It’s hard to disagree with Lewis Goodall that the current Labour Government faces a ‘late 1970s’ moment. Productivity is flatlining, growth is anaemic and optimism has drained from our economic debate. Yet Rachel Reeves has a real opportunity to learn from her predecessors and revive her Government’s fortunes.
Many of the reforms later associated with Thatcherism – fiscal restraint, monetarist discipline and early market liberalisation – were initiated by the previous Labour government of James Callaghan and Denis Healey. They recognised, however late, that the post-war consensus had broken down. But before they could take credit for stabilising the economy, an emergent Margaret Thatcher took the keys to Number 10.
Similarly, in the 1980s, Labour governments in Australia and New Zealand, still social democratic, made a bold pro-market turn that laid the foundations for decades of prosperity.
Bob Hawke and his Treasurer, Paul Keating, in Australia, and Roger Douglas, the reforming finance minister in New Zealand, faced choices similar to those before Reeves. Confronted with bloated public sectors, inefficiency and collapsing competitiveness, they didn’t double down on redistribution. They cut through it, freeing up markets, modernising welfare, opening their economies to trade and capital, and re-establishing incentives to work, invest and grow.
The results speak for themselves. In 1983, Australia was stagnant and protectionist. By the early 1990s it had become a regional success story, laying the groundwork for thirty years of uninterrupted growth. New Zealand, too, moved from one of the world’s most over-regulated economies to a model of fiscal discipline and enterprise. Both countries proved a vital lesson: Labour governments can be pro-market and pro-fairness at the same time, but you must start with growth.
That is the argument of ‘Prosperity Through Growth’, the book I have co-authored with Dr Arthur Laffer, Douglas McWilliams and Lord Hintze. Our thesis is simple: if Britain wants to raise living standards and fund world-class public services, it must first rekindle the spirit of enterprise. Growth cannot be mandated from Whitehall or conjured through tinkering with OBR forecasts; it must be driven by policies that unleash the private sector’s ability to create wealth.
The future of this Labour Government hangs on the upcoming Budget. Reform UK now polls close to 30%, Labour below 20%, with some trackers even putting the Greens level-pegging. Emboldened by the Greens’ call for a wealth tax on ‘the top 1%’, many Labour backbenchers are urging Reeves to follow suit. That would be a grave mistake.
The temptation to appease with a symbolic tax on wealth is strong, but it would be economically self-defeating and politically short-sighted. Taxing aspiration doesn’t level up society; it drives investment and talent away. More than 10,000 millionaires left Britain last year. If Labour want to fund better public services, they must make Britain the best place to create wealth, not flee from it.
Even Alastair Campbell noted recently that changes to non-dom rules are already pushing high earners to Italy and Dubai. And Tony Blair warned us that unless mainstream politics found an answer to stagnation, challenger parties would dismantle the system. That is exactly what is happening. Reform’s rise is not ideological; it is driven by voters who have endured years of personal recession. The Greens’ surge, too, reflects frustration with a Government that seems to have no answer for improving living standards.
If Reeves uses her Budget this week to tinker at the margins – raising taxes on wealth or high earners instead of unlocking enterprise – Labour’s support will collapse further. The public won’t care how neatly she balances the books; they will judge her by whether their own finances improve.
The precedent from Hawke and Douglas is powerful. Both faced left-wing critics demanding higher taxes and more redistribution. Both resisted. They knew long-term prosperity depended on freeing up their economies, not burdening them further. Their reforms were unpopular inside their own parties, but they worked. They rebuilt growth, restored competitiveness and held power on the strength of rising living standards.
That is the courage Labour need now. A pro-growth Budget means rejecting a wealth tax and focusing on incentives: simplifying the tax system, reforming welfare to reward work, driving public-sector productivity, cutting planning red tape and securing affordable energy for households and businesses alike. Each measure may upset parts of Labour’s coalition, but together they would send a clear message: this Government is serious about growth.
The alternative, a Budget shaped by short-term politics and backbench appeasement, would reassure no one and alienate everyone: markets, entrepreneurs and middle-income voters alike. Growth would remain weak, and people would still feel poorer.
Starmer and Reeves must remember what reforming Labour leaders around the world understood: you cannot deliver fairness without first delivering prosperity. Growth is not a right-wing idea; it is the precondition of social democracy itself.
If Reeves makes the right choices at the Budget, if she follows Callaghan, Hawke and Douglas rather than the siren calls of the Greens and her backbenchers, she can set Britain on a new path. If she chooses the easy option, it will mark the beginning of the end.
‘Prosperity Through Growth’ is published by Biteback.
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