Labour is looking to economists for advice — but will it listen?

One basic insight that most economists agree on is that actions speak louder than words. What people say they want often tells you more about how they want to be perceived, rather than their true desires. Our actual preferences are better “revealed” in the choices we make under real-world constraints. And that’s as true in politics as it is in the broader economy.
Sir Keir Starmer says economic growth is his government’s number one priority. Labour’s first budget told a different story, with tax rises and a jump in borrowing, all aimed at fuelling public spending. As Paul Johnson pointed out here this week, there was little that economists would judge as genuinely “pro-growth” in the financial statement. Even where spending could theoretically drive productivity gains, like through capital investment, much was allocated to schools, hospitals or net-zero projects —priorities unlikely to spark a productivity boon.
• Paul Johnson: The budget was a non-event and kicked big decisions down the road
That’s why the release of the Treasury’s Areas of Research Interest document this week is as revealing as it is interesting. The chief economic adviser to the department, Sam Beckett, has published a list of big-picture questions for external economists to provide insights to help the government “generate answers of value to policymaking” on economic growth, the labour market, finance, fiscal policy and more. Dig through the specifics, though, and the government’s comfort zones become obvious. The questions’ topics, gaps and framing reveal as much about what Labour won’t confront in its push for higher living standards as what it will.
Credit where credit’s due: growth does seem to be the notional guiding star of this intellectual call to arms. Roughly two thirds of the 100 economic questions touch on either productivity, growth or macroeconomic stability. Some questions are of critical importance too: why does Britain lag its peers in productivity? Why has capital deepening fallen since the financial crisis? And what will be the effect of the net-zero agenda on growth? If we could answer these well, Britain’s economic policy would be on much stronger ground.
Labour’s Treasury also seems up for challenging traditional left-wing assumptions. The questions include “What are the impacts of input costs (like housing and energy) on productivity and economic dynamism?” Others ask about labour market regulations’ effect on growth and about the resulting “distortions” of taxes on labour. Given the government’s embrace of renewable energy, the coming expansion of workplace rights and the recent increase in employer national insurance contributions, it’s likely that submissions from researchers here could make the government squirm.
Yet the list also shows where the government is currently more close-minded. Take, for example, the loaded question, “How can public investment crowd-in more private finance?” rather than “will it?” In a heavily indebted country like the UK, public spending often pushes private finance out by raising borrowing costs. The Office for Budget Responsibility flagged this risk of private sector “crowd out” after Labour’s budget. The scope of this question ignores it.
The document’s wording reveals other areas where the government has ideological blinkers. Instead of querying if or when industrial policy for defence supports growth, it asks how it can. Similarly, it poses a question about “the risks to financial stability posed by climate change,” without a hint that governments leaning on finance to support the low-carbon “transition” could itself heighten risks. John Cochrane, finance professor at Stanford Graduate School of Business, argues that climate regulation poses a bigger threat to financial stability than the slowly evolving distribution of weather patterns.
Some questions seem small-fry concerns, perhaps representing current pet obsessions of commentators. One question about the role of domestic savings appears aimed at appeasing financial industry lobbyists who want to force more ISA savings into domestic investments — in effect subsidising capital costs at home. Others play into Labour’s motivated reasoning on the worth of “preventative” spending, the idea that certain outlays on health or social programmes more than pay for themselves by improving, say, labour force participation or productivity. A nice story, for sure, but probably wishful thinking, much like the idea of wholly self-financing tax cuts.
Then there’s the topics that are missing. For all the recent big waves of immigration, there’s not a single question about the effects on economic growth or the public finances of cohorts arriving. With an ageing population, wouldn’t it be useful to call for the best research on migration’s costs and benefits for growth? And why not ask researchers if the late economist Julian Simon was right that a larger population necessarily means more ideas that enhance innovation?
It is curious that there wasn’t a standalone question exploring whether the current research and development tax credits regime is effective, either. This is currently the Treasury’s most generous policy for research, but probably quite wasteful and certainly under-analysed, according to two research experts who I spoke to.
More predictably, the document assiduously avoids some right-coded issues. Academics are asked about the “growth effects” of health and education spending, for example, but not about the economic effects of a major effort to eradicate crime. Likewise, the term “regulation” appears just twice in the document — in sections on employment law and finance. That’s hard to square with Starmer’s recent promise that all new rules across government will be guided by a growth goal.
Now, perhaps it’s unsurprising that a Treasury run by a social democratic government will tend to choose economic questions shaped by left-leaning priors. I still welcome that the finance ministry is willing to put these big, challenging queries out there like this. Researchers and academics of all stripes should definitely answer the call.
Yet whether Labour has the political will to act on any tough findings is another story. Will the government ignore inconvenient evidence or seize the best academic insights to drive real reform? Ultimately, embracing workable ideas that challenge its assumptions will reveal whether the government is really committed to prioritising growth above its other goals.
Ryan Bourne is an economist at the Cato Institute and editor of the book The War On Prices