No Plan B? Labour’s Project Growth still isn’t paying off

LONDON — Rachel Reeves bangs the “growth, growth, growth” drum again Wednesday. But her Labour colleagues are starting to wonder what happens if the music dies.

Reeves, Britain’s top finance minister, is banking on an economic turnaround to hand her the space to improve straining public services.

But forecasts released alongside the chancellor’s spring statement Wednesday are set to halve projected U.K. GDP growth in 2025 to around 1 percent. The Bank of England expects that number to improve later on, though only to 1.5 percent in 2026 and 2027.

So what if Reeves’ Project Growth — the centerpiece of Labour’s successful election pitch last year — doesn’t pay off?

It’ll mean “she’s stuck with horrible choices,” said Paul Johnson, director of the Institute for Fiscal Studies, a nonpartisan think tank. “The best outcome would be if she could drive real productivity improvements in public services. Otherwise it’s more tax or tight on spending. Same old, same old.”

A trade union official — granted anonymity to speak frankly like others quoted in this article — put it more bluntly: “We’ll f*cking lose the next general election.”

‘No alternative’

Reeves is already walking a tightrope.

She is pushing through deregulation of planning and infrastructure in a bid to unleash business — but her October budget brought the biggest U.K. tax rises since 1993, something industry groups say hurt growth.

Reeves argues this was a one-off hit to deal with her inheritance from 14 years of Conservative government — but hasn’t ruled out further tax hikes this fall.

Her spring statement on Wednesday is due to herald real-terms cuts to some government departments, already hit by years of Tory austerity. The aim is to make the state slimmer and more productive, helped by AI and tech — but it’s a high price to pay for many Labour MPs, and some ministers too, who don’t want to wait to rebuild the state. 

“There is no alternative,” is the consistent message from inside the Treasury — echoing Tory Prime Minister Margaret Thatcher’s hardline stance on her 1980s economic plan.

“There are acknowledgements that there’s progress and green shoots,” one person with knowledge of the plans insisted: “I’m certainly not getting all doom and gloom.”

Rachel Reeves is pushing through deregulation of planning and infrastructure in a bid to unleash business — but her October budget brought the biggest U.K. tax rises since 1993, something industry groups say hurt growth. | Pool photo by Stefan Rousseau via Getty Images

Growth “is going to have to happen,” they said. They pushed back on the suggestion that there is no plan B, but added: “There is no alternative and there can’t be, because it’s how we’re going to be able to achieve all the things we want to achieve.”

But a Labour frontbencher was more skeptical: “It could well be … that she doesn’t know the answer.”

Even if the economy does start to tick upwards, some MPs openly wonder what happens if voters don’t feel it in their pockets by the time of the next election — and if the level of growth isn’t emphatic enough to really change the picture.

A second Labour frontbencher said: “There is no sense of what they think in that circumstance — no sense that they’re even considering what would happen.”

The first frontbencher quoted above said: “I think MPs are trying to build a jigsaw with pieces missing, in maybe the vain hope that eventually they find all the pieces on growth. It’s the hope that kills you.”

Reasons to be cheerful?

Treasury officials believe reasons for optimism are underpriced. 

The Organisation for Economic Co-operation and Development recently projected Britain’s growth rate to be the second-highest in the G7 this year. The International Monetary Fund placed the U.K. third, behind only the U.S. and Canada.

A second person with knowledge of the plans said “the focus remains on Project Growth” and that the Treasury is still “bullish” about making it happen. 

Two things will matter most, the person argued; whether growth is felt in living standards, and how Britain compares internationally. “If global growth is down but we land in a reasonably strong place within that, I think there will be a political narrative we can push,” they added. “Without the former, that becomes more challenging.” 

On Wednesday the OBR will release new projections of household living standards. One think tank adviser said they had run several models and all were “grim.” 

Ministers are meanwhile bracing for real-terms cuts to their budgets. 

Wednesday’s spring statement could confirm in-year reductions to Whitehall budgets in 2025/26, three people with knowledge of the discussions said. 

The Organisation for Economic Co-operation and Development recently projected Britain’s growth rate to be the second-highest in the G7 this year. | Pool photo by Jonathan Brady via Getty Images

Reeves’ update will also give an indication of the government spending “envelope” for the following three financial years, with full details to follow in a spending review in June.

Each Whitehall department has been asked to find so-called efficiencies of 5 percent, and to identify its 20 percent “lowest priority” areas of spending to find further cuts. While spending on health is rising, unprotected departments such as justice and local government are likely to be hit. 

A third person with knowledge of the plans said: “Most businesses wouldn’t go 16 years without looking at whether they’re spending money wisely. We think it’s probably a good idea the government [looks at it] as well.”

Even under existing plans, Reeves had set the stage for belt-tightening. Public spending is due to rise by 3.1 percent this year but only 1.3 percent for each of the following three years. Some believe the chancellor is now in a race to get investment going — with industrial, trade and small business strategies all due out around June — before public sector cuts can knock it all off course.

Loosen up, Rachel

Already, Labour MPs are gunning for Reeves’ strict fiscal rules. The rules, designed to instill confidence in the government and shut down the Tory attack that Labour is profligate, say the government cannot borrow for day-to-day spending by 2029/30.

One backbench MP said: “I think that there are a number of MPs who are frustrated by it. We have basically boxed ourselves in and are unable to govern as a Labour government.”

Those wanting to shred Reeves’ fiscal rules are not confined to Labour’s pro-spending left, either. 

A second, pro-Starmer MP said colleagues have been watching “expansionist policies” in Germany and Canada, where new PM Mark Carney has enjoyed a poll bounce ahead of an election.

“We might have to start thinking a little bit more imaginatively, because carrying on with rules that are just going to be broken anyway, and then getting hammered for breaking rules, I don’t think is going to be good for anyone,” they said.

A third, moderate backbencher added: “The golden rule might actually undermine the likelihood of the growth that we need. There’s been such a wholesale change in the geopolitics, between Trump and Putin … when the world changes, some of our rules need to change.”

A similar intervention at the weekend by New Labour grandee David Blunkett, a peer on the right of the party, has not gone unnoticed by the Labour troops.

But Reeves has refused to budge. Government aides argue the whole point of the spring statement is to reassure businesses and the markets that her approach is consistent. One U.K. government official suggested the chancellor — who left £10 billion of “headroom” between her plans and her fiscal rules in October — ideally wants to nudge that closer to £30 billion in the long term. 

Reeves argued in a recent BBC interview that U.K. total debt — at 96 percent of GDP — puts Britain in “a very different situation” to Germany. The third person with knowledge of the plans quoted above said: “Presumably what [critics] mean is we should borrow more. If we did what Germany did, the increase in our borrowing in one day would have gone up £4 billion a year. That’s the prison budget wiped out.” 

More trouble looming 

The global picture hardly gives Reeves cause for sunny optimism.

Donald Trump’s threat of fresh tariffs looms next Wednesday. Business Secretary Jonathan Reynolds is in intensive talks with U.S. counterparts to ask for a carve-out for the U.K. A second British government official said: “We’re hoping and working towards a resolution before April 2, and not after.”

The government is braced for the possibility that the U.S. may retaliate against Britain’s 20 percent Value Added Tax — a consumption levy added to most goods and services. The first U.K. official quoted above voiced concern this could be set at the difference between U.S. sales taxes and the VAT rate, so around 12 to 14 percent.

Easing up on U.K. taxes on big tech firms, something that’s being mulled in a bid to swerve Trump’s tariff wrath, could also cause a fresh headache for Reeves. Some Labour backbenchers have already raised the alarm at the optics of going soft on tech giants while cutting social security payments.

More detail of where £5 billion of welfare cuts will fall will also be published Wednesday, and could overshadow Reeves’ attempts to talk up Britain’s growth prospects.

“It’s the most worried the center [of government] has been” about any one issue, a fourth, loyal Labour backbencher said. The second frontbench MP quoted above summed up the welfare cuts as “an array of sh*t.”

A fifth, senior backbencher said that while colleagues had been willing to give ministers the “benefit of the doubt” over previous cuts to social security payments for pensioners and a move not to compensate women hit by a pension age increase, the welfare reforms were a step too far. “This is a red line for me,” they added.

‘No wiggle room’

Reeves faces trouble in every direction — but British chancellors have been here before. The Conservative-Liberal Democrat coalition of the early 2010s faced criticism for making huge cuts to public spending in the aftermath of the global financial crisis.

Will de Peyer, a Lib Dem Treasury adviser at the time, and now a director of the consultancy Tendo, said of Reeves: “There is no wiggle room, is there? Even if she were to do something with the fiscal targets, if you look at the fundamentals of the British economy there’s not a huge amount she can do that she isn’t doing already. 

“All of the sensible growth things that the Tories held off doing because of political issues, rather than economics, she’s doing,” though he suggested improving relations with Europe would be a “sensible place to go at the moment,” and said Reeves’ hike in employment taxes was “not helpful.”

“Borrowing is high, tax is high, spending is high,” said the third person with knowledge of the plans, quoted above, with no “sugar rush” solution.

They added: “We’ve got to address the structural problems in our economy in order to get growth … We never said this would be easy. We never said we could turn it around straight away. Six, seven months in we’ve done a huge amount on this agenda but we know there’s more to do.”

Esther Webber contributed reporting.