Can Keir Starmer plant the seeds of growth?

Labour’s Growth Challenge: A Report on the Party’s Economic Philosophy

Who can forget the magic of “Education, education, education”? Keir Starmer’s 2023 remix of Tony Blair’s 1996 promise is “Growth, growth, growth”. People are less excited. Except me. 

I am a “growth” bore. I talk about it at parties (I don’t get asked back). But growth matters. And it is an existential challenge for the Labour leader.

The Doom Loop and the Need for Growth

Britain has not been short of commentators warning about the risk of this country falling into a “doom loop”, whereby we have higher taxes to pay for higher spending, but we are unable to use higher borrowing, and are cursed by low growth. 

This doom loop is worth dwelling on. Today, even the Tory party is arguing for higher spending. A quick look at the needs of the NHS, social care, education, prisons and defence illustrates why. Yet to afford that, it’s hard to see much more work being done by higher taxes. The tax burden is at its highest level for more than 70 years, and while there may be interesting ways to broaden the tax base, the “Laffer Curve” thesis—that sooner or later higher taxes generate lower revenues—is not far from kicking in.

What about more borrowing? Good luck asking bond market traders about that one after the events of a year ago. Britain borrowed big for Covid: £313bn. Then in August 2022, we asked for £40bn, matched by new windfall taxes, to pay everyone’s energy bills. So, when Kwasi Kwarteng asked for yet more to fund tax cuts, the elastic snapped.

I know some of the people we call “the markets”. They want to see you’ve got a credible plan to pay back the loan they’re giving you. And 2010 and 2022 taught us about the politics of borrowing: Labour is only a credible client when it is willing to cut spending, and the Tories are only credible when they’re willing to raise taxes. So, while Labour says it is willing to borrow to invest, will the markets lend to them? And if so, at what price?

All that’s left is growth that, in turn, generates larger government coffers. Without it, Labour will not have the means to deliver any other major promise. No more funds for the NHS. No new clean energy system. No more extra childcare. Begging the question: without growth, can Labour do anything?

A New Business Model for Britain

Liz Truss gave growth a bad name. But Starmer is resuscitating its brand. And Labour finally has a growth philosophy, set out by Rachel Reeves in “A New Business Model for Britain”, published by thinktank Labour Together in May this year. There are a multitude of other economic proposals and plans from shadow cabinet members. But insiders will tell you that this is the core text. This is scripture.

Stability and Active Government

First, it promises economic policy that is certain and stable. In other words, investors at home and abroad will have the same framework for fiscal rules, industrial strategy and taxation, presumably for a parliamentary term. This may seem simple but, if true, it is big news. Uncertainty is a recipe for falling investment and has sadly been the British story since 2016. Labour will need to make this stability commitment convincing to win over the doubters.

Second, it promises a new supply-side economics in which government plays a far more active role in creating growth industries and simultaneously providing greater security for citizens. This borrows heavily from the rhetoric and policies of Joe Biden and US Treasury secretary Janet Yellen. It’s a move reminiscent of Blair’s appropriation of New Democrat politics in the mid 1990s. 

The Role of Green Growth

This commitment to more activist government is Starmer’s key dividing line with the Tories. I believe that he’s right, and they’re wrong. The growth areas of the UK economy are going to be green science and technology industries—all markets being chased aggressively by our international competitors. All are being heavily subsidised and facilitated by active governments. And all are at a vast, “continental” level of expenditure.

Labour’s target for green public investment is £28bn ($34bn). Biden’s Inflation Reduction Act is estimated at $500bn or more; Europe’s Green Deal is estimated at $270bn; China’s figure is hard to confirm, but 2022 investments were said to be four times that of the US. 

This is a hugely inconvenient truth for Rishi Sunak’s Tory party. Sunak is passionate about innovation, science and technology—but sceptical of more interventionist government to support it. In particular, his government is flummoxed by Biden’s Inflation Reduction Act, which uses state support to stimulate green growth. 

Labour’s Economic Nationalism

The third reveal in “A New Business Model” is Labour’s penchant for economic nationalism. It argues that Britain should rely less on international supply chains and have greater domestic resilience. 

Britain will have its own sovereign energy company: GB Energy. Ed Miliband, Labour’s shadow climate secretary, feels that the UK relies too heavily on other countries for its energy ecosystem. Companies like Ørsted, which are at the heart of our offshore wind success story, are majority-owned by the Danish government and supported by a Danish supply chain. Why doesn’t Britain have one of these? A noble idea, but one that invites a great deal of scepticism about how effectively Whitehall could create such a thing and fears it will “crowd out” private investment in our green ecosystem.

Reeves then restates her previous commitment that a Labour government will make, sell and buy more in Britain. Good news for homegrown providers of everything from medical supplies to textbooks, and for construction companies. Bad news for international investment. Of course, in this, Labour is swimming with the tide of  economic

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 10: Reduced Inequalities
• SDG 13: Climate Action

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
• SDG 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries
• SDG 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average
• SDG 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

No specific indicators are mentioned in the article. However, progress towards the identified targets can be measured using indicators such as:

• Gross Domestic Product (GDP) growth rate
• Share of employment and GDP contributed by the industry sector
• Income growth of the bottom 40 percent of the population
• Resilience and adaptive capacity to climate-related hazards and natural disasters

Table: SDGs, Targets, and Indicators

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Source: prospectmagazine.co.uk

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