third runway, which could yet cause the government significant political problems.
With any major political re-set moment, it can often generate more questions than answers:
Why is the Chancellor upending her narrative on the economy now?
What does this message mean for Labour’s economic philosophy?
Is this structured or reactive policymaking?
What is the political risk and reward?
And what should businesses read into the Chancellor’s speech?
Growth, growth, growth
Growth rightly continues to spearhead Labour’s approach to governing Britain, as it did under the previous government - first made the number one priority under Liz Truss.
However, since the election, growth has remained anaemic and many of the policies pursued by Labour have hardly been pro-growth. With significant increase to employers’ national insurance, a substantial increase in the minimum wage, a proposed landmark expansion of workers’ rights at the perceived expense of flexibility for business, increases in stamp duty for first-time-buyers and a highly cautious approach to improving trading relations with the European Union.
Labour would argue that many of these measures are necessary, but the reality is politics is about trade offs and choices. On its current trajectory, the British economy is treading water, whilst other developed economies - especially the US - attract significant investment and see good growth.
Donald Trump’s de-regulatory American boosterism sits in stark contrast to Britain’s gloomy state, and the Chancellor knows it.
The government is feeling the pressure to exit the slow lane on growth, and burnish a positive story about Britain’s potential after the decision made in the opening months to talk down the economy, largely to discredit the Tories’ economic record after 14 years of rule.
If the government doesn’t achieve growth, the Chancellor knows she could have to come back for more significant tax rises or cuts in public spending.
Figure 1: ONS projected UK GDP growth (2000-2008 trend), vs. UK real GDP growth (2000-2026)
Figure 2: IMF GDP growth projections (UK and US, 2023-2026)
Figure 3: Revised UK growth forecasts (Spring / Autumn Budgets 2024 - 2028)
The reds go blue
Whilst Britain needs growth, there are questions emerging about this Labour government’s economic philosophy. Just a few years ago, a de-regulatory agenda would have been seen as alien to the party and its values. Some MPs and party members would (albeit harshly) argue that Reeves is perhaps behaving more like Liz Truss than her role model Gordon Brown, and approaching policy development in a reactive, rather than structured fashion.
The removal of the Chair of the Competition and Markets Authority (CMA) by Reeves echoes the defenestration of Tom Scholar as permanent secretary of the Treasury in 2022 for being a part of the “anti-growth coalition”.
It is, however, noteworthy that most backbenchers are firmly behind the Chancellor. A letter from the backbench Labour Growth Group of 110 MPs to the CMA, calling on it to lead “a rapid review of all ongoing CMA work with a pro-growth lens” underlines the momentum that the growth agenda has across the Parliamentary Labour Party.
The dilemmas and contradictions of being in government are playing out, and given the lack of fiscal headroom, Labour appear to be moving away from the interventionist narrative that was set out in opposition as part of Reeves’ “securonomics” agenda.
That is an important narrative shift, and it underlines a political gamble that sets the tone for the remainder of this Parliament; the Prime Minister and Chancellor are willing to make awkward ideological compromises if the public ultimately feels the economy is working in their favour.
The political cost: What about net zero and workers’ rights?
Whilst the majority of MPs are on board, the Chancellor’s approach exposes divisions in the Labour Party on two key issues.
Firstly, a split over net zero between Reeves, Ed Miliband and Sadiq Khan with regards to Heathrow’s third runway are now deepening inside the party.
Even though emissions from aviation are in practice a fraction of global carbon emissions, airports are - fairly or unfairly - held up as a symbol of climate change. The Chancellor has, in effect, said she will prioritise growth over net zero, and took some flak from Labour MPs in the Commons yesterday.
Will the broad-based climate-conscious elements of the Labour Party definitely vote for a third runway at a time when global leadership on the climate crisis is diminished? In 2018, the Labour Party was split in its voting on the issue with the - now - Prime Minister and Chief Secretary to the Treasury voting against expansion.
Secondly, with all growth measures on the table, there are concerns amongst some MPs and the unions that workers’ rights could be subject to dilution. The CBI have been particularly vocal about the impact of the ‘New Deal for Working People’ on business confidence to hire and make investments.
Will the wider labour movement stand still if rollbacks are announced? Trouble could lay ahead for party unity and discipline.
What does this mean for business?
Businesses should take these announcements with a pinch of salt. The timing of today’s speech comes just months from the unveiling of major policy frameworks, such as the Spending Review, the National Infrastructure Strategy, and indeed the Spring Budget. These will be more substantial frameworks on which to assess the government’s plans for the economy.
Additionally, as we have seen previously, policy announcements that are made without political buy-in, such as Heathrow’s third runway, have encountered difficulty and re-thinks, especially when party splits emerge.
However, the all-out growth agenda set out by the Chancellor opens a path for businesses to shape Treasury policy, particularly when setting out a data-led approach over changes to regulation. In addition, with public finances still significantly constrained, businesses able to communicate a growth and investment story will be eye-catching for Number 10 and Number 11.
Rewards for the Prime Minister?
Following the speech, Labour strategists will have been acutely aware of the electoral threats from both left and right, not least from a galvanised Reform who will argue that even more could be done on the economy and, the missing component from all of this, migration.
Yet, if the pieces fall into place by 2028/29, the political and economic rewards could be substantial.
One comparison harks back to a similarly dismal time for the British economy. Margaret Thatcher’s government in 1980 was in a parlous state, but gambled on economic transformation and reaped long-term political rewards. She also had a slice of luck off the coast of Argentina before the 1983 General Election, of course.
Keir Starmer will be hoping beyond hope that his Chancellor’s major gambit results in a political check mate.
Luke Downham is a Senior Consultant in Bradshaw Advisory’s public affairs team. He is a former advisor to the Exchequer Secretary to the Treasury, James Murray MP.