Starmer made another speech on economics on Monday 25th July. It is reported in the Guardian.

Starmer has been trying to pitch Labour as the party of fiscal prudence and will say: “With me and with Rachel Reeves [the shadow chancellor], you will always get sound finances; careful spending; strong, secure and fair growth. There will be no magic-money-tree economics with us.”

From the Guardian,

The limits of growth & debt

This takes a lot of unpacking, firstly, whether the questions of what we make (or do), how we make (or do) it and who gets what we make (or do) are no longer the crucial systemic questions that economic systems need to answer. Questions of funding old age and care, and combatting climate change are now central to good economic system design; the days when capitalism was progressive are over. While he doesn’t frame the same question, Will Wardley points out that fiscal discipline is incompatible with a Green New Deal although Starner denies the dichotomy.

Starmer recognises the vitriolic anger that hard work doesn’t pay enough and while we recognise that this is a system caused by 12 years of Tory misrule, he won’t support strikers who seek to rectify this state of affairs.

Rachel Reeves made a speech earlier in the month, as part of the launch of the Resolution Foundation’s 2030 economic review called “Stagnation Nation”. The words of the speech were  posted to the Labour press site and she sought to clarify Labour’s position on the debt and deficit,  I quote her later in the article but Starmer states,  

So we will not announce a single penny of day-to-day spending without saying how we would pay for it. We will only borrow to invest to meet the challenges of the future – that’s what our Climate Investment Pledge is all about. And we will set a target to reduce debt as an overall share of our economy.

Sir Kier Starmer

Richard Murphy in a thread on the speeches, points out that for some economists,  growth and fiscal policy are orthogonal, i.e. a nation can afford what we make and do, fiscal policy has nothing to do with it. It helps remind us that economic theory is just that, there is no proof that the theories one adopts are right. Most economists agree that you can’t have growth and Government surpluses, no left wing or progressive politician should be promising this or even suggesting it’s possible. Only growth ensures a reduction of the debt ratio.

Somewhere in the middle of this there might be a recognition that full employment & investment led growth will lead to a high wage, high skills, exporting economy. But he and Reeves choose to anchor themselves to austerity with a promise to reduce debt and ensure that day-to-day government funding is financed by tax revenue. Like the unmentioned Brexit, they say one thing about the direction and policy but have chosen to leave two dirty great anchors in the bed rock.

Starmer acknowledges the need for a fair taxation and says this is “why we will scrap business rates and replace them with a system that levels the playing field”. Business rates are one of the few business taxes that cannot be avoided but fiddling around with them does nothing to ease the tax burden carried by workers and pensioners and this is another opportunity missed to talk about student loan recovery. Also unmentioned is our universal VAT of 20%, surely the first giveaway even a social democratic government would consider is reducing the VAT rates, maybe abolishing them on energy.

Another important idea, glossed over with a managerial approach is regional inequality, levelling up and the need to harness our communities; while asking Gordon Brown to investigate ideas on economic devolution is fine, any programme needs long term guarantees to local authorities, effecting a transfer union just as Scotland has, so the public sector investors know they are getting money next year as well as this year and the transfer mechanism needs to be based on need. This is the opposite of what the Tories are doing and yet despite multiple calls by Labour Conference to restore local government expenditure cuts, nothing is said, whereas what is needed is a long-term guarantee of project finance, as was available from the EU regional & R&D investment programmes. It should be noted that New Labour’s regional policy programmes were blighted by their attachment to workfare and to regional assemblies, although we now have sub regional mayor led authorities, so the latter may not be a problem but everyone will remain suspicious of the former failing with Rachel Reeves as Chancellor.


Rachel Reeves in her speech, and consequent interview , reported in the Independent, stokes up the row over nationalisation of rail and energy, for some reason, by saying,

“I’ve set out fiscal rules that say all day-to-day spending will be funded by day-to-day tax revenues,” she told BBC Radio 4’s Today programme. “Within our fiscal rules, to be spending billions of pounds on nationalising things, that just doesn’t stack up against our fiscal rules.”


But nationalising something is not a day-to-day expense!!! It’s a capital transaction, as is forgiving and abolishing student debt and abolishing tuition fees which would be an investment in Human Capital. We should note that if claiming to be followers of Janet Yelland’s modern supply side economics, Yelland argues for increased subsidy to child care expenses to ease mothers’ entry into the labour market and subsidies for skills acquisition i.e. University. Others see modern supply side economics as political prestidigitation merely seeking to avoid the label of Keynesianism,

“‘Modern supply-side economics’ strikes me as a new label for Keynesian economics with an emphasis on government spending on investment in labor supply,” said Peter Hooper, global head of economic research for Deutsche Bank ag and a former senior Federal Reserve economist. “There are some good arguments there, but I don’t see it as a totally new economic paradigm.” Bloomberg News

Peter Hooper

Labours social democrats need to say how they’ll control energy and rail prices and profitability if they don’t plan to nationalise.  The step away from common ownership is reinforced and criticised by Andrew Fisher who makes the point about subsidy, prices and profits and calls Sam Tarry & Ed Miliband and even Kier Starmer’s 10 pledges in support of his argument.

Seeing much of this coming, Rebecca Long Bailey, Starmer’s rival for Labour Leader, made a speech, again reported in the Guardian, which says, “The former Labour leadership contender Rebecca Long-Bailey has called for Labour to drop its cautious approach to the economy and fight the next election on a radical manifesto including state ownership and a living standards contract between government and public.” While she argues for a cabinet member in the Treasury to supervise and champion the new social contract, these ideas may not be opposed by Reeves as shown by her speech to GMB Congress 22, obviously not over the nationalisations, which again the Unions in those industries support and even the TUC do so too.

Certainly, the reporting of the two speeches, suggests this is a return to pre-Blair strategies albeit with an Osborne veneer: grow the economy, tax the rich, rebuild the public services presumably with school marm Reeves’s contempt and punishment of the so called undeserving poor! Yet again offering more to the needs for a story of economic credibility than required, following in the track of Jenkins, Smith and Brown. For today’s leadership there is no mention on profits, dividends or redistribution. This return to the economics of the 60’s is harnessed with a political strategy from the nineties; fight the party to show you’re a safe pair of hands. The economics is wrong and unambitious, and politics has changed. The Labour front bench needs to do better, and it could start from the Conference authored Party Programme.


UK general government deficit (or net borrowing) was £187.4 billion in 2021, equivalent to 8.1% of GDP; this was 0.3 percentage points lower than the average deficit of the G7 member states.

Labour’s macro-economics, “Back to the Future”
Tagged on:                     

One thought on “Labour’s macro-economics, “Back to the Future”

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: