ALEX BRUMMER: Labour’s economic plight

Rachel Reeves has brought what the left-leaning New Statesman describes as an ‘iron grip’ on Labour’s spending plans.

You don’t have to be a fellow at the Institute of Fiscal Studies, the trusted public finance think tank, to recognize that with a national debt of nearly 100 percent of national output (depending on how it’s measured). ), and as NHS and social security bills pile up, the cupboard is bare.

That’s almost certainly why Ed Miliband’s wide-eyed ambition to spend a £28bn a year budget on greening the economy, a plan even more ambitious than Joe Biden’s, has been radically scaled back. Every penny promised for new exciting releases is carefully calculated.

In fact, without a step up in any of the major contributors to the national treasury, income tax or VAT (a hefty corporate tax hike is already in the air), much of Labour’s ambition will be thwarted.

Several of the current tax-increase plans, such as ending non-domiciled tax status, closing North Sea oil tax loopholes, and removing charitable status from independent schools, could cost the treasury dear in the long run.

Amid the current cost-of-living crisis, apart from complaining it’s all the Tories’ fault and demanding more handouts, Labor has been relatively silent. Labor has a hard time trying to weaponize inflation. Union militancy on the railways, in education, the NHS and elsewhere is a factor that drives inflationary psychology and contributes to higher prices.

Overriding carefully calibrated settlements designed by the independent wage review committees should be no more acceptable than ignoring the Office for Budget Responsibility – for any political party.

Then there is the thorny issue of the Bank of England. The independent bank was one of New Labour’s enduring creations. The Nigel Lawson Tories have never been convinced to carry out plans for an independent bank, despite a sensible belief in sound money.

Then there’s Reeves himself. A former Bank of England economist, she was for some time responsible for helping to compile the data and commentary for the international portion of the Monetary Policy Report.

She has particular insight into the creation of the report and the composition of the Monetary Policy Committee (MPC). Labor sources suggest she questions the diversity of views among those setting interest rates, as well as an overreliance on models and data. Even Governor Andrew Bailey accepts that the system is faulty.

One way to dot the i’s and cross the t’s for Labour, while keeping the Bank’s mandate to target inflation at 2% intact, would be to find ways to reverse Gordon Brown’s plans for a House of Lords of the devolved governments and linking regions to the MPC.

Brilliant regional economists, thinkers and industrial visionaries could end the dominance of Treasury and City groupthink. Five decades ago, my bachelor thesis focused on shifting more economic power to the regions.

Ultimately, we must trust that Bailey will overcome inflation. A lack of focus at the Bank on its core mission, slowness to act and a lack of outside voices has cost the nation dearly.

The next government, whatever its political taste, should make radical changes.