If Labour win on 4 July, they will need an economic U-turn. Rachel Reeves has one chance. She’ll make or break her reputation on whether she makes that turn.
The risk [to Labour] is that it wins an Attlee-style landslide but then doesn’t know what to do with it. Growth might come to the rescue, but it might not. The danger for Starmer and Reeves is that they lock the economy into a new era of austerity that makes absolutely zero economic sense and for which there is absolutely zero political appetite.
So says Larry Elliott, the Guardian’s economics editor. He suggests that Starmer and Reeves might have – through the promises that they have already made and the commitments that they have given to big business – backed themselves into an economic corner where austerity is the inevitable outcome. The likelihood of this would appear to be high.
Larry acknowledges that this is the consequence of Reeves having adopted an almost identical fiscal rules to that suggested by Jeremy Hunt for the Conservatives. Identifying the source of a problem is always the first, necessary, condition for addressing and then resolving it.
Will Labour eventually abandon its wholly inappropriate commitment to fiscal rules? How long will it take to do so? How much damage might this commitment have caused in the meantime?
One chance to grasp the nettle
If she’s wise, Rachel Reeves will know that the argument she’s using to get Labour elected also provides her with the opportunity to abandon her own commitments once she gets into office. All she has to say, when she presents her first budget – probably in September – is that the mess that she has inherited from the Tories is worse than she anticipated during the election campaign because she has now seen the books. She could, as a result, make the immediate suggestion that as a consequence she will have to change tack, and her planned fiscal rules will have to change as a result.
It would require some political gall to do this. But Labour will, after the election, enjoy a significant political majority in parliament. The solidity of Reeves’ position could be increased by abandoning her pro-Tory and pro-austerity policies. There could be no better opportunity for her to do this than in her first budget. As Machiavelli would have it, if you are going to exert your authority when changing course, do so as soon as you can after assuming power, and make your first strike an effective one.
‘When the facts change, I change my mind‘
If I were Reeves, this is what I would do. And, when challenged about the inconsistency by the political commentariat, I would resort to the age old political line, that when the facts change, I change my mind. She would need to say that she was now possessed of more data, and that was the reason for the change of approach. It would be hard to impose a political punishment upon her as a result, so soon after a general election.
If she does not have the gall to do this, everything then gets worse for her. U-turns always represent an admission of political failure. That will happen if she does not acknowledge the need to change her position in her first budget. If, being possessed of the facts, she maintains her fiscal rules, then she will have to change approach at some time thereafter. Her plan will undoubtedly fail to deliver the growth on which she preconditions all additional government spending. That will represent an absolutely inevitable admission of failure on her part. Both the commentariat and the electorate have long memories for such things. I suspect it would also cost her the job as Chancellor.
So, what should Reeves do, given that, as Larry Elliott suggests, there is absolutely zero political appetite for a new era of austerity? She has to brace herself for one massive U-turn weeks after getting to Westminster, or set Labour on a path to failure.
It will be her choice.
