Be Brave, Chancellors

After much speculation and internal debate, the UK’s Labour Party has significantly scaled back its ambitious Green Prosperity Plan, moving from a commitment to borrow £28 billion annually for green-energy projects to allocating just under £5 billion per year. This adjustment marks a stark departure from the plan initially put forward by Shadow Chancellor Rachel Reeves in September 2021, prompting the media to label it as the ‘mother of all U-turns.’ And yet, silence. Protests seldom rise against the dry edicts of fiscal regulations. What is the alternative the public asks? The tempestuous reign of Liz Truss and Jeremy Corbyn’s utopian visions have instilled a deep caution. We forget that economics can be radical and succeed. Indeed, we have no other choice. 

Our economy has slipped into a technical recession, yet the more alarming issues are the pervasive stagnation and the financial distress facing local councils nationwide. Clearly, the prevailing economic orthodoxy, a legacy of Margaret Thatcher, is no longer effective. As John Maynard Keynes, the esteemed British economist, put it, ‘The difficulty lies not so much in developing new ideas as in escaping from old ones.’ Yet, the political spectrum seems to be locked in a cycle of minor budgetary adjustments. If such tinkering were the solution to fostering growth, it would have proven its worth in the last decade. Keynes once remarked, ‘When the facts change, I change my mind. What do you do, sir?’ This is a sentiment I wish could resonate within the walls of Parliament.

In the midst of economic scrutiny, Chancellor Jeremy Hunt and his shadow, Rachel Reeves, share a common vision to rejuvenate the UK economy, albeit via divergent paths. Hunt’s Autumn Statement heralded what he termed the ‘biggest tax cut on work since the 1980s,’ a nod to traditional Conservative beliefs in tax cuts as engines for economic growth, despite the looming spectre of an inflation rate of 4.2%, , productivity falling, and a 0.3% fall in GDP last quarter. Conversely, Reeves champions a ‘modern supply-side approach,’ proposing a ‘green prosperity fund’ aimed at catalytic investment to spur private sector growth without exacerbating the national debt. This strategic divergence highlights a broader debate on fiscal responsibility versus ambitious spending in a bid to combat economic stagnation and inefficient public sector expenditure.

This plan was far more than a nod to environmental stewardship; it was a radical reimagining of the UK’s economic framework, aiming to usher in a new era of industrial policy inspired by successes abroad, such as the US Infrastructure Act. With high debt levels constraining the option to stimulate growth through tax cuts, spending appeared to be the necessary alternative. However, the challenge lies in the fact that growth is lagging behind the rate of spending. This presents a dilemma: either spend minimally, providing slight relief but exacerbating the debt situation, or invest significantly to enhance returns. Given that minimal spending isn’t a viable solution to stimulate substantial economic growth, the decision to slash investment is inexplicably counterproductive.

For months, the press pressured Labour MPs as they too are in the grip of the Treasury’s caution. A journalist queries, ‘How does the electorate know you won’t raise taxes in power?’ Furthermore, if the economy is never discussed as a household budget again, the public will be better served. The oversimplification of comparing a national economy to a household budget unduly constrains ambitious proposals. It fails to capture the government’s unique ability to stimulate economic growth through strategic investments, leading to undue caution and a lack of support for necessary long-term investments in infrastructure.

With the economy trapped in a ‘fiscal bind,’ where neither tax cuts nor increased public spending seem viable under current orthodoxies, this Keynesian-inspired strategy could offer a beacon of hope. Robert Skidelsky, a distinguished economic historian, offers Rachel Reeves a way out of her predicament. It lies in the concept of the balanced budget multiplier, a Keynesian mechanism that posits an increase in both taxes and government spending can stimulate the economy without exacerbating public debt. His approach, while seemingly counterintuitive, hinges on the idea that strategic government expenditure, matched by equivalent taxation, injects a net increase in total spending into the economy. Such a move, he argues, could ensure full employment and kickstart economic growth. Skidelsky calls on Reeves to offer Keynesian reasoning for a departure from the fear-driven politics of debt and deficits towards a more dynamic, growth-oriented approach.

At the heart of this is Labour’s election machine but the issue is they are blinded from seeing what the electorate want. John McTernan, the political strategist for former Prime Minister Tony Blair has advice to dispense. He identifies the current political zeitgeist as ripe for change, a moment when the electorate’s desire for a new direction is palpable. The polls indicate widespread desire for green investment, given that is effective. So what is restraining Labour from doing this? McTernan argues that Labour only remembers the repeated political trauma of losses for the past decade. He offers a strategic blueprint: rename, reframe, and robustly defend the fund not as an expenditure but as an investment in Britain’s future. By focusing on the tangible benefits of such investments — from job creation in the green sector to the retrofitting of social housing for energy efficiency — Labour can counteract Conservative critiques and resonate deeply with the electorate’s desires for meaningful change. British voters are characterised by their flexibility, those that voted for Tories can be persuaded to vote for Labour for different reasons and vice versa. To do so, Labour must show voters a vision. As Harold Wilson said, ‘the Labour party is a moral crusade or it is nothing.’

As Britain stands at a crossroads, the debate over Labour’s green investment plan underscores a broader struggle over the direction of the nation’s future. The call for a radical departure from outdated economic models to a more sustainable and inclusive approach has never been louder. To those across the economic and political spectrums, I extend an invitation to bravery. Our times demand no less.

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