Key economic challenges facing Labour and the woman soon to become Britain’s first female chancellor
Having turned the political map red, Labour’s priority is steering the economy into the black.
Sir Keir Starmer’s programme for government may be modest, but the means to deliver it are not.
A new prime minister and, in Rachel Reeves – widely expected to become the UK’s first female chancellor – have a tough economic inheritance.
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Stagnant growth, hefty debt interest payments and an ageing, sickly population have left public services stretched.
If they are to revive them without breaking campaign pledges not to increase debt or raise taxes, everything rests on delivering growth.
The early indications from the financial markets was positive.
Barely two years after Liz Truss’s mini-budget sent the pound crashing and the cost of borrowing soaring, there was no similar drama to greet Sir Keir.
Both sterling and 10-year gilts were stable and the FTSE 100 index moved upwards, driven by housebuilders and lenders, an acknowledgment of Labour’s plans to promote housebuilding.
The FTSE 250, comprised of more British companies, also rose more than 1% in the first hour, a vote of confidence perhaps that Labour’s promise of stability, the quality prized above all, will be delivered.
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Sir Keir and Ms Reeves promise to stimulate growth but it will take the private sector, and the investors on whose confidence the UK relies, to deliver it.
How effective those plans are, and how new ministers handle a challenging in-tray and the inevitable unknowns, will shape the administration.
Top of the list is planning reform, intended to accelerate housing and energy infrastructure, rewriting rules and reclassifying green belt to deliver homes in the face of inevitable local opposition.
Barriers to onshore wind, moribund for a decade under the Conservatives, and solar energy, attractive to farmers but not their neighbours, will be removed, and the national grid will expanded and upgraded.
That should be good news for companies like Octopus, Britain’s largest retail energy provider with ambitions to become a major generator if renewable projects become easier to deliver.
Founder and chief executive Greg Jackson has welcomed Labour’s commitment to the sector, which contrasted with Rishi Sunak’s recent net-zero scepticism.
“I hope that what we’ve now got is the stability that we can invest in delivering a cheaper green electricity system,” he told Sky News.
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Mr Jackson has specific demands.
He wants planning simplified – projects can currently take 13 years to get connected to the grid – market reform so local people benefit from local renewables, and a push to electrification.
Labour will bring forward the phase out of new petrol and diesel cars to 2030, reversing Mr Sunak’s delay to 2035.
“The big message for me is that voters have rejected going back to the world of fossil fuels and oil and gas. All of the research tells us that voters know that wind and solar are the cheaper, more secure, more reliable sources of electricity that we need,” he said.
“Britain can really be a proud leader in this transition and that’s going to be great for jobs.
“The countries that lead this way are the ones that are going to be most prosperous, and I really hope that that’s where we’re going to be now.”
While the oil and gas industry will baulk at an increase to the windfall tax and a ban on new North Sea licences, elsewhere Labour’s approach has been largely welcomed by a business community bruised by Brexit.
Improving the relationship with the EU is higher on business’s radar than it seems to be on Labour’s.
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A return to the single market and free movement, a shortcut to growth, has been ruled politically and practically impossible in the short term, but Sir Keir and his team have talked about a warmer relationship with Brussels and improving the terms of the current deal.
Three years after implementation, the negative impact on British companies trading with Europe is unarguable, with companies large and small no longer coy about mentioning it.
Socrates Camenon founded his food processing and distribution company Golden Delight Foods in the 1980s, trading routinely with Greece and other European countries until Brexit.
“It has had a devastating impact,” he said.
“We’ve lost all our exports, we’re having continual problems of shortages of product, prices are increasing, and the difficulties in admin and paperwork is mind boggling.
“The red tape has created a nightmare.
“If a businessman makes a mistake he has to do a U-turn.
“We’ve made a mistake, we’ve got to go back there and re-negotiate.
“We knew the Europeans weren’t going to make it easy for us, they had to make an example of us to set an example to 27 other states.
“But we’ve been the people who’ve been taken the pain.”
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Cutting international red tape will be welcomed, but Labour’s plans to impose domestic bureaucracy, in the form of employment reforms, has caused significant anxiety.
The “new deal for working people” has been downgraded from hard policy to a consultation, but it remains core to Labour’s offer to voters.
Measures include the promise of “day one employment rights”, including the right to parental leave and sick pay, ending “exploitative” zero hours contracts, and closing the ethnicity and disability pay gap.
With the living wage also rising, these are potential costs felt most keenly by small and medium-sized businesses.
The prospect of Ms Reeves equalising capital gains tax is also exercising some, a move that would end the unfairness of those who disguise income as capital gains paying less tax than workers, but could deter wealth creators whom it incentivises to take risks.
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The economic weather may bring some cheer, with inflation stabilising close to 2% and interest rates likely to fall next month, passing on a little respite to households and cheering markets.
But Ms Reeves and the prospective new business secretary – Jonathan Reynolds has shadowed the role for more than two years – are unlikely to have the luxury of basking in it.
The in-tray is already full of thorny challenges, top of the pile Thames Water’s debt crisis and the prospect of special administration, effectively nationalisation.
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Thames’ annual results will be published next Tuesday – and 48 hours later, regulator Ofwat will announce what it, and every other water company, can charge their customers in future, with steep increases guaranteed.
If Thames Water remains in its chief executive’s words “uninvestable”, the new government may have no choice but to trigger an administration that would be expensive and possibly open-ended.
How that is handled, and the outcome for Thames’ shareholders and lenders, will have consequences for how the UK is viewed by the global investors Labour is relying on to fund the energy transition and beyond.
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One nationalisation Labour are committed to is rail, albeit in stages as private contracts expire, and the business department will have to sign off the controversial foreign takeover of Royal Mail’s parent company.
Also pressing will be a deal with Tata over the future of its Port Talbot works, a decision with far more baggage for Labour than the outgoing administration.