Labour: Where's the Growth?

With two weeks to go until Labour’s annual conference, the fiscal cracks on show are looking more like subsidence.

The party wants to talk growth: private investment, green jobs and productivity, but is doing so with a chancellor, Rachel Reeves, who is stiffly defined by fiscal caution, rigid spending rules and a refusal to touch big levers like tax reform or borrowing for growth.

In an interview with the BBC in 2023, Starmer said:

“I am confident that we will get that growth. It is the single defining mission of an incoming Labour government.

"Everything hangs off that. Only growth can fund the renewal of public services. We think this can happen very quickly. Within months of a Labour government coming in, we can turn this around and get the investment we need.”

Even though it inherited a bag of spanners from the Tories, so far, Labour has failed on growth. Some 89,000 jobs have been lost in hospitality alone since October 2024, following the autumn Budget tax rises, including the rise in employer National Insurance Contributions.

Business leaders are wary. Having been burned by National Insurance rises and now facing tighter employment laws, many see risk without reward.

Unions want clarity on rights, pay and power. Reeves has downplayed all three to keep markets calm while global investors want to know how Labour will fund its promises beyond vague talk of efficiency savings. No one is happy.

The growth plan cannot stay abstract. Tax, public investment and workers' rights are now unavoidable fault lines.

Labour is still refusing to acknowledge the sharp exit of high net worth individuals from the UK. These are not just tax refugees, but employers, investors and spenders whose presence signals confidence. Their departure or intention to depart weakens inward investment, strips out growth capital and sends a message that the UK is closed to wealth creation.

Reeves has offered no policy to reverse that trend and the silence is loud. Until Labour signals it understands the link between private wealth and public growth, the UK will keep losing growth momentum.

Rabbits in hats are now required.

Raising tax does not always raise revenue. Capital gains tax receipts fell by 18 percent in 2023-24, even as more people were pulled into the net. People delayed disposals or changed tactics to avoid higher bills. This is a volume game as well as a rate one. If the system punishes activity, the activity slows and so does the tax take. Aggregate revenue is what funds public services, not symbolic wins. Fiscal strategy has to focus on yield, not just headlines.

This is where the bond market starts to matter. Gilt yields are already high. The Bank of England is being forced to slow its quantitative tightening because selling too aggressively risks destabilising the market. Investors are not panicking, but they are wary. If Labour keeps hinting at investment without clarity on funding, gilts could sell off and weaken the very credibility Reeves is trying to protect.

The IMF has already flagged the risk. In its latest review, it warned that economies like the UK, with limited fiscal headroom and slowing growth, are exposed if markets lose confidence.

Britain is not in crisis - yet - but it is vulnerable.

Reeves has boxed herself in. By trying to be more cautious than the market demands, she has left little room to fund anything ambitious. If investors see a gap between Labour’s mission language and its tax and spend reality, they will price that in. And the IMF will back them.

The UK requires a bold chancellor. Reeves’ caution suggests low risk of short-term disruption but also limited upside.

Starmer knows this and has appointed Baroness Minouche Shafik as Chief Economic Adviser and created a new Budget Board to coordinate strategy between No. 10 and the Treasury.

This is bizarre behavior. If the chancellor isn't performing, the answer is obvious. If this were a company, it would the CEO building a shadow finance team or a Big 4 consultancy to run the show while the CFO carried on. It cannot work.

These are not cosmetic changes either. They give Starmer more control over how economic policy is shaped and communicated. The question is whether this machinery will challenge Treasury rigidity or simply repackage it.

Watch the conference for signs of any shift in stance. If Labour starts to outline real business-friendly incentives for investment, clarity on infrastructure or a plan for trade and exports, that opens opportunity.

But if the party keeps dodging how it will fund delivery and simply making it harder for businesses to grow, do not expect a step-change economy.

Reassess assumptions about regulatory relief or capital inflows post-election.

Investors are.