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UK chancellor Rachel Reeves’ speech appears to set stage for investment increase

UK chancellor Rachel Reeves details investment spending at Labour conference

UK chancellor Rachel Reeves' speech at the Labour Party conference has shed more light on how she will prioritise investment spending: “Growth is the challenge.... and investment is the solution”, she said.

Rachel Reeves should have gone full Frankie Valli.

Growth is the word, is the word that you heard
It's got a groove, it's got a meaning
Growth is the time, is the place, is the motion
Growth is the way we are feeling

But the commitment seems to open the path for more government borrowing to allow more investment in the UK. Current fiscal rules don’t make that much sense — even if the pledge to balance the budget excludes investment, Labour are still hamstrung to bring down net debt as a share of GDP between years four and five of the forecasts, which creates what plenty of clever people think leads to an “inbuilt bias” against investment.

In short, spending more on “investment” not necessarily a bad plan, it’s just a) hugely dependent on what you spend it on – getting the priorities right is crucial, as returns on investment can vary a lot. And b) It’s also relatively amusing that it’s what Liz Truss wanted to do. It’s all about the message — Rachel Reeves and Keir Starmer have worked enormously hard to seem credible to markets in order to get to this point. Where Truss rushed in, Reeves has feared to tread. Until now, maybe.

Meanwhile, PM Starmer is talking tough on sickness benefits claimants. It is fascinating to see a new UK government expend so much political capital early on taking "tough decisions” – i.e. unpopular ones. The plan is part of a) credibility in the market and b) sowing the seeds of growth that will yield fruit four years from now — it’s just not what we are used to!

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