John le Carré, who taught at Eton for a time, once said the trouble with that school was that it taught people to win, but not to rule. Now, as my Greek master used to say, one should beware of generalisations. Nevertheless, in the case of two recent Old Etonian prime ministers, I think le Carré’s observation was spot on. I refer, of course, to David Cameron’s monumental misjudgment in calling the 2016 referendum that landed us with the mounting cost of Brexit. And to Boris Johnson’s role in that fiasco, not least in wrecking Theresa May’s attempt to save something from the ruins by staying in the customs union, if not the full works of the single market. At last week’s Labour conference in Liverpool there was much discussion on the fringes about our relations with the EU, but only, I think, one reference in Chancellor Rachel Reeves’s much-publicised speech. The background to the conference, as Keir Starmer and Reeves reminded us ad nauseam, was the need to “fix the foundations” of economic recovery after 14 years of Tory austerity. Unfortunately, with her emphasis on “fiscal stability” and apparent desire to adhere to fiscal rules inherited from the Tories, the impression was that we might now be in for a period of Labour austerity. There was a tacit recognition that Starmer – an avid football fan – knew an own goal when he saw one, and understood the euphoria engendered by the election result had been quashed by persistent attempts to dampen people’s spirits. The mood music needed to change, from Shostakovich, perhaps, to Vivaldi. But the substance of policy remained depressing, and subject to the old quip that the light at the end of the tunnel could be a train coming the other way. Ignoring Denis Healey’s law – when you are in a hole, stop digging – Starmer and Reeves stuck to their decisions on benefits and winter fuel, thereby making many delegates I met in Liverpool wonder if their leaders knew they had won the election and were a Labour government. Investment, investment, investment. That is what is needed for the growth that would finance all the other worthy objectives of the first Labour government for 14 years. It was amusing to hear the chancellor say “it is time that the Treasury moved on from just counting the costs of investments in our economy to recognising the benefits too”. After all, she is now in charge. Yet the following day the Treasury was reported as having briefed that the welfare bill would have to be cut to finance investment. (I am told, by the way, that it was the chancellor herself who was the most hawkish about the winter fuel decision, and that officials did point out the dangers of a backlash.) Indeed, one of the things that have concerned me is the way that there has been an almost puritanical delight at the prime minister and chancellor boasting about how tough they are being with “difficult decisions”. Tough, yes – but are they the right decisions? However, there are hints now that the chancellor may be gearing up for a return to the approach she flirted with in her Mais lecture in March, in which rigid fiscal rules may be replaced by a sensible fiscal policy under which the obsession with debt could be replaced by the sensible approach of borrowing to invest.
In this, Reeves must be encouraged by the recent statement from the Organisation for Economic Cooperation and Development that the UK should focus on addressing years of underinvestment rather than fixating on fiscal rules. There are two key aspects to fiscal policy: financing public spending, but also, in conjunction with monetary policy, balancing the economy to secure a sustainable relationship between employment and inflation. The need for tax increases to finance current public spending is obvious, but Labour rashly ruled out increases in income tax, national insurance and VAT – the main revenue raisers. To my mind, that leaves fuel duty as an odds-on favourite for tax increases. A key promise made by Reeves last week was: “Where barriers obstruct opportunity and investment is constricted, Labour will tear down those barriers.” Well, revising fiscal rules to encourage long-term investment is a way of tearing down one barrier. But Starmer and Reeves should remember that attracting overseas investors, on which they profess to place great faith for their growth plans, depends on the attraction of the UK’s place in Europe. Starmer goes to Brussels this week to meet the EU Commission president, Ursula von der Leyen, ostensibly in order to “reset” Brexit. This is absurd. The answer is surely to say “goodbye, Brexit”. A reader reminds me of a notice outside a London tube station some years ago. “‘Have you been involved in a car crash that wasn’t your fault? ‘Yes, Brexit.’”