Reeves’s attack on wealth and jobs is a case of blatant hypocrisy

The Chancellor faces an unenviable uphill task, but wealth-destroying taxation is unlikely to boost growth

Bliss was it in that dawn to be alive. What with the inspirational music and the growth, growth, growth messaging of Labour’s “international investment summit” this week, you’d think we were on the verge of some kind of economic rebirth in which all things would be possible. It was almost Johnson-esque in its boosterism.
On balance, I preferred the previous, hair-shirted Rachel Reeves, who in preparing us all for the horrors she is about to unleash in this month’s Budget, initially peddled a message of unrelenting gloom and doom. This at least had the merit of realism.
As it is, the levers that the Chancellor has to pull in inspiring the investment boom she dreams of are extremely limited. The promise of political stability alone is not enough to convince international capital to invest, and even this is by no means guaranteed.
Thanks to the vagaries of the British electoral system, Labour finds itself with a commanding majority on a lower vote share than any party forming a majority government since the war, with just 34pc.
This can hardly be regarded as a resounding mandate, and it is therefore likely to give rise to all manner of U-turns, instabilities and uncertainties over the years ahead. Labour was voted in for not being the Tories; as an election winning proposition, this is unlikely to last.
There is nothing wrong with beating the drum for business investment. All governments do it, and if this one is as good as its word in dismantling the byzantine planning restrictions that repeatedly slow or stop development, then it will deserve at least some credit.
But the challenges are formidable, and if it is private sector investment you want, it would be wise not to begin by punching investors in the face by whacking employers for higher National Insurance contributions, increasing capital gains tax and further restricting the ability to hire and fire.
The last of these things is already being legislated for, and the rest can be taken as read as the Chancellor struggles with the near-impossible task of reconciling fairy tale manifesto pledges with the need to balance the books.
There is also another headwind that is beginning to creep into the reckoning: higher interest rates than elsewhere.
Comments this week from Charlie Nunn, chief executive of Lloyds Banking Group, to the effect that mortgage rates are unlikely to return to the low levels seen in the past decade may be only a statement of the bleedin’ obvious, but they speak to a wider truth.
The fact is that we have moved into a more inflationary world in which ensuring price stability is virtually certain to require higher interest rates than the ones we were used to.
This is particularly the case in the UK, where there is already a widening gap in interest rate expectations with the US and much of Europe, further complicating the Chancellor’s task in borrowing more to invest.
Her hope is that these extra borrowings will eventually pay for themselves by stimulating higher growth. If this sounds eerily like what Liz Truss was trying to do, that’s because there are indeed some superficial similarities.
The difference is that Truss wanted to borrow to cut taxes, whereas Labour’s high-command seeks to borrow to invest. What unites them is the idea of borrowing more in the hope that it jump-starts growth.
Sadly, markets have a nasty habit of getting in the way of political pipe dreams. Almost unnoticed, the Government’s borrowing costs have been creeping up, and are now not so far off the sort of levels that sank the Truss government. 
As things stand, the Government is now paying more for 10-year money than France, which is widely thought of as even more of a fiscal basket case than Britain. Already mortgage rates, which are priced off interest rate expectations, are creeping up again.
Many eminent economists tell me that there is a world of a difference between what Reeves is planning to do, which is responsibly borrowing to invest in Britain’s dilapidated public infrastructure, and Truss’s reckless, tax-cutting “dash for growth”.
One feeds long-term economic expansion by dealing with an evident deficiency; the other was just an ill-advised injection of short-term demand into an economy where inflation was already running hot.
I’m not sure markets entirely accept the distinction, and certainly there is growing concern over where Labour’s borrowing plans might land us.
In its biannual Fiscal Monitor published this week, the International Monetary Fund singles out the UK amongst a handful of others for particular criticism over its rising public debt trajectory.
Typically, a “cumulative fiscal adjustment” (tax rises and spending cuts) of between 3pc and 4.5pc of GDP will be required to rebuild fiscal buffers and restore debt sustainability, the IMF says.
I doubt that’s what Reeves has in mind. If anything, her Budget is likely to prove mildly stimulative, with the fiscal rules changed to accommodate higher investment spending.
This in turn might require higher interest rates than otherwise, further adding to the Government’s already punishing debt servicing costs.
Meanwhile, heavy hints of a tax raid on business via increased employer National Insurance contributions sit badly with the Government’s needy “open for business” messaging.
Ministers say one thing while doing the other. Unfortunately for them, it’s the other that markets focus on. Actions speak rather louder than words.
Just how far the Government’s investment plans feed through to higher interest rates depends vitally on how fast the infrastructure spending taps are turned on.
Measured unemployment is still low, and despite the fact that vacancies are now falling fast, wages are still increasing at a fair clip, not least because of inflation-busting pay settlements in the public sector.
It may not feel like it, but the economy is running at close to full capacity. Any attempt by the Government to significantly increase investment spending in current circumstances is therefore likely to have an inflationary effect.
After years of starvation, the skills, know-how, construction capacity and supporting industry are simply not there to accommodate a sudden increase in Government infrastructure spending.
The costs will soar correspondingly, putting further upward pressure on inflation. Any growth in supply that the increased investment brings will, moreover, take some years to show through. In other words, there is an inflationary and higher interest rate effect before any positive impact on growth is seen.
Politically, this juxtaposition of short-term pain for supposed long-term gain will be exceptionally difficult to manage. Instant gratification is the cultural curse of our times.
I’ve got a lot of sympathy for the Chancellor’s predicament. Heaven knows, the UK economy badly needs more business and public investment.
But alas, I can’t see the contemplated mix of wealth-destroying taxation, bumper public sector pay awards and increased borrowing delivering the goods.