An “inflection point”

Shadow chancellor Rachel Reeves rounded off yesterday’s Mais Lecture by saying that, as in the late 1970s, we stand at an inflection point. Her speech made a case for widespread reform – to stimulate investment, remove barriers to productivity, fashion a new economic settlement and create growth that is broad-based, inclusive and resilient.

OK, that all sounds good, though a speech peppered with ill-defined references to “growth” and “supply side” may appeal to a City audience, but it does begin to make you wonder. Certainly, she identified many of the challenges: instability, low-investment, debt, barriers to trade, climate change (yes, she did remember it), inequality, insecurity and much else. A pretty gloomy outlook but, having identified them, she then tried to paint a rosy outlook, for investors at least.

At last Ms Reeves did concede we live in a time of instability – shifting geopolitics, rapid technological change (AI etc.) and the climate crisis. She agreed globalisation is dead but argued we need to choose where to deepen economic relationships, despite which the Brexit elephant trumpeting around the hall just got a nod towards “forging a closer relationship” with our neighbours.

At its heart was a call to rebuild the Treasury’s Enterprise and Growth Unit with some added input into fiscal events. The multi-decadal failure to wrest economic policy from the Treasury’s sclerotic grip won’t be addressed by Ms Reeves. It was all about stability, investment and reform.

Maybe one should be sanguine about stability, but it’s hard in 2024. Russia isn’t just “asserting itself more than it has in three decades”, it’s invading a European democracy and positioning itself for a Trump presidency undermining NATO so it can reassert its empire in Europe. The Gaza conflict is not just horrific, it’s destabilising the whole western alliance, just what Putin who promoted it wanted. China doesn’t just “loom large on the world stage”, it too is expanding in equally dangerous ways and decades of foolish investment there will need to be addressed more strongly than the cautious approach in America. And no mention in the speech of the urgent need to strengthen defence.

Climate too poses existential risks. Ms Reeves did at least admit that the cost of failing to address the climate crisis would far outweigh the cost of action, though she was pretty weak on what those threats are.

“The European Central Bank’s Isabel Schnabel has set out the implications for monetary policy of climate change: in losses that could translate onto the balance sheets of financial institutions and reduce the flow of credit; in impacts on labour productivity and health-related inactivity, which could lower the equilibrium real rate of interest and constrain the space for conventional monetary policy; and through the impact of supply side shocks on prices,” she said. “Given the onus to mobilise investment to achieve our energy transition, these challenges are especially acute.”

So what about action? This would mean requiring financial institutions and FTSE100 companies to publish carbon footprints and credible 1.5-degrees-aligned net zero plans, a “UK Green Taxonomy” and upgrade the climate emphasis in both Bank committees’ remits.

She said nothing about adaptation in a country where food security is in peril, water supplies threaten several regions, our drainage and flood control are totally inadequate for new climate extremes and where sea-level-rise now threatens huge areas of the country, including major cities. As with defence, these are major investment needs – and opportunities – but not apparently for the shadow chancellor.

We have previously called for a much wider planning system to co-ordinate the urgent action needed in these and many other areas. But Ms Reeves seems stuck in the mire cynically created for her by lobbyists from hard-right neoliberal think-tanks in her description of the planning system as (wait for it) “the single greatest obstacle to our economic success”.

“Our planning system is a barrier to opportunity, a barrier to growth – and a barrier to homeownership too,” she asserted. “Planning dysfunction means that land is costly and inefficiently utilised, making the cost of building infrastructure in the UK significantly higher than in most developed economies, meaning higher energy prices, poorer transport, and inadequate digital connectivity. And it prevents housing from being built where it is most needed – contributing to ever-higher prices and falling rates of home ownership, and constricting the growth of our most productive places.”

Now this is interesting because she also mentioned the alleged virtues of agglomeration whose benefits, she claimed, would need to be unlocked. Yet just two paragraphs earlier, she had said: “to grow our economy, we cannot just rely on a few pockets of the country to drive growth and productivity”.

“Regional inequality robs us of potential inventors and innovators,” she said. “The squandered potential of all our lost Einsteins and Marie Curies makes us all poorer.”

Indeed it does – so what’s it to be? Agglomeration round existing overheated honeypots, or regional policy to spread it around?

And before we accept the continuing decline of poorer areas into 1930s levels of inequality, please remember that the internet has actually undermined the necessity of industrial concentration.

Today, increasingly, you do hear people say: “It’s beginning to feel like the 1930s” and not just thanks to security threats. Such fears are inimical to stability and investment, though perhaps we should remember that the belated attempt to invest in defencs in the second half of that decade did produce a degree of economic revival.

Indeed, the late-1930s were also an inflection point. They were one when, almost too late, Britian and fellow democracies finally took threats seriously and started to address them.

Today, not only do we have expansionist military dictatorships threatening our economy and our way of life, we have a string of environmental threats – climate, nature, food, water, sea-level rise etc. which pose existential risks.

What we need is a strong, well-resourced and much wider planning system, not one poisoned into deformity or impotence by the land speculators, developers and house builders who help drive campaigns by neoliberal think-tanks.

Ms Reeves needs to think again about planning and climate if she really aspires to be a successful chancellor.

Jon Reeds