(Bloomberg) — Rachel Reeves said the Labour Party would use government borrowing to invest in British industry if it wins power, a move she said is necessary to spur growth but provoked a rapid Conservative backlash.
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“We will take it up to the level that is needed to compete internationally,” Labour’s shadow chancellor told BBC radio on Monday. “We will invest in the things that can get our economy growing.” Bloomberg reported late Sunday Labour is considering a pledge on borrowing to invest.
Read more: Labour Eyes Pledge on UK Borrowing to Invest in British Industry
The question of borrowing is a sensitive one for Keir Starmer’s party given the Conservative Party’s fall-back attack line is that poll-leading Labour would be reckless with public money. The charge has helped the Tories stay in power since 2010, but with the next general election expected next year and Britons suffering through an historic squeeze on living standards, surveys show voters are not convinced about the Tory claim to be sound stewards of the economy.
Reeves said her borrowing plans would be subject to Labour’s fiscal rules, which require day-to-day government spending to be funded by tax receipts and for debt to be falling as a share of the size of the economy. Her party would have an “iron discipline” in sticking to those rules, she said.
The Conservative Party’s response was immediate, saying Labour’s pledge would keep inflation and interest rates higher for longer.
Bolstering Britain’s lackluster investment is becoming central tenet of Labour’s pitch to voters as the party of economic recovery. Raising UK growth “is the central mission of the incoming Labour government, everything else hangs off that,” Starmer told the BBC on Sunday.
Some senior Labour figures, including former shadow chief secretary to the Treasury Pat McFadden, have argued behind-the-scenes for a cautious approach and only a small amount of extra borrowing, warning that Prime Minister Rishi Sunak’s Tories would likely criticize it as reckless. However, over a series of policy discussions this summer at the top of the party, there was agreement on the principle that careful public investment could stimulate private investors, according to people familiar with the matter.
Government debt is currently close to 99% of gross domestic product, a level last seen in the early 1960s. When Sunak’s predecessor, Liz Truss made a series of unfunded tax cuts, the resulting market upheaval brought her premiership to an end after just 49 days in office.
Most of Labour’s policy work so far has looked at unlocking private investment, particularly in areas such as green technology and the future economy.
“We’re going to be co-investing with the private sector,” Labour’s shadow Treasury minister Darren Jones told Bloomberg TV on Monday. “Our investment program is about unlocking private sector investment.”
In 2022, Labour announced a National Wealth Fund amounting to £8 billion ($9.7 billion) which would see the state retain a share in renewable energy assets, with the aim of increasing private sector investment.
Reeves told the Financial Times last week every £1 of public money invested in the fund would have to raise at least £3 of private sector investment.
“Borrowing to invest is different from borrowing to pay for day-to-day spending,” Reeves said in July. “Investing in assets that can grow our economy is essential if we want to break out of this ‘doom loop’ of low growth, high taxes and high inflation.”
–With assistance from Tom Rees, Lizzy Burden and Andrew Atkinson.
(Updates with Conservative response in fifth paragraph.)
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