Rachel Reeves’s growth speech felt more like an emergency Budget

Rachel Reeves’s much-trailed speech today is a big moment for her and the government, as it finally put some flesh on the bare bones of its plan for economic growth.

This matters because the clearer message should galvanise Whitehall and ensure that one of Reeves’s audiences – her cabinet colleagues – get the message. She is right to try to boost the UK’s anaemic growth levels; if she fails, Labour’s mission to improve public services will prove impossible.

Completing her remarkable 180-degree turn after her post-election gloom, Reeves declared herself “upbeat and optimistic about our country’s prospects” but argued: “We have got to turbocharge our economy.”

Her allies tell me she always planned a “gear shift” this month, to go positive and go for growth. However, her speech in Oxfordshire felt like another Budget speech only three months after she delivered her first one, as she listed government programmes and namechecked every region, to counter the argument that her package was too biased towards the South East.

It looked suspiciously like a chancellor correcting her own mistakes after overdoing the doom and gloom, as she tried to pin the blame on her rotten fiscal inheritance on the Conservatives and harming business and consumer confidence with last October’s Budget.

Her most important target audience was domestic and international investors, the financial markets and wider UK business community. Labour won the trust of business before last year’s election, but frittered it away with what company bosses regard as a “triple whammy” – a hike in employers’ national insurance contributions and the national minimum wage in April and enhancing workers’ rights.

Many bosses now fear that Labour “doesn’t get business” after all. Reeves’s message will provide some reassurance, but regrettably, there was no mention of Britain’s high energy costs – a big bugbear for business that deters foreign investment. Electricity prices for industry, at about 26p per kilowatt hour in 2023, are the highest among members of the International Energy Agency covering the world’s advanced economies, and much higher than the 17.7p average.

Reeves confirmed the government would approve long-delayed plans for a third runway at Heathrow airport. It is a powerful symbol for her real audience even though internal government estimates suggest passengers will not use it until 2040. But it calls into question the government’s green credentials and Reeves’s pre-election promise to be the UK’s “first green chancellor”.

She argues that growth now "trumps other things" – but would that really apply if global heating, which has already broken the key target of 1.5C above pre-industrial times, hits 2C? What about 3C? Or 4C?

Similarly, her ambitious pledge to transform the Oxford-to-Cambridge corridor into “Europe’s Silicon Valley” will take many years. I’m told the new reservoir she cited near Abingdon is not due to enter service until 2040 at the earliest. The Environment Agency, while lifting its objections to more housing in Cambridge, is opposing more homes in Oxford because of the lack of sewage treatment capacity.

A lack of materials and a 200,000 shortage of building workers will hamper Labour’s plans – not least to provide 1.5 million new homes in five years. While Reeves promised visas for highly talented entrepreneurs, the government’s pledge to reduce net migration will hinder its drive for growth.

Keir Starmer and Reeves now claim they are in favour of deregulation rather than more regulation. But the government risks looking like a pantomime horse facing both ways. Some of its actions will arguably restrict growth – such as raising stamp duty, the employers’ national insurance rise, the higher national minimum wage and workplace rights package.

The logic of its new language is that the Employment Rights Bill will be diluted. There is still time as the government consults business on the detail, but doing so would provoke a civil war with the trade unions, who think it’s a done deal. It would also pit Reeves against Angela Rayner, who has championed the package but had to cede responsibility for it to Jonathan Reynolds, the business secretary and Reeves ally.

Answering questions today, the chancellor refused to abandon the reforms and Starmer repeated that message later at Prime Minister’s Questions. But business, which faces a bill of up to ?5bn to implement the package, will now step up calls for it to be softened. Reeves has already tweaked her crackdown on non-doms and so limited changes to the workers’ rights reforms might yet be on the agenda.

Reeves was right to admit that growth "won’t come without a fight". She will certainly get one from environmental groups, Nimbys, hundreds of local campaigners and even some in her own party.

The steely chancellor undoubtedly has the stomach for that fight. But many of today’s measures will make an impact only in the long term and will not help cure her immediate headache.

She sailed too close to the wind in her Budget, and the Office for Budget Responsibility (OBR) may rule in its spring forecast on 26 March that she is on track to break her "non-negotiable" fiscal rules. Although the government’s borrowing costs have stabilised after the recent bond market wobble, Whitehall whispers suggest the OBR judgement is on a knife edge; Reeves does not know which way its critical decision will go.

If the fiscal watchdog says she will breach her fiscal rules, the chancellor would have to cut her already tight public spending plans – even though that would harm the very growth she seeks.