In her Mais lecture, the Shadow Chancellor diagnosed the UK’s problems of economic stagnation, persistent inequality and the instability that geopolitical shocks and climate change bring. Anna Valero outlines what a solution to these problems would look like and argues there is much to be welcomed in Rachel Reeves’ approach.
The dust has settled on this year’s Mais lecture, delivered by the Shadow Chancellor Rachel Reeves. Many watched in anticipation of more detail on Labour’s economic policies ahead of the general election, and some have bemoaned a lack in substance. But to do so misses the point. With election manifestos yet to be published, it was unrealistic to expect an array of new policy proposals in this speech. Mais lectures are a more academic exercise, giving speakers the opportunity to set out their world view. In doing so, a Shadow Chancellor can provide the audience with the economic and policy frameworks that they will make their priority should they get elected.
To that end, the speech did not disappoint. Reeves provided a critique of the free-market economics favoured by the Conservatives in the 1980s, as well as the austerity of the 2010s and recent policy instability that have held back investment. While New Labour’s record on human capital and innovation was praised, inequalities and fragilities in the banking system that persisted through their tenure were highlighted. In its diagnosis and prescription, the lecture took inspiration from a body of recent research on how to achieve strong, inclusive, and sustainable growth.
Today, Reeves argued, the UK stands at a critical juncture. Its ongoing stagnation in productivity and real wages, largescale and longstanding inequalities, and the need to adapt in face of new shocks and sources of change – the climate crisis and net zero transition, geopolitical instability and rapid technological progress – call for a new approach. This was centred around her securonomics agenda, at the heart of which is the outline of a modern industrial strategy focused on growth that is broad-based and resilient. A credible and lasting strategy, emphasised at the heart of government, would have the advantage of coordinating policy towards common goals, and providing much-needed clarity for the private sector. But what does this mean in practice, and do the measures set out in Mais deliver?
Reeves reaffirmed a commitment to the current fiscal rules which will continue to constrain public investment for the long-term, but the measures set out in the Mais lecture did pave the way for a more ambitious approach.
First, there must be a key role for increased and well-targeted public sector investment; this has long lagged other advanced economies as a share of GDP and is set to fall. Labour’s commitments to additional green investments in its Green Prosperity Plan were scaled down earlier this year, and more emphasis placed on the private sector to do the heavy lifting. Reeves reaffirmed a commitment to the current medium-term falling public debt to GDP fiscal rule which will continue to constrain public investment for the long-term, but the measures set out in the Mais lecture did pave the way for a more ambitious approach. In particular, the decision to exclude public investment from the deficit rule, an emphasis on monitoring public sector net worth, requirements for the Office for Budget Responsibility to report on the longer-term impacts of capital spending decisions and a strengthened Enterprise and Growth Unit in Treasury having more influence on fiscal events. Measures to strengthen the Office for Budget Responsibility, and broader institutional reforms for stability, would help to maintain market confidence.
Reeves described a set of new institutions would be established to inform decision-making and to channel public finance, including a newly revived and statutory Industrial Strategy Council.
Second, industrial strategy requires choices on which technologies or sectors to support, and which levers to employ to do so. The need for smart and targeted policy is even more pertinent given the UK’s tight fiscal position. A successful strategy will leverage the UK’s specialisation across high value services as well as advanced manufacturing and net zero technologies, identifying areas where UK capabilities are required for broader resilience purposes. And it will effectively combine “horizontal” policies (e.g. on skills and long term investment in innovation) with sector or technology specific interventions. Indeed, we have had various iterations of this notion in recent years, some explicit and overarching (Greg Clark’s Industrial Strategy of 2017) and others more targeted (Jeremy Hunt’s five sectors and advanced manufacturing plan) but it is also crucial for plans to last. Reeves described a set of new institutions would be established to inform decision-making and to channel public finance, including a newly revived and statutory Industrial Strategy Council. An independent institution of this type, focused on productivity and its drivers, would be an important source of long-term expertise, stakeholder coordination, policy evaluation (in particular regarding long-term impacts of fiscal events on growth) and proposals, boosting the credibility, longevity and chances of success of any new growth plan.
This Mais lecture provided a direction of travel that is conducive to higher investment, building resilience and improving access to opportunity across society.
Finally, other reforms are needed to boost growth and make it broad based. In some areas Reeves pledged to build on important existing government initiatives, such as pensions reform to channel increased investment into UK assets, and politically difficult action to remove planning barriers to investment in housing, business structures and (net zero) infrastructure. Welcome commitments were also sketched out with respect to further devolution, an emphasis on skills and making the most of untapped potential – especially of women and disadvantaged groups – in the labour market, alongside the outline of a “good work” agenda and efforts to promote economic dynamism.
The Mais lecture set out clearly the difficulties facing the UK, and how turning things around won’t be easy and will take time. It is true that not all the answers are there, and difficult trade-offs between objectives in the short-term – particularly in the presence of very real fiscal constraints – are still to be discussed and navigated. The reality of the UK’s public service needs, an ageing population, increased defence spending, and net zero spending requirements imply that taxes will need to stay high relative to the past and this is something that politicians from both sides are unlikely to discuss in the run up to a general election. But this Mais lecture provided a direction of travel that is conducive to higher investment, building resilience and improving access to opportunity across society. Those ambitions are to be welcomed.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
Image credit: on Shutterstock
