Rachel Reeves says Tories are ‘gaslighting’ Britain over the economy. What would Labour do?

Keir Starmer has promised a ‘decade of renewal’ but his chancellor will have a hard job funding it, says Sean O’Grady

Rachel Reeves delivering her speech on the British economy (Getty)

Rachel Reeves, the shadow chancellor, has caused a bit of a stir by accusing the government of “gaslighting” Britain over the economy. She told an audience in the City: “They say we’ve turned a corner. But try telling that to the 6.4 million households across England and Wales that last year saw their rent increase or had to remortgage. Or the 950,000 families whose mortgage deal is due to expire between now and January. They say ‘the plan is working’. Is this the same plan that has meant this is forecast to be the first parliament on record with living standards actually lower at its end than at the start?”

In fairness, much of her speech was the usual knocking copy on the government’s record, as opposed to a detailed plan for a parliamentary term, let alone the “decade of renewal” she and Keir Starmer are hoping for.

Is Rachel Reeves right about the economy?

Broadly, yes. One of the many presentational weaknesses of recent Conservative administrations has been to overstate Britain’s economic success, and in such a way that it creates unhelpful dissonance between people’s day-to-day experiences and whatever the government fancifully claims on social media and in speeches and interviews. At least Sunak isn’t as mindlessly boosterish as Boris Johnson.

The difference between a country in mild recession, crawling out of such a recession, or experiencing minimal, anaemic growth is imperceptible to the average person, so claims about growth are bound to be viewed sceptically.

Perhaps the most glaring is inflation, where ministers sometimes seem to suggest prices are actually falling, whereas they are still going up albeit at a slower rate. Or the continual boasts about “tax cuts” (ie reductions in national insurance), which are starkly at odds with what people see in their pay packets given the long-term freeze on tax thresholds, and substantial hikes in council tax and poor public services. As Reeves says: “I love a graph as much as the next person, I spent the early part of my career looking at them obsessively. But in the end, what success looks like is how people feel.”

That said, a professional economist such as Reeves would have to concede that sometimes economies can be quietly improving their underlying health, for example by diverting consumption into investment, keeping taxes high to pay off debt, or with high mortgage rates to choke off inflation, even though households feel worse off in the short term.

Will she strike a chord with voters with this line of attack?

One suspects nothing Labour says or does hasn’t somehow been tested for how it will resonate with the public, and voters tend to like politicians who appear to be “in touch” with them and understand how pricey their car insurance is these days and who know how much a loaf of bread costs. That goes a long way to enhance credibility, and having a “cabinet of millionaires” and a prime minister whose family are near enough billionaires doesn’t help to convince voters they understand “the problems of people like me” as market researchers put it. Reeves sounds more like she’s on their level, at least.

What difference would Rachel Reeves make in government?

In macroeconomic terms, not very much – and voters probably sense this by now. All the talk about “iron clad” discipline, ditching the infamous £28bn green energy scheme, the caution about plans having to be fully costed and fully funded… none of it suggests the next Labour government will be profligate, or “hard-left maniacs” as Suella Braverman recently claimed. Reeves has committed to abide by existing fiscal rules, and to reinforce them by strengthening the Office for Budget Responsibility (to avoid more disastrous Truss-style experiments). The fact that Jeremy Hunt’s projections for debt are based on wildly unrealistic plans for public spending seems not to trouble Reeves or her colleagues.

Shadow ministers for major spending departments such as health (Wes Streeting), work and pensions (Liz Kendall) and education (Bridget Phillipson) stress reform and limit their pledges to relatively modest specific projects linked to specific tax measures or (though yet to be defined) savings elsewhere. Of course, monetary policy and control of inflation will remain firmly with the Bank of England. An aversion to re-opening Brexit also means that that particular brake on trade, investment and labour supply will remain a drag on growth. The constraints on the putative new chancellor will be familiar.

So how will they achieve growth?

There will apparently be some borrowing to invest but because it will have to be within an overall fiscal envelope, it might amount to very little. The solution is to try to leverage private money and relax planning rules to get things moving. As with the present government, there will be schemes to boost AI and similar techniques. It won’t be transformative, though; big improvements in wages will deliver higher productivity and that depends on commensurately higher levels of investment, both public and private.

Will Labour raise taxes?

We won’t really know much more until the manifesto comes out, and the full story won’t emerge until the first budget. Despite all the complaints about this government, Reeves doesn’t seem in a hurry to raise income tax thresholds or reverse national insurance cuts.

She has stated an ambition to reduce taxes for those in work, and to abolish most of the non-dom tax perks but the rest is frankly vague. The assumption must be that she’ll find a way to trim the few remaining middle class tax perks, raise capital gains tax, and impose more taxes on “unearned” income – landlords can expect to be clobbered. One particular problem is how she’ll manage local authorities struggling with their rising debt and facing bankruptcy.

Are workers going to be better off?

Probably, but by how much more is difficult to say. Aside from trends in real wages, which will not see spectacular growth, there are rumours that Labour’s New Deal for Workers will be subject to “consultations”. This New Deal was Angela Rayner’s signature political achievement but this, too, seems to be subject to the approval of the shadow chancellor. This may or may not be good news for business investment and economic growth, but in the short term it will mean the planned expansion of collective bargaining rights, reversal of Tory laws on minimum service obligations, reform of zero-hours contracts, and other similar measures will be less ambitious than previously expected. To take a small example, Reeves has already suggested some zero-hours contracts may remain.

Making public sector strikes easier and more damaging would prove a bit of a vote-loser at the election, so expect some hedging on those workers’ rights too (indeed, given Streeting’s aggressive talk of reform, we might even see more strikes in the NHS). What might be more useful would be if an incoming government implemented the Taylor review of employment status and clarified the present tangle of differential treatment for “employees”, “workers” and “freelance” or “self-employed” people, both for tax and employment law purposes.

Can Labour achieve its mission of a decade of renewal?

For the majority of the population, the Britain of Starmer and Reeves won’t feel that different to that promised by Sunak and Hunt. Even if Labour had more radical plans, it would take years for them to work through the system; but some critics do yearn for something more substantial and rapid to show for a term of Labour government than simply “SIR” – Stability, Investment and Reform.

Reeves’s present emphasis on those basics and general caution will make it easier for Labour to win an election, and will give her chancellorship some principles to guide her work; but whether it will help the party win the following election, due in about 2028, is uncertain. Instead, Labour may have to fall back on exaggerating a somewhat mediocre performance. Therefore, we shall soon enough see whether Labour in power is more or less inclined to “gaslight” Britain than the present Conservatives.