Keir Starmer has gone for a cautious approach since becoming leader of the Labour party in April © Leon Neal/Getty Images

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Ever since Keir Starmer seized the leadership of Britain’s opposition Labour party in April he has had a broad strategy: rebuild credibility with a sceptical electorate then set out a positive future vision for a fairer, greener economy.

Taking power at the start of the Covid-19 pandemic has allowed Sir Keir to distance himself from the 2019 manifesto of predecessor Jeremy Corbyn — who has since been suspended from the Parliamentary Labour party — and gifted him a beleaguered government to attack from the sidelines.

Yet Labour has been outflanked as the party of higher public spending as Boris Johnson’s government burns through hundreds of billions of pounds to tackle the health and economic crisis unleashed by the disease.

Now senior Labour figures are debating how ambitious the party’s economic plan should be in a post-pandemic environment where the UK could — if the official fiscal watchdog, the Office for Budget Responsibility, is correct — be nursing an annual deficit of about £370bn by the end of the year.

Sir Keir inherited from the Corbyn leadership a revolutionary economic platform — with the nationalisation of most utilities, an extra £83bn of annual tax and spending and about £400bn of extra borrowing for investment.

After becoming leader in April he promised his own programme of “social justice” and “climate justice” but held back from articulating any specific policies.

In part that is because of his desire to play defensively for now. “There is an element of being like Geoff Boycott at the batting crease,” said one insider — in a reference to the cautious former England cricketer.

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It also reflects the debate going on inside the party over the exact shape of the party’s economic policies and how radical they can be given the financial impact of Covid-19 on the government’s coffers. On Wednesday, chancellor Rishi Sunak will use his one-year spending review to set out the dire economic conditions facing the government.

“It’s impossible to work out the final fiscal cost of Covid, for Labour to know its own baseline in building back the economy and spending on a Green New Deal,” said Paul Mason, an influential Labour thinker. “Nobody can cost that until we know what the fiscal dynamics are.”

Labour insists that it has set the pace in the economic response to the pandemic.

In March, before the government announced the furlough scheme, Sir Keir, who was running to be Labour leader, called for a job support scheme.

Then, in the autumn, shadow chancellor Anneliese Dodds pushed for further help for certain sectors beyond the scheduled end of the furlough in late October — when Mr Sunak was suggesting that many jobs would no longer be “viable” in the long term.

Shadow chancellor Anneliese Dodds pressed the government to extend further support to workers before it extended the furlough scheme © John Keeble/Getty Images

Mr Sunak ultimately U-turned amid a second wave of the virus and went even further than Labour had demanded with his pledge to keep the full 80 per cent job support all the way through to March next year.

Sir Keir’s team points out that Mr Sunak has been forced to rip up his winter statement repeatedly. “A Labour chancellor would have been crucified for that,” said one MP.

John McDonnell, former shadow chancellor under Mr Corbyn, said Ms Dodds had “played it exactly right” by identifying gaps in the government’s approach and forcing ministers to take action. “The job of opposition is to point out where mistakes are made, where there are failings and remedy them and that’s what she’s done,” Mr McDonnell said.

However, some think the sheer scale of Tory spending has made it harder for Labour to spin its own narrative on public spending.

“Rishi Sunak has made it more tricky for them . . . suddenly there is a magic money tree . . . and there is no limit to spending. I think that has wrongfooted Keir’s team,” said one former Labour adviser.

Tom Kibasi, former head of the IPPR think-tank — and an ally of Sir Keir — said Mr Sunak’s huge state interventions had presented a challenge for Labour to differentiate itself from the government.

“The traditional social democratic method — high state spending within the same framework — simply won’t cut it when spending is already ballooning,” said Mr Kibasi. “Promising to spend more becomes rather meaningless.”

It is in that context that Sir Keir’s party hopes to set the agenda over the need for a low-carbon overhaul of the economy.

This month, Ms Dodds urged the government to bring forward £30bn of capital investment for green sectors, retrain workers and create a national investment bank focused on green investment.

And yet, even its more ambitious “Green New Deal” plans, which would involve much larger spending on the low-carbon economy, is struggling for airspace.

Last week the Tories announced a 10-point package of “green economy measures”, making Labour’s offer less distinctive. Both parties now back greater investment in household insulation, hydrogen, carbon capture and storage and offshore wind.

Despite that, there is still space for Labour to forge a recognisably different economic policy on issues such as workers’ rights, common ownership and corporate governance, said Mat Lawrence, founder of the Common Wealth think-tank.

Some senior party figures are urging Sir Keir and Ms Dodds to be unapologetic about the need for even more state spending and not worry about Labour looking spendthrift.

“We have slightly been fighting the last war rather than this war,” said one member of the shadow cabinet.

Mr Lawrence said Mr Sunak had “normalised” extra borrowing — at a time of ultra-low interest rates — and changed the terms of the political debate.

“People are now used to the chancellor standing up and saying, we’ll borrow hundreds of billions and the world hasn’t crashed and we haven’t turned into Greece,” he said. “He’s normalised the politics of debt.”

But some shadow ministers are still nervous about where Labour will find itself in terms of economic policy after the crisis.

“In December, only 19 per cent of the public trusted us on the economy . . . Corbyn drove our reputation for economic competence into the ground,” said one. “At some point Sunak will have to withdraw support and people will expect Labour to say keep spending forever. That will be a major crunch point.”

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