The ritual of the annual Mais lecture took place on 19^th March.  The Mais lectures have been taking place since 1978.  The year is not accidental.   Thatcher was about to come to power.  She proposed to abandon the postwar economic consensus of a managed economy in which the state assumed responsibility for economic areas considered crucial to economic success: health, education, housing, energy, transport, telecommunications etc.  Thatcher favoured minimising the role of the state.  The Mais series of lectures can be seen as an attempt to promote and explain the move to a society in which free-market capitalism rules.

In this context, it is no accident that Rachel Reeves was asked to give the 2024 Mais lecture.  In opposition, Reeves has made a name for herself by loudly proclaiming her attachment to fiscal rules which imply austerity.  But, she will soon become Chancellor of the Exchequer.  The great and the good are anxious to learn how Reeves will use her new powers.

Early in her lecture Reeves criticised the Thatcher agenda when she referenced the 1984 Mais lecture, ‘The British Experiment’, by Nigel Lawson, Thatcher’s second chancellor.  

“But today it is evident that Lawson was wrong…. assuming that the state had little role in shaping a market economy and that the people and places that matter to a country’s success are few in number.

“The outcome was an unprecedented surge in inequality between places and people which endures today. The decline or disappearance of whole industries, leaving enduring social and economic costs and hollowing out our industrial strength.”

It is certainly of interest that Reeves raises the question of the role of the state in her introduction.  But it turns out that the ‘active’ state she envisages will not be a state that is directly involved in providing the social infrastructure that British society so desperately needs.

Reeves had, before the Mais lecture, already painted herself into a corner with her fiscal rules and low tax commitments.  When she talks about a more ‘active’ state, it cannot be about a bigger state that directly appropriates resources.  Reeves is limited to proposing  a smarter state that will work in “genuine partnership with business to identify the barriers and opportunities they face.”  That seems to be her ‘big’ idea about how Britain should get out of the mess it is in, that the state should more actively engage with private sector to encourage them to do the things that the state sees as important.

It’s an alarmingly limited perspective on the role of the state that is much dictated by Reeves’s pre-occupation with fiscal rules.  She clarifies these fiscal rules in her lecture.

The deficit is normally defined as total government spending less government revenues (taxes).  Reeves will divide government spending into current spending and investment spending.  She will aim to reduce the difference between current spending and taxes to zero.  “So let me be clear about the rules which will bind the next Labour government. That the current budget must move into balance, so that day-to-day costs are met by revenues.”

Reeves won’t have any restriction on borrowing money to finance government investment spending, unlike the Tories who have limited government borrowing to 3% of GDP.  But Reeves then restricts her freedom of action with this nonsense:  “… debt must be falling as a share of the economy by the fifth year of the forecast, creating the space to respond to future crises.”

None of this was particularly new but the clarification was useful.  But then Reeves adds that she will be locked into her fiscal rules until the unelected OBR gives her permission to change them by declaring the UK is in an economic crisis.  It is remarkable that Reeves could believe that her audience will be impressed that she will await the permission of the OBR before she will abandon a set of fiscal rules that changed economic circumstances might render particularly pernicious.  Had she been running the country during COVID would she have withheld ‘Furlough’ payments until the OBR approved them? 

Apparently the elected representatives of the people are not to be trusted to decide if the fiscal rules make sense.  Gordon Brown thought along similar lines when he decided that the Bank of England would have sole responsibility for the rate of interest.

Reeves’s active state will engage with the business sector.  There is no suggestion that it will engage with institutions of the working class, the trade unions.  There is no mention of the trade union movement in her lecture other than in the commitment to reverse trade union legislation enacted since 2010.  Of course, the main anti-trade union legislation had been enacted by 1997.  Reeves makes no commitment to reverse that earlier legislation.

Sharon Graham, general secretary of the Unite union was unimpressed and tweeted: “If you stick to phoney fiscal rules, rule out taxing the wealthy and pander to the profiteers, you end up in a straightjacket of your own making.”  This is a little unfair on Reeves.  It was the Tories who made the straightjacket.  Unfortunately, Reeves enthusiastically climbed into it.

Reeves covered many other areas in her lecture, investment, productivity, skills, pensions etc but all at a very superficial level as if she was just trying to reassure her audience that she was thinking about these matters.  The enduring impression is that Reeves has no particularly clear idea about how she will use her position as chancellor other than to talk to the private sector and to stick rigidly to fiscal rules.  Indeed, one cannot help wondering if Reeves is feeling a little nervous at the prospect of becoming chancellor.  She will now have to deliver and that will prove to be much harder than just proclaiming a fervent belief in fiscal rules.