Anneliese Dodds will call for a ‘responsible fiscal framework’ based on ‘pragmatism, not dogmatism’ © FT Montage/Getty

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Shadow chancellor Anneliese Dodds will signal on Wednesday that the Labour party is backing away from the hard-left economic policies of former leader Jeremy Corbyn, seeking instead to fight the Conservatives on economic competence and protecting the UK’s recovery from the damage caused by the Covid-19 pandemic.

In the annual Mais Lecture, she will cloak Labour’s strategy to become the UK’s next government in the latest thinking from international organisations such as the IMF, which recommends waiting until unemployment falls and the recovery is complete before thinking about the sustainability of public finances.

As the first woman to deliver the flagship economics lecture in its 43-year history, Ms Dodds will mention “responsible” policies 23 times and will distance Labour from its 2019 general election programme by avoiding any reference to any of the £83bn day-to-day annual public spending increases that formed the centrepiece of its manifesto.

“We need a more resilient economy that can only be achieved through responsible economic, fiscal and monetary policy,” she will say.

Asked why her setpiece economic speech would not mention plans to increase current public spending financed by higher taxes — the centrepiece of the party’s programme under Mr Corbyn — Ms Dodds told the FT in a pre-speech interview that the party would examine detailed taxation and spending policies in the normal way over the coming years.

“The speech is 45 minutes long and attempting to set out the relationship between monetary, fiscal and other forms of economic policy in the long term, so it doesn’t have the kitchen sink in there,” Ms Dodds said.

Since taking charge of Labour last April, Keir Starmer has helped steer Britain’s opposition party back to a more stable footing following its heavy defeat at the 2019 general election.

But he has been accused more recently of being opportunistic during the Covid-19 crisis. The speech by Ms Dodds, and one by the leader himself on Monday, are part of a plan to start setting out the opposition’s positions on the most important aspects of government.

With distance being put between Sir Keir’s economic strategy and his predecessor’s, the new leadership want to fight the Conservatives on the overall strategy of economic policy rather than tax and spend.

In recent months, first the IMF and more recently the OECD have advised advanced economies such as the UK to refrain from taking action to reduce the public deficit until the recovery from the Covid-19 crisis is close to being complete and central banks again have to raise interest rates from zero to prevent inflation from rising.

Laurence Boone, the OECD’s chief economist, this month said countries should not start “tightening” fiscal policy by raising taxes or cutting public spending “in the one to two years following the trough of GDP”. This message now lies at the heart of Labour’s new economic strategy.

In the months ahead, that would mean continuing to spend more than the Tories, Ms Dodds said, not insisting on the 5 per cent rise in council taxes that the government is expecting in April and not cutting the rate of universal credit.

With fiscal policy taking more of the strain in helping the economy to recover quickly from the Covid-19 pandemic, she wants monetary policy to play a lesser role in the future.

In her speech, Ms Dodds will argue that if monetary policy did all the work, as it did during the austerity decade after 2010, then it would “exacerbate inequality and concentrate economic gains in the hands of those who were already asset-rich, at the expense of those who rely on income from their labour”.

This stance implies borrowing and debt would be higher under Labour and would allow the Conservatives to say that the party is soft on tackling weaker public finances. But Ms Dodds told the FT that the sustainability of the public finances should not be measured on an annual or five-year basis, but over a considerably longer period.

Calling for a “responsible fiscal framework” based on “pragmatism, not dogmatism”, she will commit Labour to a rolling target of balancing the government’s current budget in the future, which would allow increased capital spending.

There would also be an exception to the rule for times of crisis, which would allow for a delay in budgetary consolidation while the Covid-19 recovery was continuing, but Labour is planning two defences against inevitable Tory jibes about fiscal recklessness.

The first is an idea from the Institute for Fiscal Studies that would set a “fiscal anchor”, stopping a free-for-all in public spending increases. The second is that Labour is determined to attack what it regards as Conservative waste in public spending during the crisis and put in place safeguards to prevent a repeat under a Labour government.

It plans to give the National Audit Office a mandate to report to parliament each year on the effectiveness of government spending with ministers required to respond at each Budget.

“It’s not acceptable that we’ve had so many NAO reports that have highlighted problems [in government waste] and yet we still see a recurrence in those issues time after time,” Ms Dodds said. “We need to have much more political accountability around those processes for the future.”

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