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Stabilising the Status Quo Won’t Cut It

Rachel Reeves has declared she will make Labour the party of economic stability. But after a decade of rising inequality and falling living standards, what we need is transformation, not more of the same.

(Photo by Dominic Lipinski/Getty Images)

Rachel Reeves recently wrote an op-ed in the Financial Times in which she presented the Labour Party as the party of economic stability, and showed that she had the policies to prove it. 

Reeves began by slating Liz Truss and her disastrous ‘mini-budget’, claiming that this event showed beyond doubt that the Tories were the party of fiscal imprudence. Labour, she argued, would never repeat this mistake.  

First, she stated that Labour would strengthen the UK’s major economic institutions, including the Bank of England, Reeves’ former employer. Second, the Party would introduce an ironclad set of fiscal rules that would limit unfunded spending promises. And finally, she would ‘put Britain’s economic interests first’. 

Writing in the Financial Times, Reeves was obviously not seeking to address the general public — her message was quite clearly designed to assuage the concerns of the UK’s political and economic elites as to the potential impact of a Labour government on their bottom lines. But this is just the latest in a series of interventions designed to transform the Labour Party’s image, and prove to the general public that Labour is the party of sound economic management. 

One can see how tempting it might be for a technocrat like Reeves to attempt to portray Labour as the party of fiscal prudence. The Labour Party has historically always been cast as the party of economic populism and tends to underperform in polling on which party is better placed to manage the economy. 

But this is because most people conceive of ‘the economy’ as an abstract idea, the health of which is best assessed with reference to the movement of share prices or quarterly GDP figures. For as long as people hold this (incorrect) image of ‘the economy’ in their minds, the Conservatives are always going to outperform Labour when it comes to perceptions of economic competence because of their close ties to the corporate and financial institutions whose decisions shape metrics like share prices and GDP figures. 

Reeves’ attempt to shift public opinion on her party will not change this deeply-rooted perception overnight, no matter how frequently she refers back to her beloved fiscal rules. But the real problem with her strategy is that most voters are not going into the election asking the question ‘Which party is best placed to stabilise the economy?’ 

It’s not that this question is never at the top of voters’ minds. In the period immediately following the financial crisis, this was undoubtedly the question that dominated political debate. 

The British economy had experienced eight years of uninterrupted growth, during which time peoples’ living standards had increased substantially — largely due to a bubble in housing markets, globalisation and easy access to consumer credit. When the financial crisis hit, it was natural for people to seek a return to the pre-crisis period. 

While it was never going to be possible to recreate the historically unique conditions that led up to the financial crisis of 2008, the focus on restoring ‘stability’ in this context was understandable. And this is exactly what David Cameron and George Osborne promised. 

But the situation today is completely different to that which obtained in 2010. The UK economy has experienced 15 years of slow growth, declining productivity, stagnant wages, low investment and rising inequality in the period since 2008. 

The only thing keeping the economy afloat has been record low interest rates, which have encouraged consumers and businesses to rack up massive debts, and quantitative easing, which has helped to prop up asset prices, making the wealthy feel wealthier and therefore more likely to go out and spend. 

All in all, more than a decade of low investment and austerity has left us with a low-productivity, low-wage economy in which millions struggle to make ends meet through insecure, low-skill work that offers little hope for the future. 

At the same time, all those who rely on public services like healthcare, education and social care are experiencing the consequences of the total breakdown of the public sector in real time, with many people dying while waiting for treatment, or even while waiting for an ambulance. 

There is a widespread sense throughout most sections of society that Britain is broken. In this context, people want economic transformation, not stabilisation. But Reeves is offering them more of the same. 

The emphasis on maintaining the stability of existing economic institutions like the Bank of England means a continuation of macroeconomic orthodoxy that has brought us rising inequality and financial instability. Reeves claims to prize the Bank of England’s independence from government, but insulating the Bank from political accountability has simply augmented the power of the City within the institution and tilted monetary policy even further in favour of vested interests in the finance sector. 

Reeves’ obsession with fiscal rules looks even more out of touch given recent events in Europe. Germany is currently in the midst of a major political crisis as German courts ruled that the current government’s spending plans were unconstitutional after Merkel enshrined the so-called ‘debt brake’ into the German constitution. The Financial Times itself has now come out against strict fiscal rules

And Reeves may want to ‘put Britain’s economic interests first’, but this begs the question ‘in whose interests?’ If she is genuinely seeking to stabilise the political and economic status quo, then one has to assume that she means the interests of the tiny minority of people who benefit from the system we have now.

Ultimately, Labour is almost guaranteed to win the next election because the Conservative Party is so utterly exhausted and bereft of talent and ideas. 

The most concerning thing about Reeves’ proposals is not, then, the likely impact on people’s voting intentions. After all, how many people are going to read an op-ed from the shadow chancellor in the Financial Times

The most concerning thing about Reeves’ proposals is that they might actually happen; in which case, the UK would face at least another five years of slow growth, low productivity and rising inequality. 

The political consequences of such ongoing stagnation would be disastrous. Absent any party calling for a change to the economic status quo, voters will become hopeless and angry. Economic stagnation and political despair creates a breeding ground for fascism. But the implications of Labour’s conservatism won’t be visible until it’s too late.