The latest figures for the UK's GDP suggest that growth is flatlining, and the problem with that for Rachel Reeves is that everything Labour said it would do is predicated on growth happening. So, what now, Rachel Reeves?
Apologies: we did not make an audio version of this one.
This is the transcript:
What now, Rachel Reeves? It's a good question to ask because Labour came into office promising growth, and it isn't happening.
In the quarter to September this year, which did, of course, include a month of Tory government rule and which was entirely influenced by Tory policy, the UK economy grew by 0. 1%.
And now we have provisional figures for GDP in October, and the economy shrunk by 0.1%, which means that in the first three months of this Labour government, there has been precisely no growth at all.
Now, let's put a caveat on all of this. Figures of 0.1 per cent change in GDP are almost utterly meaningless. They come down to what we might, in statistical terms, call a rounding difference. There are so many estimates that make up GDP, knowing whether that figure is right or wrong is, well, almost impossible.
But again, I add a caveat. The point is, there is no growth. And that is not just symbolic. It is deeply worrying for a government that says it is going to deliver growth.
And, again, let's put that in context. Labour expected that when they came into office, there would be a bounce in the economy. It was their belief that after 14 years of Tory rule, the country would have a wave of enthusiasm. It would go out and spend. It would realise that good times were back again. And that happened in 1997 when Tony Blair came into office. There was a wave of euphoria. I was around at the time, but it has not happened this time.
There is no such thing as a Labour economic honeymoon after this election. There's been a damp squib.
And these figures are for the period before Rachel Reeves delivered her budget. And what we know is that Rachel Reeves' budget has gone down really badly, for reasons that I predicted on this video channel and elsewhere.
She put up national insurance.
She took measures that will suppress growth.
She has made it harder for business to invest, whatever she claims.
And she's also managed to upset the farmers. And whilst I have no sympathy with them, a lot of people do because they are symbolic of an anti-government movement and right now in the UK, anybody who appears to be anti-government does get some level of support and the farmers have certainly won that.
So, Rachel Reeves is in deep trouble. I don't think it's worth pretending otherwise.
She's in deep trouble because the absolutely fundamental underpinning of all her economic policy, which is growth, is not there to be had at present. It is literally dead. Absent from the UK economy. And without growth, she can't keep her other promises, because she said that it was growth that would fund the increase in public spending that would let Labour deliver on its promises to cut waiting times in the NHS, improve the number of teachers in schools, and whatever else happens to be on their list of priorities today; they've already changed so often that I can't remember what the latest version is.
My point is, that it doesn't matter what those priorities are, if they're all predicated on there being growth, and there is no growth, then Labour has no policy at all.
Now, Labour without a policy is not a surprise to anyone. That is where we were in June, after all. Everyone, with any sense, said at the time, what does Labour stand for? And no one could answer. But some people lived in hope that maybe Labour would reveal what they were about after the election. They didn't, they haven't, and now they have nothing they can say because all the policy predictions that they have made for themselves are predicated, as I've said before, on this one idea of growth, and growth is not there.
So, what is Rachel Reeves going to do? That's the question I posed at the start of this video, and it's the question that she will need to answer if there is no growth.
I did recently produce a video here that suggested that growth is now history. And the reason why is that we are now such a strong service economy that growth really isn't technically possible anymore.
I've noticed since then that Martin Wolf in the Financial Times has produced an article which was remarkably similar in tone to the video that I produced here. I've no idea whether he watches these videos, but the similarity was extraordinary. And the reality is that the growth myth is bust. If that's the case, and Rachel Reeves' policies are bust as a consequence as well, then what is she going to do?
Now, she does not have to do nothing. She could proactively redistribute income and wealth within the economy, and as a consequence, improve the lot of the vast majority of people in the UK.
There is such an imbalance in that income and wealth, that the opportunity for redistribution does exist, and that could, in fact, deliver growth, because the rich don't spend what they have, by definition, because that's how they become rich. They have more income than they need. But those who are the poorest in society, when given more income, do spend and therefore release a growth opportunity. So she could go for a policy right now of redistribution to deliver growth.
Or, and I'm afraid this is much more likely, Rachel Reeves will go for austerity. We know that she's already planning to cull the Cabinet Office, the department at the very centre of government, in a quest to cut its budget.
We also know that she's demanded 5 per cent cuts from every government department, as if that is somehow deliverable. I stress, that will be over the lifetime of the Parliament, but even so, that is an extraordinary task to do deliver. And that is an extraordinary goal when she wants growth. That ignores the fact that government spending does in fact contribute to growth and is a fundamental component of GDP in the calculation of what our income is. She wants to shrink the government's contribution and presumes as a consequence that the private sector will somehow grow to compensate for the government getting smaller. There is no evidence that that is true.
So, what Rachel Reeves can do is either redistribute or austerity, and admit her mistake of relying upon growth, or simply stick her head in the sand.
Of those options, which is the most likely?
Well, austerity is certain.
Growth is impossible, and the likelihood that she'll redistribute is very low, given her bias towards wealth.
So, sticking her head in the sand? It's going to be a major part of her economic policy. We will hear talk of growth. Blah, blah, blah, blah, blah. She will go about growth forever. But the reality is, she's living in cloud cuckoo land.
Rachel Reeves, what are you going to do? Because where you are is not working, will not work, cannot work, and you have to change. But, if you don't, you are consigned to not just the back benches but maybe political oblivion from 2029 onwards.
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“Now, Labour without a policy is not a surprise to anyone. That is where we were in June, after all. Everyone, with any sense, said at the time, what does Labour stand for? And no one could answer. But some people lived in hope that maybe Labour would reveal what they were about after the election.”
The Bath University politics senior lecturer David S Moon’s article in the Guardian today about why Trump won has bearing I think on why Starmer’s Labour won:-
https://www.theguardian.com/commentisfree/2024/dec/14/donald-trump-us-politics-world-wrestling-entertainment
https://journals.sagepub.com/doi/full/10.1177/1478929920963827
In a nutshell a fundamentally human disposition to take sides based on nothing better than conjecture – an opinion or conclusion formed on the basis of incomplete information – certainly not theory (like MMT) – a well-established framework that has withstood rigorous testing and scrutiny.
Thanks
5% cuts where? Education , especially SEND needs, requires more spending. Cut pensions? NHS? Defence? Climate change measures? The collapsing legal system? House building?
They all need investment which would be more income for those supplying it. Ms Reeves -please read Keynes.
Like almost all bankers, when faced with a choice between a risk of inflation and unemployment, she will go for the latter.
Like someone said yesterday and I have gone on about in social media, we seemed to be doomed to repeat the 1930s.
Get well soon, Richard, and relax today.
I feel better
And I get out to birdwatch, but am too tired to look at the pictures as yet, but the light was great.
I believe the Finance Bill is now at the Committee stage. Does that mean she still has time to, for example, stop the reduction in the employer’s NI threshold? Or, indeed, change many of the stupid decisions she made in the Budget?
She could.
She won’t.
Thanks for sharing this Richard a lot of MPs have now gone suddenly silent wait till January when credit card debt bill’s etc start to affect households
Her options are:
-Fake change. (a new speech, a new set of buzzwords. a big announcement “Great British Sewage”? Probability? High.
-Double down, because she is a one-trick pony. Emphasise difficult choices, determination, resolution, new photos of steely-faced chancellor steering steady chorus, keep the faith. Growth will come, blame the Tories. Probability? Very High.
-Real change. The only one that counts is up front government investment in the most urgent areas, people first. Signal change with WFP, 2 Child limit & NI U turns, but do much more both on gov investment, interest rates, BoE control, and progressive redistributive tax changes (see taxing wealth report 2024). Legislate to take over Thames Water (cheaply). Admit that we CAN afford it AND be fiscally responsible. Probability? V Low.
-Covert Change. Continue to deny MMT reality about where money comes from. Announce less controversial progressive tax changes. Increase gov’t spending but disguise it, or covertly change the fiscal rules. Create a diversion to disguise the partial U turn. Take aim at and shoot at least two of Fa***e’s foxes, v publicly. Probability? Medium.
Richard – you and most people here said Reeves would have to uturn – when she went into the election boxed in by mutually contradictory policies.
She already did that by raising NI etc , but obviously she’s not going to change her perspective that only the private sector creates growth and ‘public spending’ isnt ‘investment’, but goes down a black hole.
They are simply standing there while GP practices are crying out for doctors and unemployed doctors are looking for jobs. What are they there for?
It’s difficult not to despair – the Starmer/MckSweeney Labour govt seems to have a ‘stand back and pronounce’ style, which keeps people at a distance – especially those with any expertese – and has an omerta on engaging in any discussion – on how to make things better.
Its all about pronouncing – ‘1.5m new homes, 800km of pylons, 10 giga windfarms’ etc etc. This makes them look tin-eared and top down – and has already turned people off after only 5 months in power.
So in policy , in understanding how the economy works , and in communication strategy they seem to be already a disaster.
Difficult not to despair – but if, as you say Richard – if she doesnt change she and Labour will be in crisis – but they already are – so there could be an internal revolt well before 2029.
You said, Richard, many times, that the economy was heading for recession and now that is happening. Inflation is, inevitably, subsiding. Real interest rates are positive and far too high. This suppresses demand by redistributing money to the wealthy, who don’t spend it, thereby increasing inequality. And Ms Reeves is aiming for a balanced budget, that is austerity. She obviously thinks that this will be growth friendly austerity, which is nonsense.
By aiming for balanced budget, i.e. only choosing to spend what comes in as taxes, she reduces the real money supply, thereby promoting deflation and recession. In principle her lack of spending might be compensated by private spending via commercial bank money creation; this is clearly what she hopes. But bank lending is counter cyclical. They can see stagnation and/or recession coming and reduce their lending just when it is most needed. The counter cyclical nature of bank lending is why it is so undesirable; it leads to boom and bust.
On top of this the Bank of England are reducing the money supply further through misguided quantatitive tightening.
The inevitable result is zero or negative growth, stagnation or recession. That is where we are heading, along with increasing inequality.
None of this is necessary. It is a wildly misguided, morally bankrupt, political choice.
So where does it all lead? Sadly to recession. I doubt she has the strength of character, wisdom, or political capital, to change policy. So recession here we come. Perhaps in a couple of years, as things get worse, Kier Starmer will realise the folly of her ways. By then it will be too late. He’ll throw her under a bus (but to no effect). Perhaps his party will throw him under the bus too (but I doubt that, they’re a spineless lot who wouldn’t even vote to amend abolishing winter fuel allowance). Then I think that Reform will win the next election, or at least form the biggest minority party, just as in other parts of Europe, who have much the same problems.
In the US Bernie Saunders says that Trump’s victory, is because the Uniparty (a US term I rather like equivalent to our “single transferable party”) simply, and repeatedly, ignored the voters. I concur. That is, I think, what happened here in 2016 with the Brexit vote (and elsewhere in Europe with votes for anti-establishment parties). Sadly I think we will follow suit here by voting Reform. Perhaps that is what is needed to shake up the system. A large number of US voters seem to think so. 🙁 🙁
Thanks, Tim.
Should be the Universal Conjecture Party which is found everywhere – voters and politicians spouting opinions or drawing conclusions based on incomplete information. Effectively democracy is shallow. Will AI with its ability to precis information into easily digestible bites improve this situation?
f the plan to build more houses goes ahead this will count as growth but the resources of skilled labour, concrete, steel, bricks, timber, copper and all the other materials necessary may not be available, let alone the finance. Also all this extra building will increase CO2 emissions and other pollution that will completely countenance Ed Millibands’s puny plans for more wind and solar energy to reduce the climate crisis. As for redistribution as you point out, if they try this think of the howls of anger from the Daily Mail, GB News and all the other billionaire media pundits – Labour is scared stiff of them and will never do it. Keir Hardie, the Webbs and all the other early socialists must be turning in their graves.
Hang on: if those houses were built properly they could have exceptionally long lives and be carbon neutral.
Net zero does not require homeless people.
Coincidentally this from progressivepulse.org
“What councils really need is large quantities of Passivhaus social housing so as – firstly – to cement social housing desire and then of course much reduce all energy requirements – and thus show the ‘capitalist free market’ how it is actually done”…
https://www.progressivepulse.org/economics/social-or-affordable-housing
Agreed
This is a truly local solution, which is ready to expand… and the tenants are involved all the way through, including design and build. I’ve seen this in my neighbourhood, met the team, know the tenants, seen lives changed.
https://wecanmake.org
I can’t see Reeves’ banker mates coming up with these sorts of ideas. They also use sustainable resources & cost zilch to run in the winter.
@ Robertj
Ironically you could say the United States is more environmentally friendly since most homes are timber frame not concrete block and brick. The problem is as the Great Fire of London revealed you have to use more land to space these homes apart to prevent spread of fire. Land this country doesn’t have.
I want to spend time next year on this issue – and that anger
What Reeves ought to say (but never will):
We used to think that running a budget deficit was terrible, that increasing taxes and cutting spending to achieve a balanced budget was key to economic prosperity. I must tell you in all candour that option no longer exists. And insofar as it ever did exist it only succeeded by causing terrible damage to public services and devastating public infrastructure. Higher taxes for worse public sector outcomes is the story of the last 15 years of neglecting the fact that spending comes from a stroke of the Chancellor’s pen and it is then the job of tax to redistribute that spending and manage any ensuing inflation.
With apologies to Jim Callaghan
Very good
I like it
If only…..
Earlier this evening there was an extensive post by Mark Crown @ at 9:57 am.
Looking now (21:35) it no longer exists.
I thought it articulated most clearly one of the major problems leading to the malaise and despondency of a significant majority of people in this country.
In what way did it contravene posting rules/restrictions?
It didn’t
It was taken down at the author’s request.
I have never understood where she thinks this growth will come from until recently.
I was talking to a friend who works in the City. The only businesses they really know are those that are publicly quoted, have Venture Capital backing or are PE owned. All of these tend to grow.
It came as a surprise to him that there are companies out there who don’t wish to grow. Those that won’t go above the VAT threshold, for example. Those that are lifestyle businesses, set up because the owner(s) were fed up working for someone or had been made redundant. And, finally, those that are run by a family member through a sense of duty but who hate the business (yes, they do exist).
Hope you are better.
Agreed
And finally getting better
Re: David Rees @ 9:57 pm
Ah, I see, I’m relieved that it wasn’t deemed unacceptable in some way that I couldn’t fathom. I also appreciate that if the author wished the content to be removed that it was done.
Thanks for the clarification Richard and I hope your recovery will be completed swiftly.
Along with many others I am grateful for your work in exposing the dire effects, hypocrisy, venality and incompetence of the “ruling” class. Long may you continue in these aims.
Re: @Mark Crown: an excellent analysis of your feelings that I’m sure are felt not just by me but very many others as well.
“in 1997 when Tony Blair came into office. There was a wave of euphoria. I was around at the time, but it has not happened this time.”
Having interacted with Labour ‘centrists’ since before Corbyn resigned, it seems to me that a lot of the current Labour leadership and their enablers are heavily addicted to 1997 nostalgia. Of course, they are forgetting the different context and the reflexivity that ‘we’ have collectively having seen the Blair-Brown years and found them wanting. They shout about Surestart (yay!) but seem strangely forgetful about the constant spinning, overpromising, announcing stuff as new that was already in place or in train. In fact the lesson they also seem to have taken is that you can get away with doing very little if you can manage perceptions, distract, find scapegoats. They forget the steady erosion of the vote share during the Blair years; the slow disenchantment with doing very little because of neolib thinking about what is possible … and that being very relaxed about extreme wealth stored up trouble in the form of money tipping the political scales. And too many of them seem to think that the West Wing is a model to be emulated in respect of politics. They are in their own bubble and insulated from the realities of most of us. They have more in common with Tories and Faragists than most of those they are supposed to represent.
I’ve just read the contribution from my Labour MP, in our local freebie newspaper.
She’s a Junior Minister of Health.
It’s so sad to read the robotic party line, from someone who used to be a good local MP.
There was no passion, no vision, no acceptance of responsibility to bring about change because of the urgent need and that they have the power to make a difference.
I wonder if she realises how angry we are, or why her vote went down 25% in July, & the Greens came second?
Or if she realises how urgent the need is for action, and what a foolish mistake Reeves is making, sitting waiting for growth, while she actually extracts money OUT of a stagnating economy?
Good questions
She will but be answering them
I doubt she thinks she has the agency to do so
Labour’s promise of growth has turned into a pipe dream under Rachel Reeves’ leadership. The UK economy has stagnated, with near-zero growth in the quarter to September and a 0.1% contraction in October. This dismal performance predates Reeves’ budget, but her fiscal policies have dealt a devastating blow to business confidence.
The £40 billion tax hike, including a £25 billion increase in national insurance contributions, has ravaged manufacturing confidence, leading to a forecasted 0.2% contraction in output for 2024. Reeves’ policies have single-handedly halted the previous improvement in sentiment, exacerbating the economic slowdown.
Without growth, Reeves’ promises of increased public spending are nothing but empty rhetoric. Her response to this failure is a misguided push for austerity, which will only further hinder economic growth. If Reeves remains in office, the consequences will be catastrophic: prolonged economic stagnation, increased unemployment, and erosion of the UK’s international competitiveness.
Reeves must change course or face the consequences of her actions. The UK economy cannot afford her failed leadership.