Rachel Reeves, Chancellor of the Exchequer for Britain, speaks during an interview at the British Consulate in Toronto on Aug 7.Fred Lum/The Globe and Mail
Britain’s Labour Party romped to victory last month over the incumbent Conservatives with a focus on economic growth and a promise of fiscal restraint aimed at appealing to moderate voters and reassuring businesses and investors.
On Wednesday, Rachel Reeves, Britain’s newly installed Chancellor of the Exchequer, brought that pitch to Bay Street.
Stopping in Toronto for a day after visiting New York, the U.K. government’s new finance chief met with executives from Canada’s large pension funds and attended a roundtable on the green energy transition hosted by Royal Bank of Canada.
“I wanted to send a message that Britain is open for business,” Ms. Reeves said in an interview with The Globe and Mail at the British consulate in Toronto. “Our number one mission is to grow the economy. And to grow the economy, we need to unlock private investment, and we’re looking both domestically and around the world for the sources of that finance.”
It’s a change in tone for the Labour Party, which was run by the avowed socialist Jeremy Corbyn between 2015 and 2020.
But Ms. Reeves, a former Bank of England economist, has worked hard alongside the new Prime Minister, Keir Starmer, to reposition her party as pro-business and fiscally responsible – wooing investors and selling herself as a safe pair of hands after Brexit and the financial chaos caused by former Conservative prime minister Liz Truss’s notorious “mini-budget” in 2022.
“Stability has to come first, because stability underpins everything else that a government would look to do,” Ms. Reeves said.
The first Labour government since 2010 has inherited an economic mess. Britain’s gross domestic product (GDP) growth is sluggish, government debt levels are high, and public services are ailing and underfunded, despite the country being saddled with a relatively high tax burden. With public finances already stretched, the new government is leaning on private investment and reforms to the country’s planning and pension systems to drive economic growth.
Ms. Reeves met with top executives from the Maple 8 – Canada’s largest pension funds, which include the likes of CPP Investments and Caisse de dépôt et placement du Québec – to pitch them on what she said was a “pipeline of investments that are going to be coming to market over the next few years.” Canadian pension funds are already among the largest investors in the United Kingdom, owning significant chunks of the country’s infrastructure, from airports to water systems and telecoms networks.
Ms. Reeves said there will be significant opportunities in low-carbon energy infrastructure, including wind, nuclear and tidal power generation. Her government has announced a £7.3-billion ($12.8-billion) National Wealth Fund to invest in green energy projects and “crowd-in” private-sector investments. The plan was developed in consultation with Mark Carney, the former governor of both the Bank of Canada and Bank of England, who Ms. Reeves calls a “good friend” and whom she met while in Toronto.
Critics have argued that the new fund is much too small to catalyze the needed investments. But Ms. Reeves said she expects to generate three pounds of private investment for every pound of public money. And other reforms, including an end to a moratorium on new onshore wind projects and changes to the country’s planning and approvals system for infrastructure and housing, could be even more important: “There is more to getting private investment than government money,” she said.
The new government is pursuing at least one traditionally left-wing project: re-nationalizing the country’s passenger rail system, which was privatized in the 1990s. Ms. Reeves balked at the term “re-nationalization,” saying that the government is not taking over businesses, it is simply not retendering private-sector contracts when they come to an end. But the result will be the same: Britain’s passenger train network will come back under public ownership and operation over the next five years.
“We’re not in the business of nationalization,” Ms. Reeves argued. “We want the current system to work better, and we want to bring more private investment into the economy, not less.”
While the focus of the trip was on wooing investors, Ms. Reeves was also in Toronto to learn from Canadian pension funds. Her government is looking at sweeping reforms of the U.K. pension system, with the goal of consolidating thousands of defined contribution plans and dozens of local government plans into larger funds, along the lines of Canada’s pension system.
“There’s many similarities to the journey that Canadian pension funds have gone through and what I want to drive forward in the U.K.,” Ms. Reeves said. “Consolidation of pension funds will mean better economies of scale that you just don’t get when you have such a fragmented system.”
She’s also looking at reforms that would encourage British pension funds to invest in a broader range of domestic assets, including private and public equities as well as infrastructure.
A range of reforms in the 1990s pushed British pension funds away from equities and infrastructure and towards investments in safer, but less lucrative, government bonds. Critics of that system, including Ms. Reeves, argue that this has starved British companies and infrastructure of capital.
“It’s brilliant that we’ve got Canadian pension funds investing in British infrastructure. I would also like to see alongside that Canadian investment in British infrastructure, investment of U.K. pension funds in the real economy in Britain,” she said.
The trip to Toronto and New York came at an awkward moment. Back home, the U.K. is being rocked by violent far-right and anti-immigrant riots that have spread across the country over the past week. That created dissonance for Ms. Reeves as she pitched her country to investors as an island of political stability in an increasingly unstable world.
When asked about the disorder, Ms. Reeves said it was being driven by a “tiny minority” of people who “would feel the full force of the law.”
“They’re criminal thugs, and they’ll be dealt with appropriately,” she said.
The Labour government has more challenges ahead shoring up investor confidence. Brexit has undercut Britain’s position as a gateway to Europe. And financial markets are still wary of U.K. government finances in the wake of the 2022 mini-budget debacle, when Ms. Truss and former chancellor Kwasi Kwarteng announced £45-billion (more than $75-billion) worth of unfunded tax cuts, causing a run on the pound and a spike in bond yields that nearly broke the country’s pension system.
Ms. Reeves said that her government inherited a £22-billion (about $38-billion) hole in its finances from its Conservative predecessor. She says she plans to close this hole, but has also promised not to raise taxes on “working people.” That has prompted speculation that the government could raise capital gains taxes in its October budget. That would be following in Canada’s footsteps; Ottawa increased capital gains taxes for businesses and some individuals in its spring budget.
“I’m not going to speculate on tax changes ahead of [the budget],” Ms. Reeves said. “But I was really clear last Monday in the House of Commons that there is going to be difficult choices ahead for the U.K. We need to live within our means.”
Ms. Reeves did not meet with her Canadian counterpart, Finance Minister Chrystia Freeland, on Wednesday – Ms. Freeland happened to be in the U.K. at the time. But Ms. Reeves said they’ve met several times and have developed a good rapport.
“I’m the first-ever female chancellor in the U.K.,” Ms. Reeves said. “I’ve got a lot to learn from women like Chrystia, who’s been in the job a lot longer, and is pursuing policies around housing and child care that are really exciting to me as the new chancellor in Britain.”
With a report from James Bradshaw