John Healey gave a growth speech on September 7, focusing on fiscal sobriety. While the government hopes devolution will boost the economy, critics say Andy Burnham needs stronger plans. As one person familiar with the prime minister’s thinking said, this will be "the recurring theme of the Budget."

Potential economic gains from rejoining the single market may tempt PM to tear up red lines on Brexit

Good morning, this is Sam Fleming, FT Economics Editor, standing in for Stephen this morning. We are gearing up for tomorrow's big Budget from chancellor John Healey -- or perhaps not so big, judging from the Westminster grapevine.

Few countries spend more time obsessing about budget announcements than Britain, where they are such a critical staple of the political diet that chancellors before Rachel Reeves couldn't resist holding two of them a year.

So perhaps a more modest affair is no bad thing. Certainly it would be a welcome relief for businesses and investors who are punch-drunk from the speculation-strewn tax-raising Budgets of the past two years.

The criticism of the current chancellor -- both within Labour and from outside -- is that he has little to offer when it comes to growth strategy. But could Labour be stumbling towards a pro-growth policy that actually shifts the dial?

Friends with benefits

Rachel Reeves' diagnosis of the UK economy's key ailment was pretty clear. Low investment -- both public and private, coupled with supply-side constraints on businesses' ability to invest -- was restraining productivity growth.

Accordingly, she tweaked the fiscal rules to enable higher public investment than was implied under her Tory predecessor's plans, and embarked upon regulatory reforms -- for example, to the planning system with a view to easing barriers to infrastructure and housing.

John Healey echoed her concerns about low investment in his "growth speech" on September 7. But his focus was on reassuring bond market investors about Labour's fiscal sobriety, not on setting out a far-reaching vision for economic reform.

The government clearly believes that devolution of powers will be a growth enabler. As one person familiar with the prime minister's thinking puts it, this will be "the recurring theme of the Budget . . . His theory of growth relates to boosting the supply side and giving more responsibility to big urban areas".

But alongside that, Andy Burnham's offer thus far has been pretty thin gruel. Vows to reverse deindustrialisation feel performative when set against the wave of cut-price Chinese imports hammering production across Europe.

And genuinely transformative economic reforms -- such as an overhaul of the UK's property tax system or a shift to a more zonal planning regime -- feel as far off as ever.

Yet is Labour edging towards a policy that could genuinely be consequential for growth -- in contrast to the procession of industrial strategies, levelling-up programmes and financial regulation overhauls of recent years?

Burnham told my colleague George Parker in August that if relations with the EU could be fixed in an "amicable way" this would add "percentage points to our growth".

Well that obviously depends on exactly how amicable the PM wants to be, but in recent days he has been pushing increasingly hard when it comes to pledges of deeper engagement with the EU -- including potentially membership of the single market.

Burnham has said he wants an "honest conversation" about options for relations with Brussels, with a speech expected around the time of the November 20 EU-UK summit.

At times it appears the prime minister is having that conversation with himself, for example, floating the idea of a referendum on freedom of movement and then backtracking. The misgivings within his own party are clear.

There is clearly a lot of politics at play here, given Labour's desire to strengthen its left flank to challenges from the Greens and Liberal Democrats, and to woo younger pro-European voters.

But relations with the EU are a significant factor when it comes to UK growth forecasts, and investors tell me they are starting to sit up and pay attention. Goldman Sachs said this month that closer relations with the EU would "notably reduce the cost of Brexit". A customs union would increase GDP by about 1 per cent, the bank estimates.

Single market membership could give a boost of between 2 and 5 per cent by easing regulatory barriers. This is not to brush aside the big diplomatic obstacles Britain would face if it sought a re-engagement with Europe -- especially given the febrile political climate in France.

Nor is it to argue that easing Brexit barriers is a replacement for all the other supply-side reforms that the UK needs.

"A lot of the investment that was UK-bound and hasn't come here is not going to return overnight just because we rejoin the single market," Dean Turner, an economist at UBS Wealth Management, said.

But given the Office for Budget Responsibility's estimates that Brexit has imposed a 4 per cent reduction on the UK's potential productivity, taking a significant step in the opposite direction would be consequential.

All this feeds not only into the PM's 10-year plan, but also into the manifesto for the next election when Burnham will be tempted to tear up some of his predecessor's red lines on Europe.

In the long term, steps towards reintegrating with the single market would add up to a more convincing growth strategy than the fairly spartan offerings we've heard of to date.

Now try this

I'm a fan of writer David McCloskey -- former CIA analyst turned spy novelist -- and highly recommend his first book Damascus Station, which (to my decidedly inexpert eye) gave a vivid impression of the mix of drudgery and peril that comprises espionage.

On the other hand, I'm afraid his latest work -- London Station -- left me rather cold. The set-up -- a breakdown in the Five Eyes relationship between the US and UK -- is very much of the moment. But unlike his previous books, it was weaker in characterisation and execution, and frankly not very thrilling.

Perhaps this comes as a relief for a certain rival British spy franchise that is about to come in from the cold?

P.S on Thursday, I'll be sharing my thoughts on the Budget alongside colleagues in a collaboration with the Political Fix podcast. Sign up to watch it here.