Reeves pledges to 'tear down' barrier to investment but does that include her fiscal rules?

Labour has been accused of being too pessimistic about Labour’s economic inheritance.

The tone of Rachel Reeves’s conference speech was noticeably more upbeat.

“My optimism for Britain burns brighter than ever,” she enthused to thunderous applause.

There’s always hope but the new(ish) chancellor finds herself in an unenviable position.

Public services are visibly fraying and economic growth is too weak to generate the tax revenues required to repair them.

The government’s finances are dismal. Borrowing is overshooting forecasts, the stock of national debt has climbed from 40% to 100% of national income in the space of 15 years.

And the situation is set to deteriorate.

Two weeks ago, the Office for Budget Responsibility (OBR) warned that the pressures of an ageing population and climate change will at some stage in the years become “unsustainable”.

“Economic growth is the challenge,” Reeves told the party faithful. “And investment is the solution."

Few outside the hall would disagree.

For almost all of the last 30 years, the UK has had the lowest level of total investment (by government and by businesses) as a share of national income in the G7.

A recent study by the Institute for Public Policy Research (IPPR), found that business investment in the UK since 1995 has ranked 28th among the 31 OECD countries.

Mexico, Slovenia, Latvia and Hungary all attract higher levels of private sector capital.

Most economists will tell you that the UK needs to move toward the top of the Investment League if we are to revive growth and with it living standards.

The chancellor has ideas about how this could be done.

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She promised to revive the idea of an Industrial Strategy - details to come next month - an idea which was ditched by the last government.

She pledged to reform business rates, which will delight many smaller high street firms who will hope that they will end up paying less and that large, multi-national tech companies end up paying more.

And Rachel Reeves said she would rescue UK exporters “tied up in red tape by a failed Brexit deal."

Intriguingly, the chancellor also hinted she is considering increasing the amount of money the government spends on projects to boost economic growth.

“It’s time that the Treasury moved on from just counting the costs of investments in our economy, to recognising the benefits too,” she said.

As things stand, government investment is scheduled to fall as a share of national income over the course of this parliament.

And the fiscal rules that Labour committed to - to balance the current budget and get debt falling in five years - make it difficult to avoid these cuts.

Some have urged the government to amend and even ditch the fiscal rules, arguing there’s a need for much more boldness than was set out in the Labour manifesto.

Raising investment significantly and holding it there in the years to come would require billions of pounds of extra spending.

Tweaking the fiscal rules could create room for manoeuvre and doing so is unlikely to upset many voters but the chancellor’s instincts seem cautious.

Rachel Reeves told the conference that the government’s finances are so dire that, on taking office, Treasury officials warned her there was the risk of another market blowout.

“It was made clear to me that failure to act swiftly could undermine the UK’s fiscal position - with implications for public debt, mortgages and prices,” she said, insisting her decision to means-test winter fuel payments was necessary.

There is no universally agreed level of how much a government can afford to borrow without losing the confidence of investors.

But Liz Truss’s government shows us what happens when you do.

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