Labour’s Victory: New Prime Minister Sir Keir Starmer and First Female Chancellor Rachel Reeves Set Sights on Economic Revival
After a landslide victory in the general election, Labour’s main priority is to steer the economy back into the black. Despite a modest programme for government, the means to deliver it are not. Sir Keir Starmer, the new prime minister, and Rachel Reeves, the UK’s first female chancellor, are facing a tough economic inheritance. Stagnant growth, hefty debt interest payments, and an ageing population have left public services stretched. However, with a strong majority and a clear mandate from voters, Labour is ready to take on the challenge of reviving the economy without breaking their campaign promises of not increasing debt or raising taxes.
The initial response from the financial markets to Labour’s victory was positive. Unlike two years ago when Liz Truss’s mini-budget caused the pound to crash and borrowing costs to soar, there was no dramatic reaction to Sir Keir’s win. Both the pound and 10-year gilts remained stable, and the FTSE 100 index saw an increase, driven by housebuilders and lenders who recognize Labour’s plans to promote housebuilding. Kallum Pickering, chief economist at investment bank Peel Hunt, commented, “With this big majority early on, Sir Keir Starmer has momentum. So what does he do with it? There’s too much debt to be lowering taxes or boosting spending. Those days are gone. So he’ll probably use this for regulatory reform, the things that will be positive, like housing market reforms.”
The FTSE 250, which is made up of more British companies, also saw a rise of over 1% in the first hour, indicating confidence in Labour’s promise of stability. Sir Keir and Ms. Reeves have promised to stimulate growth, but it will ultimately be up to the private sector and investors to deliver it. How effective Labour’s plans are, and how well the new ministers handle the challenging tasks ahead, will shape the new administration.
At the top of the to-do list is planning reform, which aims to speed up the development of housing and energy infrastructure. This will involve rewriting rules and reclassifying green belt land to make way for new homes, despite potential opposition from local communities. Labour also plans to remove barriers to onshore wind and solar energy projects, which have been stagnant for the past decade under the Conservatives. The national grid will also be expanded and upgraded. These moves are good news for companies like Octopus, Britain’s largest retail energy provider, who have ambitious plans to become a major generator if renewable projects become easier to deliver. Greg Jackson, founder and CEO of Octopus, welcomed Labour’s commitment to the sector, which contrasts with Rishi Sunak’s recent skepticism about achieving net-zero emissions. He told reporters, “I hope that what we’ve now got is the stability that we can invest in delivering a cheaper green electricity system.”
Labour’s approach has been mostly welcomed by the business community, who have been bruised by Brexit. However, improving the relationship with the EU is higher on the business’s radar than it seems to be on Labour’s. While a return to the single market and free movement would be a shortcut to growth, this has been ruled out as politically and practically impossible in the short term. Instead, Sir Keir and his team have talked about a warmer relationship with Brussels and improving the terms of the current deal. Three years after Brexit’s implementation, the negative impact on British companies trading with Europe is undeniable, with companies of all sizes feeling the effects.
Socrates Camenon, founder of food processing and distribution company Golden Delight Foods, experienced the impact of Brexit firsthand. He said, “It has had a devastating impact. We’ve lost all our exports, we’re having continual problems of shortages of product, prices are increasing, and the difficulties in admin and paperwork is mind-boggling. The red tape has created a nightmare. If a businessman makes a mistake, he has to do a U-turn. We’ve made a mistake, we’ve got to go back there and re-negotiate. We knew the Europeans weren’t going to make it easy for us, they had to make an example of us to set an example for 27 other states. But we’ve been the people who’ve been taking the pain.”
Labour’s plans to cut international red tape will be welcomed, but their proposals to impose domestic bureaucracy, such as employment reforms, have caused significant anxiety. The “new deal for working people” has been downgraded from a hard policy to a consultation, but it remains a core part of Labour’s offer to voters. Measures include granting “day one employment rights,” ending “exploitative” zero-hours contracts, and closing the ethnicity and disability pay gap. These potential costs will be felt most keenly by small and medium-sized businesses. The prospect of Ms. Reeves equalizing capital gains
