Rachel Reeves may have helped run up a £151 billion deficit in the past 12 months (with a little help from Jeremy Hunt), but for some people it is not nearly enough. A snapshot into Reeves’s world is provided by the Resolution Foundation today, which has claimed that Reeves’s plan for £100 billion of additional capital spending over the course of this parliament will not nearly be enough, and that most of it will simply be swallowed up reversing ‘Tory cuts’.
In a report entitled Capital Gains, it says that Reeves won’t really have an extra £100 billion to spend in her spending review; when cuts to budgets are taken into account it will mean only an extra £20 billion of money available.
This is the kind of pressure Reeves is under constantly: demands from her own party for ever higher tax and spending. The Resolution Foundation’s interjection is interesting because its former chief executive, Torsten Bell, is now a Treasury minister. It does rather make you wonder whether – if Reeves were to fall under the metaphorical bus – Bell is being promoted by his former employer to take over, to take government fiscal policy in a distinctly more leftwards direction. Reeves has been able to enjoy a little more positive economic news of late, but sluggish growth and a burgeoning deficit leave her still in deep trouble. When you have promised ‘growth, growth, growth’ as your number one priority, you can’t really expect to survive if the economy flatlines – let alone goes backwards.
That the Resolution Foundation seems to think that the answer is yet more public spending says much about the Labour Left’s philosophy. Economic growth, it seems to believe, can only ever result from public investment, not private investment. It is a peculiar one-sided interpretation of Keynesianism – where public investment is not merely required to ‘prime the pump’ during times of economic downturn, but is the only way of growing the economy, ever.
An alternative explanation for the lack of growth in the economy at present, of course, is that over-taxed, over-regulated businesses have drawn in their horns in order to survive. The rise in employers’ national insurance, in particular, has taken money from their budgets which might otherwise have been spent investing in their businesses. Why does the Resolution Foundation not see lower burdens on business as part of the solution?
If you want genuine growth in the economy, the sector that you most want to invest is surely the more productive part – the part which is growing productivity, not shrinking it. Instead, the government is taking money out of the private sector and putting it into a moribund public sector which has failed to improve productivity in a quarter of a century.
Reeves is increasingly beginning to look like the Starmer government’s ‘starter chancellor’ – who will pave the way for a more radical programme at some later date, just as Geoffrey Howe was followed by Nigel Lawson. Her failure to stimulate growth will be used as a pretext for something a little more ambitiously left-wing. Were Torsten Bell to be the follow-up figure, we would at least know where we are, given that he appeared to enjoy an open invitation onto the Today programme in the years leading up to the general election to expound on his ideas for tax rises. But it would be a dark day for the UK economy, ditching us in even deeper fiscal waters.
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