Is there clear water between Conservative and Labour economic policies?

The Labour Party has faced accusations of mirroring the Conservative Party’s economic strategies.

Last week, shadow chancellor Rachel Reeves outlined her economic approach in her Mais lecture, prompting some to liken her to Margaret Thatcher.

Echoing Labour’s commitment to a “decade of national renewal”, Ms Reeves promised substantial reforms akin to Thatcher’s era, aiming to reverse the nation’s economic decline and foster robust growth.

Some say there is little daylight between the two parties in terms of economic policies. Both are vying for the reputation of being the most financially prudent. Neither are promising big spending commitments. Citing the last few years of economic turmoil, both the chancellor Jeremy Hunt and the shadow chancellor talk about proceeding cautiously and making “difficult decisions”.

Yet both insist there is clear water. Labour would argue the devil is in the details – mechanisms such as reforming planning laws they hope will stimulate productivity, while the Conservatives look to slash taxes in a bid to encourage investment and help working families.

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So, what is the truth? Where do the policies of the chancellor and the shadow chancellor differ – and where do they converge?

It’s all about growth

Both are committed to growth as their primary economic goal – making it the core tenet of their offering to voters. The first of Labour’s five missions is to secure the highest sustained growth in the G7, while Rishi Sunak’s second pledge is to “get the economy growing”.

The government say they will do this by “encouraging enterprise, tackling poor productivity, and getting more people into better-paid jobs right across the country”, while Labour say their commitment to growth forms the baseline for all their other policies.

Fiscal rules are here to stay

Both parties are aligned to a fiscal framework, ie self-imposed restrictions on policy around government money, set by the government to constrain its own decisions on spending and taxes.

The government’s current fiscal rules are:

* Debt falling as a share of national income in five years

* Public sector borrowing should not exceed 3 per cent of GDP in five years

* Some types of welfare spending must remain below a cap.

Politicians argue that fiscal rules help provide stability, sending a strong signal to markets that the government will stick to fiscal limits and to the electorate that the government is responsible with public money.

The chancellor has stayed firmly committed to the current rules, arguing that altering them would lead people to interpret that as “Britain losing control of its finances”.

The shadow chancellor has also expressed her approval for a fiscal framework and has committed to the same debt target as the current government.

But – as set out in Ms Reeves’ lecture – Labour is open to reforming some of the rules, including adopting new targets that would only allow borrowing for investment and including an escape clause that would allow the rules to be suspended if the OBR judged that certain conditions were met.

Tight public spending

Much to the dismay of some economists and campaigners, neither party have committed to vast amounts of public spending – despite pressure on public services.

The recent spring budget saw the chancellor choose to broadly maintain spending on public services at the same level announced in the autumn statement, and public sector capital spending to be frozen in cash terms.

The Labour leader Sir Keir Starmer has similarly insisted on dispelling the notion that public spending is “the only lever that can ever be pulled” to improve people’s lives, and the shadow cabinet insist they are under orders by Ms Reeves to not make any unfunded spending pledges – and instead pursue an agenda of “reform over spend”.

Labour’s commitment to financial prudence was demonstrated by their abandonment of the £28bn green prosperity pledge, which the party were forced to water down in response to the rising cost of borrowing and Conservative attacks.

Productivity savings

Both the chancellor and the shadow chancellor have told their ministers to look for ways that departments can drum up revenue without increasing taxation.

Prior to the spring budget, Jeremy Hunt announced a “public sector productivity drive”, an £800m investment in public services that would see the implementation of a number of cost-saving measures, such as artificial intelligence and digitisation across government, in the hopes of saving money.

Labour has adopted a similar stance. Shadow health secretary Wes Streeting has vowed to cut NHS “waste” and said that reforming NHS practices is more important than “pouring” money into a health system “that isn’t working”.

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Planning reform

One key point of difference between the two economic policies is the emphasis that Labour is putting on its proposal to overhaul the planning system.

The party says it wants to reform the planning system to “get Britain building again”, in the hope of unlocking mass construction projects and kickstarting the building of 1.5 million new homes, more transport, clean energy, and new industries in all parts of the country.

Meanwhile, the Conservative Party have backtracked on their ambitious pledge to build 300,000 houses by the mid-2020s, updating the targets as “advisory”.

The Tories maintain they are committed to building at least a million more homes by the end of this parliament, but ministers have faced considerable opposition within their own party as rebels support the right of councillors and interested parties to block construction projects in their local areas.

Making work pay

Labour are also hoping that their raft of workers’ reforms will unlock economic growth by creating better-paid and more secure jobs. Their plans include introducing a new deal for working people and delivering a genuine living wage, banning zero-hours contracts and ending fire and rehire.

The Conservatives have not made a similar commitment. Some in the party would argue that strengthening workers’ rights could have the opposite effect – discouraging businesses to invest in the UK and reducing productivity.

Instead, the Conservatives have embarked upon a battle with unions over minimum service levels and have tightened strike laws to prevent workers from crippling the economy with industrial action.

Taxes

The final divergence lies in the two parties’ approach to taxation. Though both have ruled out tax rises, it is only the Conservatives who have pledged specific tax cuts in the run-up to the 2024 general election, in the hope of easing the cost of living for voters.

Having slashed national insurance tax by 4 percentage points over the last year, the Tories are outstripping Labour when it comes to leaving more money in voters’ pockets. Instead, Labour has been much more cautious, suggesting that they may not be able to cut personal taxes for two years due to the state of the economy.

Sir Keir has united behind calls to “lower the tax burden on working people” but has drawn attention to the economic turmoil caused by Liz Truss’s mistake of unfunded promises.