The elegant Churchill Drawing Room at Her Majesty’s Revenue and Customs is used by the Chancellor of the Exchequer only on the most important occasions. The new incumbent of Number 11, Rachel Reeves, Britain’s first female chancellor, wasted no time in taking advantage of one of Whitehall’s finest settings.
Silhouetted against a red screen by Labour, she opted for a sober black suit, forgoing the colourful garb of the election campaign. Reeves presented herself as a woman of action as she unveiled her plans to “fix the foundations of the economy” just 72 hours after taking up the hot-button fiscal job. Her Treasury team had assembled an audience of City bigwigs and key business leaders in an effort to win her support from the start.
At the heart of her mission is a new approach to growth. She and the Labour Party aim to do away with planning laws and regulatory protections as the first step in an agenda to get the economy moving faster.
Silhouetted against a red Labour screen, wearing a sober black suit, Rachel Reeves revealed her plans to “fix the foundations of the economy”.
Deputy First Minister Angela Rayner joined the gathering in Whitehall for Reeves’ speech.
He has pledged to break with the status quo on housing and construction. As he unsheathed his ambitious plan, you could almost feel the blood pressure of those who voted Labour in the counties rising.
The prospect of a government prepared to cover parts of the Green Belt with concrete and strip Britain’s pastoral beauty with onshore wind farms and giant towers for a new, more powerful national electricity grid may, in time, fill them with regret.
The Whitehall meeting was joined by Deputy Prime Minister Angela Rayner, who waved and smiled at the audience.
Among the rich and powerful who had cleared their busy schedules on Monday morning was the tall and commanding figure of Richard Gnodde, international chief executive of Goldman Sachs and arguably the most influential person in the City after the governor of the Bank of England.
Also in attendance was the chairman of insurance giant Prudential and former Labour minister Baroness (Shriti) Vadera, along with Mark Wild, the new boss of the HS2 high-speed rail link between London and Birmingham, and the brightly dressed businesswoman Martha Lane Fox.
Reeves refused to let the reality of an improving economic situation stand in his way and began his remarks with a scathing demolition of his Tory predecessors. He accused them of leaving the economy in its worst state since the Second World War. Over the weekend he had asked the Treasury to assess the “terrible” legacy and its immediate report, according to the Chancellor’s highly politicised analysis, confirmed the situation.
All this will change, he insists, with a big push to build more housing, an end to instability and the creation of a National Wealth Fund to unlock billions of dollars in business investment that will create millions of jobs.
At no point in his account was there any acknowledgement of the fact that the past 14 years have been among the most difficult to navigate in modern times, as a succession of Conservative Chancellors of the Exchequer faced the once-in-a-generation catastrophe of Covid-19, as well as the cost of living crisis caused by Russia’s bloody attack on Ukraine.
Nor did he point out that his predecessors as Labour Chancellors of the Exchequer – Gordon Brown and the late Alistair Darling – left office in 2010, leaving behind a terribly moribund economy after the great financial crisis of 2008-09.
The fact is that the economic legacy Rachel Reeves has inherited is far better than anyone could have imagined: inflation has held at 2% and growth at 0.7% in the first quarter of the year, the fastest among G7 countries. Interest rates are also almost certain to fall from their current level of 5.25% as early as next month.
These better-than-expected economic circumstances underline why Reeves and the Labour Party are pushing for housebuilding, which is recognised as a key driver of economic growth. Every time a home is completed and purchased, consumers increase their spending on decoration, appliances and furnishings, boosting retail sales and boosting the wider economy.
In her speech yesterday, the Chancellor announced that she would reinstate “mandatory” housing construction targets to encourage regional, local and community authorities to build 1.5 million homes over the current five-year term.
Reeves appears convinced that new national powers and binding targets will make a difference, but she has a huge task ahead of her because house building is plagued by problems.
No government has managed to build more than 300,000 new homes a year in recent times. Moreover, its attempt to unblock planning restrictions is going to prove extremely difficult.
It is a noble cause and Reeves is right to support it, but I fear he greatly underestimates the problem. Planning and environmental requirements, regulations and hurdles have for many years thwarted the government’s greatest ambitions.
For example, the main reason the northern sections of HS2 to Leeds and Manchester had to be scrapped was that planning restrictions made the line too expensive to build. Similarly, after more than three decades, Heathrow still has no prospect of getting its third runway due to planning and environmental objections. Its rival, Frankfurt Airport, has four.
Furthermore, building homes on brownfield sites and grey areas, as Reeves proposes, sounds fantastic, but private sector developers, who the Government will support, avoid such sites because of the huge potential clean-up costs involved in working on brownfield sites and vacant land.
Better-than-expected economic conditions underline why Reeves and Labour are pushing for house building and construction
Every time a home is completed and purchased, consumers increase their spending on decorations, appliances and furniture, which increases retail sales and boosts the overall economy.
My own view is that Reeves, with his narrow focus on boosting housing and onshore wind (which will again face huge planning difficulties) is overlooking areas where Britain has a real competitive advantage.
The Chancellor of the Exchequer is right to point out that internal turmoil in the Conservative government has been damaging to output. However, what it has failed to address, by focusing on housing, is what former Labour prime minister Harold Wilson described as the “white heat” of technology. Britain is Europe’s pharmaceutical, artificial intelligence and fintech powerhouse, and competes in these advanced industries on the world stage.
Anyone hoping to hear the new Chancellor seize this opportunity to boost these industries was disappointed. Yes, she made it clear that tomorrow she will meet former Bank of England Governor Mark Carney, who is the brains behind the National Wealth Fund that will no doubt back some of the UK’s cutting-edge technologies.
But as Mrs Thatcher’s favourite think tank, the free-market Institute of Economic Affairs, points out, bureaucrats handing out relatively small amounts of money are unlikely to make any difference.
One cannot but admire the dynamism with which the country’s first female chancellor carries out her work. She is clear, enthusiastic and determined, and strives to involve business and finance in her changes and to lead them along with her.
But I fear he underestimates the sheer power of Nimbyism, of local people who understandably don’t want housing estates in their backyard, and the destructive power of green and environmental activists determined to kill every proposed housing, science or commercial project. Everyone in the UK wants faster growth, stronger public finances and less borrowing and borrowing.
To achieve this, we need lower taxes and less intrusive regulation that frees up capital for investment. In her first major appearance, our newly appointed activist Chancellor found no room for any of that.
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