Labour’s economic plans don’t add up

Rachel Reeves
Rachel Reeves

There is a contradiction at the heart of Labour’s economic policy, amply demonstrated by Rachel Reeves in her speech to the party conference in Liverpool. The Chancellor’s stated aim is to boost economic growth and make Britain attractive to investors, though much of what she had to say was devoted to reassuring public sector workers and unions that they were her number one priority.

Government spending accounts for 45 per cent of the economy and yet the public sector is its least productive part. Indeed, productivity levels were estimated in the first quarter of the year to be 6.4 per cent below their pre-pandemic peak, with the NHS one of the least efficient sectors.

Ms Reeves said she was unapologetic that one of her first decisions in the Treasury was to increase pay in a number of areas at a cost of almost £10 billion without any productivity conditions attached. She said this had been done to avoid strikes, which would have been more costly, but that is tantamount to blackmail. It hasn’t worked either, judging by the nurses’ rejection of their award.

When it was partially offset by cuts in the winter fuel allowance for millions of pensioners it looked especially gratuitous, although Ms Reeves was not apologising for that either. It was necessitated by the dire fiscal position she inherited. But how, in that case, could the country afford the pay increases?

She also insisted there would be “no return to austerity” in a bid to lift the gloom that has surrounded Labour’s rhetoric while at the same time promising fiscal rectitude. This would be achieved by yet another “war on waste” and cancelling a helicopter contract much favoured by Rishi Sunak.

Other contradictions came thick and fast. She wanted wealth creation to be the engine of growth yet extolled the virtues of new workers’ rights which will load costs and rules onto the businesses that make the money. Moreover, if she aligns capital gains tax with income tax in her Budget next month business owners face paying 25 per cent more on the sale of their shares. How will that help?

Ms Reeves wants Britain to “be open for business again” to outside investors, but why should they come here if they are to be taxed more or be told by the state where to put their money?

Little of this makes any strategic sense. Her speech was a string of platitudes designed to please the party faithful (though only up to a point) with no coherent explanation as to how her “unlimited ambition” can be achieved. Perhaps Sir Keir Starmer will enlighten us in his speech today.