Reeves has a new problem – and it’s as lethal as the markets

Labour has bet the house on growth. The trouble is, voters are not even sure what she is talking about

Daily Telegraph 

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There is a report by a Labour friendly think tank winging its way towards Downing Street that will be so troubling for the Prime Minister and the Chancellor that no-one is quite sure how to tell them.

It is based on speaking to people little understood by the state bureaucrats tasked with magicking up the policies governments might consider – voters. Many are from seats in the north of England and other “left-behind” areas. Just the type of people who have most rapidly turned away from Keir Starmer and his government since the “loveless landslide” of last July.

Starmer and Rachel Reeves will need to take its findings seriously when they are published in ten days’ time. Because this report, which I have been briefed on, throws an unforgiving light on why Labour’s support has fallen so rapidly. It will strengthen the hand of those – a growing number – who believe a rapid change of direction is the only route to salvation. 

Whether either the Prime Minister or the Chancellor have the skill or verve to do so is another matter entirely. Sober heads amongst their supporters know it. Some doubt the Labour leadership can find another gear.

The report, from a newish organisation called the Good Growth Foundation, will be a salutary reminder that whatever the news on the economy – mostly bad so far – the polls may not turn in Labour’s favour. I will come on to why in a moment.

The last few days have been a little better for the occupants of Number 10 and Number 11. Growth has not, at least, turned negative. The inflation rate has fallen a touch. Gilt yields, the interest the Government pays on its debts to global investors, have eased back at a faster rate than the United States. The more the UK’s debt bill falls, the more likely it is that Reeves will hit her fiscal rule that the government will not borrow to cover day-to-day spending. The chances of an emergency budget in March have receded, for the moment.

Reeves should not relax. Despite her claims that global forces are to blame for the spike in borrowing rates two weeks ago, markets are wary. Far from boosting growth, policies that have raised taxes, spending and borrowing have weakened it. If inflation remains sticky in the UK, or rises in the US as Donald Trump unleashes tax cuts and tariffs, then yields on UK debt will start rising again. As the “ugliest horse in the glue factory”, the Government is exposed.

The Chancellor is sticking to her growth mantra. “Some people don’t want me to succeed, some people don’t want this Government to succeed,” she said in an interview last week. “But I’m not going to let them get me down. I’m not going to let them stop me from doing what this Government has got a mandate to do – and that is to grow the economy, to make working people better off.”

Growth as “the number one mission” of the Government remains the refrain.

That single line is not enough. For the Government, growth equals good news for all, equals better poll results, equals victory at the next election. But just as the Democrats found on November 5, creating growth is not a route to victory. In America, growth is at 2.8 per cent, defying expectations. Consumer spending grew by 3.7 per cent in the third quarter of 2024, just before the election. But it isn’t Kamala Harris taking the oath of office in the White House. It’s Trump.

The public, whether in America or the UK, does not understand “growth” (an oddly bureaucratic word which no one uses) in the same way that politicians do. They are not concerned with macro-economic charts that include percentages to one decimal place. They are concerned about their bills, particularly food, fuel, heating and housing costs. They are all going up. Real wages might be rising, but voters are sceptical that has anything to do with the government (more than 80 per cent of us are employed by the private sector).

“You go shopping and it’s just more and more expensive, isn’t it?,” one woman voter from Derby who switched from Conservative to Labour at the general election, told the report’s authors. “Things that you paid probably one pound [for] a year ago, it’s now three pounds. So, you know, I don’t see, personally, any growth in that.”

Starmer talks earnestly about “fixing the foundations” and an economy that “works for all”, but to many voters those words are meaningless. They want to hear about financial security (“it’s about money in our pockets”) not aspiration, and don’t believe politicians will deliver it. “Growth”, if it does ever materialise, is for “someone else”. 

Trust has cratered – on housing, the NHS and immigration. Many voters are seized by “declinism” and are pessimistic. Last week, a report by The Royal College of Nursing said that patients were dying in corridors and being cared for on trolleys in car parks. Yet health spending is at record levels.

The Conservatives should not crow. Voters are not convinced by the need for a “smaller state” and equate public sector efficiency with cuts to their services. The Tories are still seen by many voters as part of the problem –the reason why Labour keeps reminding everyone of their record.

If Kemi Badenoch is to win with a “smarter, smaller state” narrative then she needs to show wholehearted commitment to what the public sees as front line services – doctors and nurses, police officers solving crimes, 50 year old decrepit trains being replaced, potholes being fixed. Nigel Farage might be untested, but at least he is new.

During the Presidential election, JD Vance was mocked by Democrats for saying that voting for Trump would mean cheaper eggs (Trump’s policies are likely to mean higher inflation, not lower). But voters understood what Vance was getting at – in the US food prices have been rising as they have here – and voted accordingly. Against higher costs, growth didn’t get a look in.

Politics is a popularity contest. “Fastest growing economy in the G7” means nothing to those who barely know what the G7 is and care even less when they do. The language of Starmer and Reeves has lost voters. Even if growth does return – and their present policies are pushing the UK in the opposite direction – the public are unlikely to thank the Government for it.