Rachel Reeves’ speech on the economy was plausible… almost. But giving unions more power and driving away wealth creators won’t ignite growth

So the Shadow Chancellor Rachel Reeves has evoked the Thatcher era of renewal in 1979 and vowed to ‘hardwire’ economic expansion into future policy-making.

Delivering the annual Mais Lecture in the City – an honour accorded in the past to former chancellors, governors of the Bank of England, Prime Ministers and Nobel Prize winners, among others – she was determined to convince the great and the good of business and finance that a future Labour government could be trusted with the economy.

And in her assertion that she and Sir Keir Starmer have rejected the statist approach of Jeremy Corbyn to concentrate on growth, she sounded almost plausible. But, as bright and appealing as her vision of reviving Britain may sound, we should not be naive.

For not only does Rachel Reeves have precious little economic room to manoeuvre, Labour is also set on a number of policies which are positively anti-growth.

The fact is that the triple-whammy of the 2008 financial crisis and its aftermath, the ruinous Covid pandemic and Russia’s barbaric invasion of Ukraine has left Britain – along with most of the rich G7 countries – with a testing legacy of borrowing and national debt which limits space for bold policies.

This perhaps explains why the central plank of the party’s growth strategy – the £28 billion green investment revolution – has already been consigned to the dustbin in one of the most staggering U-turns in recent times.

On top of this, several of the party’s declared policies – most notably its ‘new deal for working people’ – are causing consternation in the boardrooms of the nation’s top companies and sending shivers down the spines of small businesses owners and entrepreneurs.

The deal would ban zero-hours contracts, strengthen workers’ rights and make it easier to strike – all of which will make it more difficult for companies to retain the dynamism and flexibility they need to grow and prosper.

Indeed, the idea of giving trades unions more power after striking workers have held the nation hostage for so long – from the railways, the NHS and other public sector unions – is nothing less than an act of sabotage.

As for Reeves’ promise that she and her leader Sir Keir will ensure economic growth in future Budgets by bolstering the role of the Treasury’s Enterprise and Growth Unit – that will be easier said than done.

Harold Wilson’s 1960s government came to office with a determination to unleash the ‘white heat’ of technology using a new Department of Economic Affairs as its battering ram to circumvent the Treasury. It fell at the early fences and the power of the traditional bean-counters at the Treasury soon reasserted itself.

Whatever the rhetoric from Labour about ‘securonomics’, the party’s attacks on wealth, opportunity and aspiration could starve Britain of the capital desperately needed to boost productivity, innovation and expansion.

For example, Labour plans to substantially raise the tax rate on financial gains by private equity firms, which have made Mayfair in central London their European home. This threatens to drive overseas an industry which currently raises tens of billions worth of funding for City buy-outs, and provides endless lucrative work for legal and financial services. The pro-Europe FT recently quoted one buy-out executive as saying the effect of Labour’s plan would be ‘worse than Brexit’.

And while the Tories extended windfall taxes on oil and gas production, Reeves would go further, closing what she calls ‘tax loopholes’ – such as investment allowances, which could kill future investment in the North Sea and throw Britain’s energy security into disarray. Even the class war proposal to impose VAT on private schools could have damaging effects, according to one businesswoman I spoke to yesterday – by making the UK a far less desirable place to locate to for people in financial and business services.

Ms Reeves should remember that when the socialist Francois Hollande took over the French presidency in 2012 and targeted the privileges enjoyed by the financial sector, he succeeded only in driving important contributors to Paris’s prosperity to leave the French capital for London.

Ms Reeves has rightly identified some areas where the Government could do better. She called for more economic devolution to the regions – and the experience of directly elected mayors in the East Midlands, Greater Manchester and Teesside shows this makes sense.

But her growth policies will not stand a chance of bolstering economic performance if overseas investment is deterred by higher taxes, and domestic expansion stymied by tough new laws on employment.

Labour may claim it has a new economic model, but my fear is it boils down to the same old one – stifling taxes on enterprise and the provision of workers’ rights which will deter employment and training.