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Labour’s remarkable victory provides a unique opportunity to revitalise and transform the British economy.
The incoming Chancellor of the Exchequer and the Prime Minister know this, and I am told that this is what they intend to achieve in office. Rachel Reeves told me she was looking for a “mandate for growth”.
They believe they won these elections with a message of political and economic stability after years of chaos.
Liz Truss’ mini-budget had a major impact on the minds of key swing voters, who entered the housing market at a time when interest rates were near zero and voted Conservative under former Prime Minister David Cameron.
Those new housing estates, in every constituency – “Barratt Home Britain” – were painted red. It underlines the incoming Chancellor of the Exchequer’s “ironclad” commitment to keeping borrowing and interest rates under control. “Stability first” is the mantra.
But former residents of Downing Street and some industrialists have also told them privately that ‘stability, while welcome, is not enough’.
While the Labour manifesto set out a mission and a very broad strategy behind a stronger economy, it was not a detailed transformation plan. For example, net public investment will still be reduced from current levels.
The major criticism of Ms Reeves’ vision of what she calls “securinomics” – a new economic model in which government does more to prepare the private sector for massive investment in green industries – has been a lack of money.
It is an attempt to emulate what US President Joe Biden is doing by pouring billions into new subsidies through loans and tax breaks targeted at green energy and vehicles. Labour’s plan is effectively “Bidenomics without the money”, critics say.
But Labour leaders are reassured that a flood of private investment – hundreds of billions by the end of the parliament – is on the way, if there is political, economic and policy certainty. But they must act quickly to secure it.
Some major investors say they can’t wait another year for tough planning or energy policy reviews, for example. Tens of billions of dollars in renewable investment, for example, are being held up by planning disputes and a 10-year wait for a connection to the national grid. This, Ms Reeves told me, had led to “an effective moratorium on the construction of the cheapest forms of energy”.
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But there is some intrigue over whether Sir Keir Starmer and Ms Reeves in government will now boldly defy opposition, on housebuilding or major net-zero transition measures. If it is going to work to transform the economy quickly, it is going to have to hurt some people.
There are a number of immediate challenges to government finances. More local authority and university bankruptcies need to be addressed. Shadow ministers report being appalled by the number of working families who are upset about special education provision, which has suffered as a result of local authority cuts.
While Labour ruled out raising key tax rates, there are other taxes that could rise in an autumn budget. Work on those and a spending review will begin very soon.
Happier for many consumers and government finances, the Bank of England was finally able to start cutting interest rates on August 1.
An imaginative approach to strict government finance rules that allows for more initial, useful investment could prove irresistible.
The challenge now is to take tough, Big Bang-style decisions that can transform Britain’s weak economic growth.
Labour did not want to get involved in these discussions before the election. But given its huge majority, it will have more authority than any government in modern times to implement economic reforms. Labour’s support base is also not in the areas most likely to vote against much-needed new infrastructure and housing.
Labour’s cautious approach of carefully protecting its lead in the polls by not offering much cannot last in government.
As Mrs Reeves herself told me this morning: “We must break out of the downward spiral of low growth, high taxes and poor public services.”
To attract the transformative investment needed to make the UK the fastest growing economy in the G7, Labour will need to be bold and decisive.