The elegant Churchill Room at His Majesty’s Revenue & Customs is used only by the Chancellor of the Exchequer on the grandest occasions. The new incumbent at Number 11, Rachel Reeves, Britain’s first female Chancellor, wasted no time in taking advantage of one of Whitehall’s grandest settings.
Set against a red-for-Labour screen, she opted for a sober black suit, eschewing the colourful outfits of the election campaign. Reeves portrayed herself as a woman of action as she unveiled her plans to “repair the foundations of the economy” just 72 hours after taking the fiscal hot seat. Her Treasury team had assembled an audience of City bigwigs and key business leaders in a bid to win their support from the outset.
At the heart of her mission is a new approach to growth. She and Labour must tear up planning laws and regulatory protections as the first step in an agenda to get the economy moving faster.
Rachel Reeves, dressed in a sober black suit, against a red-for-Labour screen, unveiled her plans to ‘repair the foundations of the economy’
Deputy Prime Minister Angela Rayner joined the gathering in Whitehall for Reeves’ speech
She vows to shake up the status quo when it comes to housing and construction. As she laid out her 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 swathes of the Green Belt in concrete, and blight Britain’s rural beauty with onshore wind farms and huge electricity pylons instead of a new, more powerful national electricity grid, may be a source of long-term regret.
Deputy Prime Minister Angela Rayner also joined the gathering in Whitehall, waving and smiling to the crowd.
Among the rich and powerful who had cleared their busy schedules on Monday morning was the tall, domineering figure of Richard Gnodde, global CEO of Goldman Sachs and perhaps the most influential person in the City after the governor of the Bank of England.
Also in attendance were the chairman of insurance giant Prudential and former Labour Secretary 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.
Refusing to be deterred by the reality of an improving economy, Reeves began her remarks with a scathing slam of her Tory predecessors, blaming them for leaving the economy in its worst state since World War II. She had asked the Treasury over the weekend to assess the “dire” legacy and their immediate report, according to the Chancellor’s highly politicised analysis, confirmed the situation.
She stresses that all this will change with a massive push to build more homes, end instability and create a National Prosperity Fund to unlock billions of dollars in business investment, creating millions of jobs.
Nowhere in her report did it acknowledge that the past 14 years have been among the most difficult times of modern times, with successive Tory finance ministers confronting the once-in-a-generation catastrophe of Covid-19 and the cost of living crisis caused by Russia’s bloody attack on Ukraine.
Nor did she point out that her predecessors as Labour finance ministers – Gordon Brown and the late Alistair Darling – resigned in 2010, leaving behind a terribly ailing economy after the great financial crisis of 2008-09.
The fact is that the economic legacy Rachel Reeves has inherited is far better than she could have imagined, with inflation on track for 2 percent and growth at 0.7 percent 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 percent as early as next month.
These better-than-expected economic conditions underscore why Reeves and Labor are pushing for housebuilding and construction, which are recognized as key drivers of economic growth. Every time a home is completed and purchased, consumers increase their spending on decorations, appliances and furnishings, which contributes to retail sales and stimulates the broader economy.
In her speech yesterday, the Chancellor of the Exchequer announced that she would reinstate “mandatory” housing construction targets to encourage regional, local and municipal authorities to build 1.5 million homes during the current five-year parliamentary term.
Reeves seems confident that new national powers and mandatory targets will make a difference. But she has a huge task ahead of her, because housebuilding and construction are fraught with problems.
No government has managed to build more than 300,000 new homes a year in recent times, and its intention to lift planning restrictions will prove extremely difficult.
It is a noble cause, and Reeves is right to embrace it. But I fear she vastly underestimates the problem. Planning and environmental requirements, regulations and obstacles have thwarted the government’s grandest ambitions for years.
The main reason why the northern sections of HS2 to Leeds and Manchester had to be scrapped, for example, was that planning constraints made the line too expensive to build. Also, after more than three decades, Heathrow still has no chance of a third runway due to planning and environmental concerns. Its rival, Frankfurt Airport, has four.
Furthermore, building homes on brownfield and greyfield sites, as Reeves proposes, sounds great. But private sector builders, who the government will rely on, stay away from these sites because of the huge potential clean-up costs of working on abandoned industrial sites and wastelands.
Better-than-expected economic conditions underline why Reeves and Labour are pushing for housing and construction
Each time a home is completed and purchased, consumers spend more on decorations, appliances and furnishings, contributing to retail sales and stimulating the broader economy.
I believe that Reeves, with her narrow focus on boosting housing and onshore wind (which will again face major planning problems), is overlooking areas where Britain has a real competitive advantage.
The Chancellor is right to point out that the turmoil within the Tory government has been damaging to manufacturing. What she has failed to embrace, however, in focusing on housing, is what former Labour prime minister Harold Wilson famously described as the “white heat” of technology. Britain is Europe’s pharmaceutical, AI and financial technology powerhouse, competing in these cutting-edge industries on the global stage.
Anyone hoping the new Chancellor would seize this opportunity to stimulate such industries was disappointed. Yes, she would make it clear that she is meeting former Bank of England Governor Mark Carney tomorrow, who is the brains behind the National Wealth Fund that will undoubtedly back some of the UK’s most cutting-edge technologies.
But as Thatcher’s favourite think tank, the free-market Institute for Economic Affairs, points out, bureaucrats spending relatively small sums is unlikely to make any difference.
One cannot help but admire the dynamism with which the country’s first female Chancellor goes about her work. She is bright, enthusiastic and determined, and strives to involve and drive the business and finance communities in her changes.
But I fear she underestimates the sheer power of NIMBYism, of local people who understandably don’t want housing estates in their back yards, and the destructive power of green and environmentalists determined to stop any proposed development in housing, science or business. Everyone in the UK wants faster growth, stronger public finances and less borrowing and debt.
To achieve this, we need lower taxes and less intrusive regulation, which frees up capital for investment. In her first major outing, our new and activist chancellor found no role for any of those things.
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