Public finances under a Labour government
How might a net worth fiscal rule work in the United Kingdom?
There are hints at more active fiscal policy by the UK’s government-in-waiting, but shadow Chancellor Reeves continues to show caution about the scale of ambitions;
What prospects are there for a UK fiscal rule in the next parliament?
The next government in the United Kingdom, once the Conservatives finally fold, will likely be a Labour one—or, at least, a coalition led by Labour as the largest party. This will make Kier Starmer the Prime Minister with Rachel Reeves most likely the (first ever female) Chancellor of the Exchequer.
Reeves is a strong candidate for Chancellor: a state-school educated, junior chess prodigy who studied at Oxford before entering the staff of the Bank of England—and whose partner is a senior civil servant and one-time HM Treasury official—she has proven a safe pair of hands as shadow Chancellor.
Such credentials hardly suggest radical fiscal policy is afoot.
But there have been hints that an ambitious fiscal agenda is bubbling beneath the surface.
What form could that take?
Reeves announced herself to the world during a recent trip to Washington, DC when she presented her “vision” for the UK economy at the Peterson Institute for International Economics (PIIE). This vision includes embracing “an active state, muscular industrial policy, ‘friendshoring’ supply chains away from China and high labour standards” according to the Financial Times.
This was accompanied by a pamphlet outlining A New Business Model for Britain.
Perhaps this ambition was, however, too much, too soon?
Apparently to avoid spooking markets—though just as likely aimed at the inherently conservative middle classes—in recent weeks Reeves backtracked on a prior pledge, originally made in late-2021, to spend GBP28bn per year, or about 1% of GDP, on green investment.
Instead, speaking on Radio 4, Reeves said this would be something to achieve over the parliamentary term since apparently “no plan can be built that’s not on the rock of fiscal and economic stability,” a caveat also inserted during her speaking tour of the United States.
In other words, activist possibilities are being tempered by a nod at fiscal responsibility. So which is it?