Shadow chancellor Rachel Reeves will on Wednesday embrace “Bidenomics” as a template for a Labour government, saying Britain risks being “sidelined” unless it accepts that the rules of the global economy have changed.
In a speech in Washington, Reeves will back an “emergent global consensus” on the economy, involving an active state, muscular industrial policy, “friendshoring” supply chains away from China and high labour standards.
But Reeves told the Financial Times that her new policy of “securonomics” had to be based on “the rock of fiscal responsibility” and that Labour’s flagship industrial policy — a proposed £28bn-a-year green investment programme — would have to fit within her fiscal rules.
The “green prosperity plan” is Labour’s version of US president Joe Biden’s $369bn Inflation Reduction Act — a vast programme of subsidies and tax breaks — and Reeves said it would be at the heart of her “modern industrial strategy”.
But Reeves has also promised to cut public debt as a share of gross domestic product over five years, meaning she could be forced to reduce the £140bn five-year green programme if the public finances were tight. She said the rules were paramount, adding: “Fiscal discipline is really important.”
Reeves said it was vital to control day-to-day government spending to create room for “strategic investment” in new industries and green energy technology and that she would exert tight control. “Colleagues will tell you that Rachel knows how to say ‘No’,” she added.
Reeves’s choice of Washington’s Peterson Institute to launch her economic blueprint — A New Business Model for Britain — is a deliberate attempt to align a putative Labour government with the Biden administration.
She claims Britain has become less relevant in Washington and that Conservative criticism of the Biden economic model — energy secretary Grant Shapps warned in January that US green subsidies could lead to a “dangerous” slide into protectionism — has exacerbated that trend.
“What is dangerous is sitting this out and finding this investment is all going overseas,” she said, arguing that the state now had to work alongside business to develop technologies, to build robust supply chains and to train workers for a new economy.
By contrast, UK prime minister Rishi Sunak has declined to pursue a full-blown industrial policy, preferring instead to prioritise sectors including life sciences and creative industries.
Reeves said she had been “inspired” by speeches by Janet Yellen, US Treasury secretary, and Jake Sullivan, Biden’s national security adviser. She also highlighted state activism in countries such as Germany and Australia.
The three-day visit to the US is a crucial moment for Reeves: an attempt to present herself internationally and domestically as a chancellor-in-waiting. At meetings in New York and Washington she repeatedly said Britain under Labour would be “open for business”.
Reeves’s itinerary took her to the trading floor of the New York Stock Exchange — the symbolic heart of global capitalism — where she posed for pictures under the exchange’s bell, grinning through jokes about what Jeremy Corbyn, Labour’s former hard-left leader, would make of it.
But she argued that the rise of China and the vulnerability of western countries to shocks such as Covid-19 and the war in Ukraine had changed the rules of the game. These “once in a generation events keep happening”, she said.
Speaking in New York ahead of her visit to Washington, Reeves told the FT: “The way in which globalisation and trade have happened is changing.” The new economic model, she added, was “much more based on allyship and building into it economic security and resilience”.
Over a coffee at Hudson Yards in Manhattan, she said specifically British problems had to be addressed, confirming that Labour would overhaul planning rules to allow more homes and green projects, such as onshore wind, to be built.
Reeves also sees the scheduled 2025 review of Britain’s “chaotic” Brexit trade deal with the EU as a moment to address frictions in areas such as food and the recognition of professional qualifications. However, she ruled out returning to the bloc’s single market or customs union.
Although a Labour government would inherit tight public finances, Reeves joked she had no plans to levy “a special FT reader tax” or target the wealthy beyond previously announced plans. The party would end tax breaks enjoyed by private equity executives and private schools, and abolish tax perks secured by individuals claiming non-domiciled status.
“Taxes are at a 70-year high,” she said. “I don’t have plans to be a big tax-raising chancellor.” Reeves said the alternative was to boost economic growth and she had “no plans” to equalise capital gains tax rates with income tax, or to cut tax breaks on pension contributions for higher earners.
Business tax reforms would focus on business rates — a big issue on Britain’s high streets — and incentives to encourage companies to invest, rather than changing headline corporation tax rates, said Reeves. Tax cuts for “working people” were a priority, she added.
The 44-year-old, state-educated Reeves hopes to become Britain’s first woman chancellor and her team on the trip is exclusively female. Reeves, a former Bank of England economist, was seconded to the UK embassy in Washington in the 2000s, where she met Nick Joicey, her future husband and a senior civil servant.
Reeves was targeted by leftwing Labour activists for being a supposed “closet Tory” but she said the hate has diminished as Corbyn’s supporters have left the party. Getting closer to power also helped, she added. “Labour is in an unrecognisable position to where we were three years ago,” she said.
Reeves was pilloried on social media this week for deleting a tweet in which she was pictured on her flight to the US carrying a BA business class ticket, attracting claims that she was a “champagne socialist”. She defended the arrangements for her first long-haul trip as shadow chancellor.
The visit, which included dinner with New York media, business and political figures at the Harvard Club, was funded by a “longstanding Labour donor”.
“I’ve got a very packed schedule when I’m here,” she said. “I think to operate at the level at which I want to operate, I think it’s appropriate to ask a donor to fund this trip.”
While in Washington, Reeves was due to meet members of Biden’s economics team at the White House and hold talks at the US Treasury and IMF.
Reeves, a child chess prodigy, said Labour was in a strong position to win the next election but her hopes of becoming chancellor rest on how the party performs in the next year.
“It’s like we are a rook up on move 30,” she added. “But we’re playing an opponent who usually beats us.”