During the election campaign, Labour made clear that it intended to stick to planned Tory cuts to capital budgets and to departmental budgets over the next few years. In the run-up to the election, thinktanks including CPP were speaking with one voice about the “conspiracy of silence” about what these cuts would mean for our economy and public services.

Now in government, Labour appears committed to keeping its promise, as Starmer’s speech on “fixing the foundations” laid out in the Downing Street rose garden on Tuesday. Given all the positive moves by Labour on planning reform, the national wealth fund, workers’ rights and devolution, this would be a mistake. Growth is not held back by an overmighty state, and crumbling public services and infrastructure are active impediments to economic opportunity: Starving the economy of vital spending and investment so early into this parliament will make it harder for an economic transformation, even if Labour is able to make headway on parts of its reform agenda. As CPP and others have long argued, fixing the foundations after austerity policies in the 2010s which so badly damaged or destroyed key public services will require reform and investment.

While growth in the first half of this year may be higher than expected, this has not yet fed through into higher tax revenue, meanwhile spending is expected to be slightly higher than previously anticipated, creating a “black hole” in the public finances worth an estimated £22bn. This means Chancellor Reeves and her Treasury team are facing an immediate conundrum: how to avoid breaking the fiscal rules, without impacting on this government’s core missions for growth and opportunity. The current answer, it appears, is to prioritise a version of austerity in this Autumn’s budget – higher taxes and spending cuts to some departments – to ensure fiscal credibility. The implicit assumption being that demonstrating fiscal credibility trumps all other government priorities, as it is a precondition for private investment to return even with austerity.

Yet the UK economy is crying out for higher public investment and improvements in public services now. More carefully targeted public spending today in local government, public health and early years alongside more investment in infrastructure and social housing is essential to improving our long-run growth trajectory. It is also critical for addressing the UK’s high levels of inequality including being amongst the most regionally unequal OECD members. Ultimately, this country’s economic stagnation and its lower GDP per capita relative to frontier European and G7 nations is in no small part due to a long-term starvation of both public and private investment, particularly outside of London and the South East. Indeed, Reeves’ own fiscal rules allow for borrowing for investment on the expectation that public investment will ultimately pay off. On this there is no time to waste.

To be clear, this is not a call for a leftist version of Trussonomics - an unfunded tax cut which very few economists were calling for and with no credible modelling on potential economic returns was always doomed to spook markets. Credibility is important, but we shouldn’t confuse credibility with slavenly following rules to the exclusion of all else. A loss of credibility can be disastrous; but Labour could use its hard-won credibility now to borrow more in the short-term than planned. And don’t just take my word for it; trust the markets - investors are clear there is no risk of a backlash to slightly elevated borrowing requirements.

At this important juncture, a version of austerity which sees a continued erosion of critical public services and fails to invest in the long-term future of the UK, would be a fool’s errand, making economic transformation all the harder in this most critical of parliaments.