Labour's industrial strategy: top of the (business) class?

By Ben Firth, Junior Consultant

There has been a lot of noise around Rachel Reeves’ decision to fly Business Class to America this week, but business executives certainly won’t mind finding themselves next to the Shadow Chancellor on a flight in future after her speech in Washington. 

Reeves revealed arguably her party’s biggest move to date in laying out its alternative vision for the UK should it form the next Government, and it is in lockstep with the US. Labour’s New Business Model for Britain is born from the same “modern supply side economics” which produced Biden’s Inflation Reduction Act.

At its heart is the principle that markets cannot see where an economy’s future advantages may lie, so the state must step in with a long-term strategy to remedy chronic market short-termism. In practice, this will look like tools such as a new National Wealth Fund, a transformed British Business Bank, and a reformed planning system being employed to pave the way for investment in decisive green industries.

Labour’s strategy will be subject to the scrutiny of a revived Industrial Strategy Council, an independent advisory group tasked with measuring the government’s progress - revived being the operative word since Kwasi Kwarteng, who as we now know is not one for independent forecasts, abolished the Council when he was the Secretary of State for Business, Energy and Industrial Strategy under Boris Johnson’s premiership. Not only will it be revived but it will be placed on a statutory footing, acknowledging that stability is at the centre of any investment decision.

The US is not the only one granting the state a larger role; Australia has introduced a Powering Australia plan and Germany a €180bn Climate and Transformation Fund. The result is that the list of companies having their heads turned by reliable and tangible incentives in the US or Europe is growing. Reeves is singing from the same hymn sheet as Make UK or solar company Oxford PV who have both publicly stated their dissatisfaction with the UK’s investment conditions relative to those of other Western economies.

Labour’s plan, bound by its tight fiscal rules, cannot and will not compete with the Inflation Reduction Acts of this world but in aligning itself so closely with the Biden administration Labour is nevertheless signalling that it plans to roll out the red carpet for investment.

Contrast this to Rishi Sunak, whose approach to an industrial strategy was epitomised by his mini-reshuffle back in February. The Department of Business, Energy and Industrial Strategy was divided into three with Business and Energy going to new departments, and Industrial Strategy to the scrapheap. To so symbolically signal that the Government has no intention of setting an overarching strategy does not add up when the Government is not able to simply call on low corporation taxes as all the incentives it needs.

A charge that has long been levied against Labour is that people don’t know what they bring to the table other than simply not being the Tories. Whilst even having an industrial strategy is the antithesis of the current Tory position on the matter, it is much more than that. It is meat on the bones of what a Labour government would do, and something they can now point to next time that charge is brought against them.

But focus group answers to the question ‘what do Labour stand for?’ are still likely to feature plenty of ‘don’t knows’ - cut through with the public will have been minimal, particularly as more of this week’s headlines have jumped on Reeves’ careless Twitter post revealing that she travelled business class, rather than on the substance of her visit. But the British public were not the intended audience, this was about Labour setting out its stall on an international stage and putting a stake in the ground in the battle to become the ‘party of business’. 

Lauding this strategy as Government-like is not the compliment that it once was, but this impressive statement of intent will do no harm to Labour’s positioning as a Government-in-waiting.