If Rachel Reeves were serious about growth, she would look to the EU

Independent

22-03-2025

R achel Reeves, the chancellor, tried to imitate James Callaghan in an interview this weekend. She told the BBC: 'We can't tax and spend our way to higher living standards and better public services. That's not available in the world we live in today.'
The echo is unmistakable of Prime Minister Callaghan telling the Labour conference in 1976: 'We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists.'
What Mr Callaghan rejected was called Keynesianism then and would probably be called Trussism now. Ms Reeves is rejecting something that sounds more respectable but is not: the idea that we can have higher-quality public services and higher living standards out of thin air.
Half a century apart, they both reject, in the name of realism, the policies urged on them by their party. Ms Reeves argues that, with taxes at a 70-year high, the option of higher taxes still is 'not available'.
This is not strictly true. The Independent argues that Britain is still not as heavily taxed as most of our northern European neighbours, and that it may be necessary to consider a rise in income tax as the fairest and best way of meeting the further pressures of essential public spending, including on defence.
But the chancellor is right that the tax burden is close to what the electorate will bear, and that some difficult decisions on spending do have to be taken.
She is right, too, that she and her ministerial colleagues have to take a swashbuckling approach to needless regulation and waste. We do not advocate Elon Musk's methods, and we are sceptical about the savings that his Doge (Department of Government Efficiency) will actually produce, but a sense of crusading urgency in a British style would be welcome.
A British Doge is one way of encouraging growth, which is what the government describes as its first mission. Ms Reeves deserves some credit as the first chancellor for some time to sound serious about cutting unnecessary regulation and relaxing planning law. If she delivers, she will deserve a great deal more.
But this cannot be the only means of raising the rate of economic growth, currently not statistically significantly different from zero.
She and Sir Keir Starmer are staring another growth opportunity in the face, but dare not mention it. Leaving the European Union has made us poorer, and some of that damage could be reversed by improving the terms of trade between Britain and our former fellow members. It is time that Sir Keir and Ms Reeves stopped being so scared of their pro- EU shadows and started to negotiate a better trade deal with the urgency that it deserves.
Yes, that will mean aligning with EU standards. We should not be afraid of that: it would be a common-sense way of reducing the border checks that make trade more expensive. This would make us better off without full EU membership or free movement of people.
When Ms Reeves addresses parliament on Wednesday, she should echo another former prime minister and speak, as Margaret Thatcher did when she was pushing within Europe for a single market, of how 'the success of the US in job creation shows what can be achieved when internal barriers to business and trade come down'.
It is usual for prime ministers and chancellors to say, with Mr Callaghan's air of hangdog realism, that there are no shortcuts to growth. But in our case today there is a shortcut, and we should take it now: to reverse as much of the damage of Brexit as possible.