In Chancellor Rachel Reeves’ speech at Labour conference, she said:
It is time the Treasury moved on from just counting the costs of investment in our economy to recognising the benefits too.
In the same speech, Reeves also claimed:
Let me say one thing straight up. There will be no return to austerity. Conservative austerity was a destructive choice for our public services and for investment and growth too
Rachel Reeves: austerity on top of austerity
Yet it’s only a week later and Rachel Reeves has quietly asked ministers to find billions in cuts to infrastructure projects in every government department. She is asking ministers to model cuts of up to 10% of their entire annual capital budget. Under current plans, public investment is already projected to fall from 2.4% of GDP in 2024-25 to an even lower 1.7% in 2029-30.
That’s despite public investment in the UK already being almost 50% lower than the average OECD developed country. In 2022, Slovenia invested 5.5% of GDP, Estonia 5.6%, Sweden 4.9% and Norway 4.2%.
We are the sixth largest economy in the world and the OECD has 38 members. Still, our public investment has lagged behind other OECD countries for decades. As economist Mariana Mazzucato said at Labour conference:
had the public sector invested as much as the average of the OECD in the last two decades, we would have invested 500 billion more. So we’re talking about a massive shift that we need.
On Good Morning Britain, even host Ed Balls couldn’t understand why the government is pursuing austerity on top of austerity. And his wife, Yvette Cooper, is literally in the Labour cabinet:
The Guardian is reporting that every govt department is being asked to find 10% cuts in capital spending.
Govt minister Sarah Jones says there is a massive blackhole and the govt has to be reasonable in terms of how they spend money #GMB pic.twitter.com/g95udorSwL
— Saul Staniforth (@SaulStaniforth) October 3, 2024
Labour has already said it will review Conservative plans to build 40 new hospitals, which Keir Starmer described as “unfunded”. But harbouring a healthy workforce is surely worth the money. In fact, IPPR and LCP Health Analytics calculated that getting people off NHS waiting lists would unlock £73bn in economic benefits over five years.
That includes £18bn from people returning to work or working more hours, £55bn in unpaid work that still helps society such as childcare, domestic work and caring for elderly or sick relatives and a £14bn saving for government from lower spending on health and social care.
So Rachel Reeves should listen to herself when she says it’s time to recognise the benefits of spending and investment. But she is saying one thing, then doing the opposite.
PFI to replace public investment?
In her conference speech, Rachel Reeves also said:
Growth is the challenge and investment is the solution. Investment in new industries, new technologies and new infrastructure
But even though Reeves is talking about infrastructure, she may not mean public investment. She may well be talking about new forms of Private Finance Initiative (PFI).
Reeves is considering bringing in a type of PFI to fund infrastructure such as a new highway and tunnel across the Thames in the east of London. Instead of the taxpayer footing the bill, the government would introduce potentially indefinite user charges (tolls) to compensate private sector cost and profit.
On top of that, Rachel Reeves has set up a British Infrastructure Council. This includes bosses from banks Lloyds, HSBC, Santander UK, and bosses from private financers Phoenix, Fidelity and BlackRock. Yet introducing profit to infrastructure can only increase costs.
This is what we saw with Tony Blair’s PFI scams. These saw the taxpayer charged over £300bn for infrastructure with a value of £54.7bn.
Featured image via Guardian News – YouTube
