HOW will Keir Starmer’s Labour try to “grow the economy?” The short answer is it is going to try to use public money to persuade international investors to put cash into “growth” industries.

It’s the return of the public-private partnership. The big danger is that, like Labour’s last public-private partnership, the private corporations will get all the growth, while the public sector gets ripped off.

The main economy-grower Starmer is promoting is Rachel Reeves’s proposed national wealth fund. It will invest in key industries like “green energy” and other modern manufacturing sectors.

There is a strong Labour case to run a national bank investing in key industries: the 1945 Labour government set up two such banks, the Industrial and Commercial Finance Corporation and the Finance Corporation for Industry, which lent growth capital to small- and medium-sized industries or larger manufacturing firms respectively.

Labour argued that the City avoided investing in these crucial sectors, exacerbating the 1930s Depression. Both government-founded investment funds were very successful. Jeremy Corbyn’s Labour proposed similar publicly owned national investment banks.

But Reeves’s plan makes public money subordinate to private investment. She told the last Labour conference: “For every pound of investment we put in, we will leverage in three times as much private investment.”

Labour plans to invest £7.3 billion in the fund, and so attract around £22bn private “co-investment.” Reeves says private money will be attracted because the government cash will be “encouraging and derisking investment” from international finance: investors will assume that if the government has a stake in, say, a car battery factory, that it is a “sure thing” and won’t be allowed to go bust or lose money for shareholders.

But what happens if the publicly backed investments hit trouble? Say the car batteries come out too expensive, reducing profits, or need extra investment to fix production problems — will the private investors insist that the public investor take the losses? And if the profits are bigger than expected, will both parties benefit equally?

There are some major signs Reeves’s deals will favour the big private investors. First, because it is putting in more of the money, they can call more of the shots. This is not really a national wealth fund because most of the money will not be national.

Second, Reeves seems only to be appointing bankers and City types to design and oversee the fund. So far Reeves hasn’t put any industry experts, let alone social campaigners or union leaders, on the boards she is creating for Labour’s policies: Reeves’s national wealth fund task force is led by Mark Carney, ex-governor of the Bank of England, now vice-chair of Canadian investment fund Brookfield Asset Management, CS Venkatakrishnan, chief executive of Barclays, and Amanda Blanc, chief executive of insurer Aviva.

As Patrick Maguire wrote in the Times, this worries some MPs. Maguire asked: “Where will power lie? Labour now speaks of a partnership with business, whose leaders will sit on the committees responsible for driving through Starmer’s missions for the government, wielding such power that MPs fear ministers will end up like Andrew Ridgeley in Wham!, dancing mute to somebody else’s tune.”

Third, this is a bit of a rerun. The last Labour government allowed City types to dominate its “PFI taskforce.” As a result, the PFI was designed to over-reward private investors for putting money into public hospitals and schools. We were left with huge debt for often badly built public infrastructure.

The national wealth fund runs in the opposite direction, involving minority public investment in private industry. But the same principle of who takes the risk and who gets the reward applies. If the bankers dominate the scheme, it will enrich private finance over the public sector.

Fourth, Reeves seems very happy to ignore the mistakes of PFI, which means she is more likely to repeat them. Reeves recently circulated an article about her plans from the Times, based on an interview with her, on X.

The article actually said Reeves is “taking a leaf from Tony Blair’s playbook” because Blair “put public-private partnerships at the heart of his government’s attempts to revive the public services” — the Times thinks PFI is a good model for Reeves’s national wealth fund, a message Reeves seems happy to pass on.

Fifth, some on the most influential, right-wing side of Labour are pretty naked about who they expect to benefit. At the last Labour conference, I saw Peter Mandelson, who is very influential with Starmer and Reeves, say that Labour must join the “race for subsidised capitalism.”

A Starmer government would have to “write cheques” worth billions to businesses to compete with the US or China. Mandelson hoped they would be “cheques aligned to government policy,” but had a tolerant view of which companies matched Labour policy.

He made the comments at a fringe meeting inside the conference centre organised by a Tory-oriented think tank, Onward. The meeting was funded by Amazon. If this is the milieu where Labour policy is developed, you can expect it to be very “business-friendly.”

Mandelson is simultaneously an adviser to Starmer and runs his own consultancy, Global Counsel, which for a fee will “help companies and investors” to “see opportunities in politics.” A Labour government in a “race for subsidised capitalism” could offer companies many opportunities.

There is a good record of public investment funds in industry. It’s something Labour has done before. But there is also a more recent and very bad record of Labour-run public-private partnerships. That was bad news for the country, although not bad news for all the Labour ministers who got post-ministerial jobs with the companies involved.

It will be extra bad news if Reeves’s national wealth fund repeats the bad record because Labour has abandoned any real plans for redistribution in favour of this “grow the economy” scheme. It will be the only game in town for an incoming Labour government, so if it’s a fixed game, most of us stand to lose.

Follow Solomon on X @SolHughesWriter.