Rachel Reeves thinks the economy has to grow to make everyone better off. But is she right? And in a finite world, is growth on the scale she wants even possible?
The audio version is here:
This is the transcript:
Why is Rachel Reeves so obsessed with growth?
We heard it this week. She says that everything that she's planning for the UK economy is dependent upon the delivery of growth.
At the same time, she has announced policies which amount to austerity. In other words, the government is cutting the scope of its activity in the economy, and therefore she's doing things that are more likely to deliver recession than they ever are to deliver growth, and therefore she's making one fantastic assumption - and I use fantastic in the sense of incredible - when claiming that growth is her goal, which is an assumption that because she can shrink the government, that the private sector will grow as a result.
Whether that is true or not is very much open to doubt. In fact, the evidence for that being true is about as strong as the evidence for trickle-down economics. And trickle-down economics has never happened in the history of humankind. The wealthy do not share their well-being with those who are poor, nor does their money flow down to them.
So, is it true that Rachel Reeves can cut her way to growth?
No, she can't.
And yet she remains obsessed with growth all the same.
There are good reasons why she shouldn't be obsessed with growth.
We are living on a finite planet. There is a limit to growth. There has been a limit to growth for a very long time. It's been known about and discussed since the 1960s, at least.
There's more to it than that, though. Growth is actually potentially quite dangerous. Remember that in a biological sense, it is growth that kills us, in particular, if we have cancer. Cancer is simply the overgrowth of some cells to the point where they kill the person whose cells are growing.
And that is also possible within an economy. If you try to push an economy beyond its natural limits - and the natural limit is imposed by the world around us - you could kill that economy because of the externalities, like climate change and the other consequences for the environment, that you create as a result.
So, growth is not automatically good, but it's also just an illusion when it comes to the economy.
What Rachel Reeves is suggesting is that a rising tide floats all boats. Now, this is an economic argument that has been put forward for as long as the claim that wealth trickles down once it is accumulated by those who have it. And it's just as wrong.
The suggestion is that if you looked at an empty harbour at low tide, you would see a whole pile of boats, some of which will be large, some of which will be tiny rowboats. And as the tide comes in, they will all rise on that tide and therefore everyone will be okay, and will have more because the tide has pushed all the boats higher up the harbour side.
But it doesn't work like that in economics because the evidence is that as the economic tide comes in, the wealthy do just fine. They claim the vast majority of the increased income and those who are poor, frankly, very often sink, which is exactly what is happening right now with regard to disability benefits, for example. So again, we have an argument about economic growth, which is wrong, which Rachel Reeves is relying upon.
What should she be doing? My answer is that Rachel Reeves, if she really wants to increase the well-being of everybody in the UK, should be using the power of government to redistribute the existing income and wealth of this country.
She won't do that.
This is very obviously true.
She is refusing to increase taxes on the wealthy.
She's refusing to increase taxes at all.
In this spring statement, she is saying that this is not the answer to her problem.
She's saying cuts are the answer, but all government cuts ultimately hit those who are at the bottom of the economic pile hardest because they are the people who are most dependent upon government. So, she's quite willing to sink their boats - to use the metaphor I've already referred to - whilst keeping those of the wealthier afloat or even above high tide level.
But the point I'm making is that if she was really serious, and Labour really wanted to be re-elected in 2029, which as far as I can see is a goal they should have, then what she should be doing is redistributing some of that excess wealth from the wealthiest to everybody else who would then feel better off.
Now, it's perfectly possible to do this.
We don't need a wealth tax.
We can just simply change the rules on capital gains tax.
We can change the rules on inheritance tax.
We can change the rules on national insurance so that everybody pays a fair share of it, which is not true at present.
We can charge something equivalent to national insurance on investment income, whether it be from interest, from dividends, from rents, from trust funds, and everything else that a wealthy person gets, which is not subject to a national insurance charge, which means on average it is taxed up to 20% less than the tax that you might overall pay taking into consideration the contributions your employer pays for you, which reduces your wage rate.
And this is vital because we live in a country which is deeply unequal as a consequence of this unfair tax system, which is so heavily biased to the wealthy. Rachel Reeves has a duty to address that situation and redress this imbalance by redistribution, which is not happening at all at present. If anything, wealth is moving to the wealthy still rather than away from them as the overall levels of tax paid by people across the income deciles shows, and I've done the research and put it in the Taxing Wealth Report.
So if Rachel Reeves really wants to deliver an increase in wellbeing for the people of this country, she should stop obsessing about growth.
She should start recognising that there are limits to growth.
She should stop trying to promote economic activity by the private sector, which will be harmful to our long-term wellbeing, and in particular to those who will be alive in 50 or more years' time.
She should instead be talking about how we redistribute the gains from our already enormously wealthy economy arising as a consequence of the activities we already undertake, and she should talk about how it is that government can guarantee that everybody gets a fair share of that wellbeing.
She could do that.
She could stop obsessing about growth as a result, and instead obsess about justice, equity, fairness, and all those things that innately matter to people, which we know to be true because we can see that children have a desperately strong awareness of these issues if we just look at how they play when they're young. If we were only to follow the lead of those children and look for things to be fair, then we could have a much better economy.
Rachel Reeves isn't going to do that. She's going to continue to argue for growth, which ultimately is deeply destructive. And as a result, she's a Chancellor who's doing harm to the UK economy by her obsession, and that obsession is with growth.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
“By their donors shall ye know them.” ?
Might the promotion of “Growth” be, in reality, more to do with the manipulation of attitudes/expectations through language, than socio-economics?
Might it be a powerful, deceitful, unstated message that, like the floating boats metaphor, conveys the comforting illusion that promoting the selfish interests of the wealthy, benefits the unwealthy?
There are of course a lot of economic activities that are minus’s to any rational mind.
last time I looked the cost of a road traffic death was costed at £2 million by The Government
At about 1700 a year thats about £3.4 billion
If we cut that figure to zero we take away a big chunk of economic activity but would anyone apart from Rachel Reeves think it was a bad thing?
Look, if you are going for growth and your government is under funding services, not taking more tax from those that can afford it by closing loop holes (see the TWR), then obviously you are just opening up the country to more privatisation and ‘inward investment’.
But even this is unconvincing, because the private sector knows that it needs disposable income to capitalise on those opportunities. The cuts in benefits and the increased charges on employment say another thing. Business has every right to be unimpressed.
Therefore, the reason why Reeves sounds ‘obsessed’ is because in actual fact she’s desperate. She is trying to signal to the market that it’s all there for the taking.
But its not because Labour have messed up in my view by not taxing investment at its profit source, and prefers to tax business investment as it is created (new jobs, reducing the income of potential customers).
They are effectively under taxing profit already made in favour of bearing down on new profit that could be made.
That is the only way I can sum up what I think she has done as well as the fundamental error Labour has made which I think the business community has cottoned onto.
No doubt most of Labour’s funders and clothes/eyeware/concert providers are in the ‘already made our money category’.
The rising tide lifts all boats!
Says, who is moored loosely enough to not be sunk or smashed right away.
Which is why I still argue for hard limits to wealth and inheritance to improve (human) connection, education and health.
Thats a good analogy you use linking excessive/unregulated economic growth with the aberrant growth present in cancer.
It goes some way to opposing the generaly good vibes people have for the word ‘growth’. We grow into adults, we grow crops, we grow families and businesses. But cancer cells start ignoring the ‘regulations’ of the body, they stop acting as team players, so their actions which previously benefitted the whole organism are now twisted to just benefit themselves; they selfishly strive for immortality at the ultimate expense of the organism and themselves.
This is a good analogy. Speedreading through Oftwominds blog the Aristotlelian aphorism ‘We are what we repeatedly do’ seems apt. Reeves harping upon growth does indicate a mind made increasingly narrow by a single minded pursuit of personal profiteering. I read about a cognitive psychology study somehwere on this vast electronic landscape that saw a physical difference developing in brains of individuals whose lives were lived purely in pursuit of material wealth. The psychologists writing it up called them Greed Brains, for want of a better definition. They also all shared certain traits commonly found in psychopaths. It would suggest that the worldview of such hidebound by greed individuals is one which is unable to comprehend the social critique presented here by RM.
Thanks
This phenomenon is well known
Economic growth has given us massive improvements in living standards globally, and is the key to lifting people out of genuine poverty (not the artificial and somewhat meaningless ‘relative’ poverty.
Few credible economists would disagree with that. Perhaps you should write a peer-reviewed paper if you think differently.
So, you ignore three things.
The expansion of the work force.
The ignoring of externalities.
And the phenomenon no longer exists.
That’s very smart of you.
Great post by Richard.
Samantha, if you’d like to read some papers on this, you could start with this one on how much growth is required for a good life: https://www.sciencedirect.com/science/article/pii/S2452292924000493 or this paper on alternatives to the neoclassical economic paradigm: https://www.sciencedirect.com/science/article/pii/S2542519622000638. Or this book by the club of rome which had contributions from both climate and environmental scientists, as well as economists such as Steve Keen, Kate Raworth, Robert Costanza on a non-GDP growth oriented way of achieving a better, fairer world: https://earth4all.life/the-book/ which all suggest that GDP growth doesn’t necessarily lead to wellbeing. It would seem focusing on wellbeing leads to wellbeing. The book also points to the downsides of pursuit of growth when it destroys planetary systems. On the potential outcomes of crossing the tipping points of planetary boundaries, there’s a useful dashboard by the IFOA/University of Exeter: https://global-tipping-points.org/risk-dashboard/.
Many thanks
When I read the title, my first thought was “growth is the antidote to redistribution”.
I then read further and found these lines:
“What Rachel Reeves is suggesting is that a rising tide floats all boats.”
and:
“if she really wants to increase the well-being of everybody in the UK, should be using the power of government to redistribute the existing income and wealth of this country.”
Of course, you are correct, and I think they need to sell us growth to distract from the obvious solution, which must NOT be discussed, of redistribution. I think those in charge are petrified that if redistribution is able to gain any sort of ground, their whole house of cards comes falling down.
Their mantra for “Growth” should be challenged every-time with Redistribution.
A very, very good post, thank you.
Thanks
Agreed – a excellent video, very well expressed, notable theconcding paragraphs which I have copied, together with a link, to my Labour MP who has said he cannot support the proposed cuts in disability benefits, hoping some of it may help him to persuade others to follow his example.
One can only try!
“What Rachel Reeves is suggesting is that a rising tide floats all boats.”
Well that’s a stupid thing to say! We have a sailing boat that most of the time I’ve known her (53+ years now) hasn’t always floated on a rising tide! Sometimes she’s sunk at her moorings, on one scary windy day she broke her moorings and got washed up onto the beach! So that’s rather more like what’s happening to poor and disabled than Reeves thinks.
It is a crap metaphor
Growth is not the answer….. I won’t bore you (again) with Robert Kennedy’s description of GDP. I would love an interviewer to read that quote to her and ask her what she thinks.
But, even so, when she says “Growth is our No. 1 priority” she is lying. If it truly were her No. 1 priority she would follow any policy to achieve it…. and there are clear ways to do this.
EG. Increase disability payments and increase (say) Capital Gains Tax (in a budget neutral way to keep her “fiscal rule”)
The impoverished, disabled will spend it and generate growth and the CGT tax payers will scarcely change their behaviour. That is growing the economy.
She knows this to be true – so protecting the wealthy is clearly a higher priority than growth.
I noted that last year, there were three new billionaires in the UK bringing the total to 57.
So she can say she achieved a massive growth in inequality.
I wonder if it was one of the billionaires who gave her the free hospitality?
We should refer to her as a “Red Tory”. Apparently that seems to upset her even now.
This all smacks of corporate takeover. I have to wonder who Reeves is really working for.
As a revealing aside, you may be aware of David “European” Powell, who posts regularly on X & Substack about SEZs and Freeports. In this post https://substack.com/@europeanpowell/note/c-103752455?r=1w1c61 he tells how he was quickly suspended from Facebook for posting on the subject, and includes the whole of what he posted. It’s hard to see anything in it that would justify suspension other than exposing corporate shenanigans that Meta is probably up to its neck in. So much for “free speech”!
I’m getting the feeling that politics is even more under the thumb of corporate and oligarchic interests than we realise.
Rachel Reeves’ obsession with growth is not just outdated—it’s dangerous. It’s a recycled fantasy that assumes private sector expansion will fill the gap left by a retreating state, even as that very state is cut to the bone. Worse, it clings to the myth that GDP growth benefits all, when decades of evidence show that it primarily rewards the wealthy and entrenches inequality.
The UK doesn’t suffer from a lack of potential—it suffers from a lack of political courage. And that’s precisely where the vision of The Courageous State offers the antidote to Labour’s timid technocracy.
If Reeves genuinely wanted to improve national wellbeing, she would reject the passive state model—where government exists only to appease markets—and embrace the active, courageous state, which uses its unique powers to transform society. Here’s how:
1. Embrace Fiscal Activism
The state is not revenue-constrained in the way households are. A courageous state uses fiscal policy to fund what society needs, not what markets permit. That means borrowing and spending to create jobs, build infrastructure, decarbonise the economy, and support the vulnerable—without apology.
2. Redefine Taxation
Tax isn’t just about raising revenue. In a courageous state, tax is used to:
Redistribute wealth (by equalising returns on labour and capital),
Reprice harm (carbon, speculation, excess rent),
Reclaim democratic control over markets. We don’t need a standalone “wealth tax”—just reform capital gains, inheritance, and income tax, and apply National Insurance to all income streams, including rent, dividends, and trust income.
3. Invest Publicly and Proudly
Reeves’ pledge to keep debt low is economic cowardice. A courageous state would invest through a National Investment Bank, publicly owned green industries, and mass social housing programmes. These are not costs; they’re generational assets that build resilience, jobs, and justice.
4. Target Wellbeing, Not Growth
Instead of GDP, a courageous state targets outcomes that matter—health, housing security, environmental sustainability, education, and care. New Zealand has a Wellbeing Budget. Scotland measures national performance by quality of life. Why not Westminster?
5. Democratise the Economy
We need to devolve power, restore local government funding, and support cooperatives, mutuals, and community wealth-building. A courageous state isn’t centralised and paternalistic—it empowers people to shape their economic lives.
6. Rebuild the Social Contract
A fair society is one where the basics—food, warmth, shelter, dignity—are guaranteed. That means:
Scrapping Universal Credit’s cruel design.
Restoring and enhancing Child Benefit.
Creating a Guaranteed Minimum Income.
This isn’t radical—it’s rational. We live in a country of immense wealth, underutilised resources, and political timidity. The crisis is not economic—it is moral and intellectual.
Rachel Reeves is obsessed with growth because she is afraid of the alternative: a confident, interventionist, redistributive state that challenges vested interests and builds a better society for all. But that is exactly the state we now need.
If Labour won’t be courageous, then we must demand it of them. Because clinging to failed economic dogma is no longer a neutral position—it is a choice to let inequality deepen, public services wither, and hope erode.
Thanks
Of course, Bryan R, you must be right in many of these points.
Whenever I hear a politician talk about growth, I want to ask “growth of what?” And the more they bang on about growth, the more I suspect they haven’t a clue what the answer to my question would be – or they do know the answer but would rather not say, because they don’t think I’ll be interested in growth in untreated sewage outfalls, or growth in foreign investors’ profits, or growth in preventable deaths, or growth in Westminster’s power over media reporting . . .
If anyone wishes to observe how foolish it is to rest any confidence whatsoever in economic forecasts, or the OBR’s purpose; listen to Howard Davies on Radio 5 Live today (just before 2pm). He has nothing good to say about the OBR Spring Statement forecast, save to suggest it shouldn’t have been done. More preposterously Davies still wishes to rescue the substantive value of these spurious efforts at ‘forecasting’ (a word that is a gross exaggeration of their substantive, usable worth).
Davies foolishly thinks that the problem with forecasting now is solely a function of the current economic instability and uncertainty in the world. It isn’t. It is a function of the hopeless inadequacy of the tools the economic forecasters use. Listen carefully to what is said in the interview, for he offers no evidence that the basis of an economic forecaster’s work is, or can be secure. The problem Davies does not see, is not aware of, or is in plain denial about; is that economic forecasters do not possess a secure, scientifically robust methodology, that allows them to make predictions, or even gives them the capacity to produce robust forecasts for a whole economy. The inadequacy is int the discipline they profess; and nowhere else. They offer nothing better than speculative guesses, based on no more than blatantly obvious, repeated past trends, that anyone can see, but that cannot be foreseen, because the mechanics of an economy are too complex to control, or predict; and on which there is little evidence to show the trends will imminently recur, sufficient to rest potentially life changing decisions for the whole population. Governments are reduced to defending unjustifiable decisions, because in the event, they cannot be defended. Rachel Reeves cannot be defended for believing in this rubbish.
Much to agree with
Davies is someone massively over-promoted, many times.
Thank you, both.
Richard is correct.
Davies comes out badly in the papers for and recollections of what led to 2008.
Many Bank of England staff, up to deputy governor, want the 30 year rule scrapped and a public enquiry opened into what happened, including Davies’ inglorious role.
If I didn’t know better (?!) I’d think this is a case of the tail wagging the dog. Having read Richard’s excellent analysis, it looks horribly like the OBR forecast was constructed to justify a budget that Reeves had already decided on for purely ideological reasons. It’s impossible not to be cynical, the way this lot are acting.
Youy are, of course, exactly right.
The OBR must have started with the answer. The answer? Headroom of £9.9Bn by 2030. How to do it? Here is my speculation. Run the Treasury model with different assumptions; reiterating the results until you arrive at the least absurdly implausible outcome (frankly there are none). Some of them were clearly even more embarrassing. This seems comedic, but if total Government expenditure is circa £1.27Trn (my rough quantum), and your core objective is “headroom” or leeway of £9.9Bn, representing about 0.0077% of spend, I think you can safely say; it is barking mad to base clawing back £10Bn from disability benefits and similar, in order to rely on a safety net in five years time that is so infinitesimally small, it frankly scarcely registers in £2.7Trn of debt (0.0037% today, not even five years hence). This is a complete farce.
Much to agree with
Surely if Reeves really is committed to growth she would recognise that, as Richard often reminds us, the money spent on welfare that she is so keen to cut is generally spent straight into into the economy, supporting employment and is taxed as it moves round. It thereby contributes to growth, whereas, as Richard also reminds us, money given to the rich (think tax cuts and Truss) is generally saved and contributes nothing to growth. (I trust I’m quoting Richard correctly. Apologies if not)
You have it right
Thank you
Richard, timely and apt.
OBR report October had a chart on private investment being crowded out and it seems the old Loanable Funds chart in undergraduate text books is alive and well.
If HMT and BoE really believe that govt investment crowds out private investment then irrespective of who is Chancellor its economic orthodoxy at HMT and BoE that’s the real problem not which of the two main parties is in power.
That belief is so bizarre.