If the UK needs an economic boost, why is Labour making the same anti-growth mistakes as the Tories?

That’s the question we should be asking, while also focusing our attention away from Rachel Reeves’s big speech about Heathrow Airport – that’s not the important thing today – and towards Keir Starmer’s attack on the regulations that should keep the UK economy on an even keel.

Already today (Wednesday, January 29, 2025), Starmer has made a fuss about wanting to “clear out the regulatory weeds”. The BBC states:

Writing in the Times, Starmer says that for “too long regulation has stopped Britain building its future”.

He criticises the “morass of regulation that effectively bans billions of pounds” of investment, describing “thickets of red tape” that have “spread through the British economy like Japanese knotweed”.

Ministers will “kick down the barriers to building, clear out the regulatory weeds and allow a new era of British growth to bloom”, he says.

“A change in the economic weather can only ever come from a supply-side expansion of the nation’s productive power.

“In the 1980s, the Thatcher government deregulated finance capital. In the New Labour era, globalisation increased the opportunities for trade. This is our equivalent,” Starmer adds.

But Thatcher’s deregulation of the financial markets led to the crisis of 2008 that plunged us into nearly 20 years of austerity that flatlined the economy. New Labour’s globalisation only worsened that situation.

That is not to say that deregulation is by necessity a bad thing.

In his latest Mainly Macro column, former Oxford Economics professor Simon Wren-Lewis states that Starmer’s fixation on growth depends on which institutions and regulations are involved in that:

If it’s political regulations blocking building inland wind turbines, then getting rid of those has to be a good thing, but if its regulations designed to avoid another financial meltdown, not so much. If deregulation is aimed at building more homes by giving less power to NIMBYs, then it could be regarded as a clever political move to do something the political right were generally too scared to do. If it’s building additional airport runways that the Climate Change Commission have said should not take place, that doesn’t sound clever at all.

He says Labour was mistaken in asking regulators how they can boost growth, as happened recently; it is what has led Starmer to make his comments today:

The right question is whether regulations get trade-offs correct. While it is pretty clear that in many cases planning regulations have become excessive, it should not be presumed that this is true in other cases. Sometimes a clear regulatory framework can help growth. In the past one of the most successful measures to boost UK growth was adopting the set of regulations embodied in the European Single Market.

And there are discussions about those regulations that are going on today, because Starmer accepts that the UK needs to be in step with the EU on certain regulations in order to do business with the world’s largest trading bloc.

Professor Wren-Lewis has a warning over the Heathrow expansion:

Growth that involves speeding climate change is not sustainable, and instead involves the current generation taking resources away from future generations.

And he warns about political ideologies that inhibit growth:

It was an ideological view that deregulation was always desirable that allowed the financial crisis to happen. It was an ideological desire to shrink the state that led to growth-sapping austerity. It was political antagonism to the EU that led to Brexit.

We know that changes made to financial regulations after the financial crisis did not go far enough to prevent another crisis, so the last thing we need is political pressure to water down the inadequate changes that were made. Ruling out tax increases and reacting to fiscal pressures by cutting public spending risks perpetuating the austerity regime which destroyed the economic recovery after 2010. Labour’s ‘red lines’ for EU cooperation just bake in the reductions in UK growth that Brexit is bringing about.

This leads to further questions about who Starmer’s and Reeves’s economic growth is actually for. Professor Wren-Lewis stresses that

There is a danger of equating measures favoured by business with measures that enhance growth. For example business often prefers less competition, but competition often increases the incentives for businesses to invest, as well as directly increasing output by reducing the degree of monopoly.

It is even more dangerous to assume that measures that favour the wealthy must help growth. It is not at all clear why we should be worried that some of those who became wealthy during a period of economic decline now want to leave.

(This is a sideswipe at Rachel Reeves’s decision to water down non-dom tax regulations in a bid to stop them leaving the UK.)

The last point re-emphasises another claim by Prof Wren-Lewis – that “It matters what that growth involves and how that growth is distributed.”

If economic growth only helps the wealthy, then they will squirrel the profits away in their massive bank accounts – usually offshore, to add insult to injury – and the economy will not benefit.

Economic growth has to be specifically designed to boost living standards for the poorest in society – as a priority. They spend the largest proportion of their income into the economy so they are most likely not only to boost it but simply to keep it going in any meaningful way at all.

Starmer’s Labour-In-Name-Only government seems to have forgotten this vital element of any government’s economic priorities, jeopardising its own plans in the process.

It could prove a costly – if not fatal – mistake.

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