Labour’s growth gamble will decide Britain’s future

Labour’s plan to invest for growth is Keynesianism 101. Delivering on it will require discipline and competence — recent history gives us plenty of reasons to be sceptical, says Damian Pudner

Britain’s economic fortunes have hit a moment of reckoning. Public debt has ballooned to an eye-watering £2.8 trillion, roughly 100 per cent of GDP. That’s £90,000 for every taxpayer, and the cost of servicing this debt now devours a tenth of all government spending—about the same as the education budget. And as borrowing costs rise, this burden is only growing heavier. Labour’s answer? A bold — and risky — bet on “growth, growth, growth.”

It’s an easy slogan to cheer but a difficult plan to deliver. For Labour, the logic is simple: borrow now to invest in infrastructure, unleash growth, and use the resulting tax receipts to pay off the debt. It’s Keynesianism 101 — and in principle, it makes sense. Better roads, more housing, cheaper energy, and faster digital networks can all boost productivity and ignite economic dynamism. But Britain doesn’t need a lecture in theory; it needs results. And recent history offers plenty of reasons to be sceptical.

Take HS2: a grandiose economic vision that became a monument to British incompetence. What began as a transformative investment ended in humiliating cuts, billions wasted, and precious little to show for it. If Labour’s investment drive becomes a repeat of HS2 — projects mired in delays, bureaucracy, and runaway costs — Britain’s already fragile fiscal reputation will collapse under the weight of its mistakes.

This is Labour’s challenge. Delivering growth through borrowing requires discipline and competence — qualities Westminster has conspicuously lacked in recent years. Every pound of public money must produce measurable returns. But is Labour prepared to make the hard choices? Reforming a bloated, inefficient public sector will take more than cash; it will take courage. And as history shows, courage is rarely a surplus commodity in British politics.

Labour can’t just pump more money into services that are already underperforming. The public sector is a case in point: output per hour worked is still 6.4 per cent below pre-pandemic levels, and inefficiencies abound. Throwing good money after bad won’t fix this dysfunction. If Labour wants to deliver on its growth promise, it must streamline processes, embrace technology and demand real efficiency and change. Yet these are precisely the battles most politicians, especially those with union paymasters, would rather avoid.

A risky economic backdrop

The economic backdrop only sharpens the risks. A quarter of Britain’s government debt is tied to inflation-linked bonds, meaning every inflation spike sends borrowing costs spiraling higher. Add to that the Bank of England’s interest rate hikes, and debt servicing costs now account for four per cent of GDP. In short, Labour has almost no fiscal room for error. Even a small misstep could plunge the country into economic chaos.

Further tax hikes aren’t a way out either. The UK’s tax burden is already at its highest in 70 years, dragging at 37 per cent of GDP. Any further squeeze on households or businesses would choke off the investment and innovation Labour desperately needs to spark growth. The market may forgive borrowing for investment, but it will not tolerate reckless spending. The Liz Truss debacle taught us that: the bond markets move faster than politicians can blink when confidence collapses.

And here’s the rub: Labour’s gamble isn’t just high stakes — it’s existential. If it works, Britain could finally shake off the low-growth, low-productivity trap that has stifled progress for more than a decade. But if it fails — if spending spirals without results, if growth stalls — Britain will find itself cornered, facing rising borrowing costs, plunging credibility, and the very real threat of decline.

Labour can’t just pump more money into services that are already underperforming

Yet this moment is not without opportunity. Labour’s instincts aren’t wrong: investment in infrastructure can be a path to prosperity, provided it is done with precision and discipline. Britain’s railways, housing stock, and energy networks are crying out for investment. But the success of this strategy depends on Labour breaking free from the inertia of the past. There can be no repeats of HS2, no tolerance for bloated projects, and no patience for bureaucracy.

Labour must achieve what so many governments have promised but failed to deliver: meaningful results. Empty rhetoric and lofty ambitions are no longer enough; only tangible, measurable outcomes will suffice. Growth must be real, not rhetorical. Reform must be bold, not symbolic. For the sake of Britain’s future, Labour cannot afford to falter — because this time, failure wouldn’t just be a setback; it would mark the point of no return.

Damian Pudner is an independent economist