Rachel Reeves and Labour’s new economic directon

By Adam Peggs

Labour’s Shadow Chancellor Rachel Reeves gave her first conference speech in the role this week, outlining the foundations of her economic vision. We have begun to see an outline of Reeves’ political economy in recent weeks, with the Shadow Chancellor now announcing a further raft of policies at this year’s conference.

Reeves’ speech comes after Saturday’s green paper from Andy McDonald and Angela Rayner expanding on Labour’s New Deal for Working People and a package of housing policies announced on Sunday by Lucy Powell. Much of the speech’s contents were overshadowed by the resignation of McDonald as Shadow Employment Secretary. He resigned after being instructed by Keir Starmer’s office to argue at the Conference against a minimum wage of £15 an hour and statutory sick pay at the living wage, positions that Starmer previously seemingly supported. With McDonald gone, the left of the Party has very little by way of representation at the Party’s top table.

Despite mentioning the New Deal paper, Reeves speech struck a somewhat different tone to either McDonald or Rayner – placing a strong emphasis on the record of New Labour, fiscal restraint and the need for ‘value for money’. Emphasising her parents’ backgrounds as teachers, Reeves spoke of the change achieved by New Labour, noting falling child and pensioner poverty under the last Labour government, although the problems of rising inequality and in-work poverty during the same period went unmentioned.

Her speech tied ideas around the ‘everyday economy’, the production and services which play a foundational role in people’s daily lives, to themes on the so-called contribution society which appeared in Starmer’s recent Fabians essay. She cites schools, hospitals, shops and care homes as exemplars of the economic institutions which constitute this ‘everyday economy’, praising the workers in these sectors and gesturing toward a need for greater ‘respect’ for these parts of the workforce.

Moving to the wider state of the UK economy, Reeves noted the UK’s ‘flatlining’ productivity, comparatively weak growth, missed deficit targets and ‘rocketing’ inflation. Despite an invocation of the government’s missed deficit and debt targets, Reeves alluded to the argument that money in the “pockets of working people is money spent in shops, cafes and restaurants”, an investment that boosts the economy. Though this is followed by criticism of trickle-down economics, Reeves does not take the next step of highlighting the crucial value of public spending in sustaining the economy.

In what may be a key indicator of Labour’s broader political economy, Reeves stresses an argument for an economy “based on working together with businesses, workers and public bodies” – reminiscent of the ‘tripartite’ economic model of post-war capitalism. Her language, pledging a “new era of industrial strategy working hand-in-hand with trade unions and with business” and a programme that is “unapologetically pro-worker and unapologetically pro-business”, fits closely with this approach.

Moving to tax, a subject on which the Party has had substantial conflict during the last 12 months, Reeves criticises the government’s increase in National Insurance Contributions and, more interestingly, criticises the lower rates of tax on income from wealth. Despite this the speech did not including any specific agreement to raise Capital Gains Tax or tax on dividends, a policy idea put forward in both the 2019 manifesto and Reeves’ pamphlet The Everyday Economy.

The speech made a number of significant announcements. Firstly, Reeves calls for a systematic review of tax reliefs – noting that many reliefs have been used to facilitate tax avoidance. This might open up the Party to the same attacks from the government as during the 2019 election, when it worked so effectively in undermining Labour’s economic programme. A similar approach could work better if coupled with an insistence that the extra revenue will overwhelmingly come from the best off and big business.

Secondly, Reeves calls for business rates to be frozen and to be scrapped and replaced down the line. The first element of this featured in Labour’s 2015 manifesto. The second aspect would represent a major overhaul to the tax system which Reeves emphasises would be designed to try and benefit ‘bricks-and-mortar’ businesses and the high street. Given business rates’ regressive nature, this is a logical step – one that ought to be coupled with a commitment to replace council tax with a progressive alternative.

Thirdly, Reeves calls for an ‘Office for Value for Money’ drawing on the National Audit Office and Osborne’s Office for Budget Responsibility as inspiration. Much like Anneliese Dodds’ earlier iteration of this proposal, it is designed to soothe fears about fiscal ‘irresponsibility’ from Labour and to contrast with the government’s outsourced pandemic contracts. However, there is certainly a risk that any such public body becomes another obstacle to socially important spending measures deemed ‘low value’, or even to spending increases more generally.

Fourthly, and perhaps most significantly, Reeves announced a commitment to £28bn a year of spending on green investment. This is a large, welcome figure and should help to make viable the commitment from the leadership to substantially reduce emissions by 2030. On this, a key question is how this money will be spent.With energy re-nationalisation seemingly dropped and Reeves’ indicating her spending plans include investment in hydrogen, which currently mostly comes from fossil fuels, this appears to represent a shift from the Green Industrial Revolution.

Virtually no one will be surprised that the speech represents a different economic direction from the Corbyn-era – though some may have hoped for a restatement of past commitments to tax the wealthy. While the speech did serve as an answer to those concerned about the need for both more policy and more vision, it is less likely to help bring about unity in the Party.

Adam Peggs is a writer and activist based in Deptford, London. 

Image: Rachel Reeves. Source: https://api20170418155059.azure-api.net/photo/GzViho86.jpeg?crop=MCU_3:4&quality=80&download=true. Gallery: https://beta.parliament.uk/media/GzViho86. Author: Chris McAndrew,licensed under the Creative Commons Attribution 3.0 Unported license.

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