What does a high-wage economy actually mean?

Labour shortages mean that the pay of refuse workers is advancing

It turns out that the leaders of Britain’s Conservative and Labour parties agree on quite a lot. The latter, Sir Keir Starmer, gave a quite a weighty speech to the Confederation of British Industry this week – which did much to help his gravitas as prime-minister-in-waiting. What has drawn most attention is his opposition to excessive immigration (not clearly defined, of course) and commitment to making Britain a high-wage, high-productivity economy. This was one of the main planks of Tory policy in at least the last two general elections, and still is – in contrast to integration with the European Union’s labour and product markets. Many in the CBI want a more flexible approach to immigration (to say nothing of more integration with the EU) – but they weren’t getting it from either leader.

The politics are obvious. Immigration is a touchstone issue in Britain, as it is in much of the world. The public thinks that the ruling elite were too relaxed about immigration and this was one of the main factors behind the populist backlash of the last decade, and the Brexit referendum result in particular. Labour are less trusted by the public on the issue, and so need to show a visibly firm line, or they won’t win back the voters that have deserted them since their last election victory in 2005. And the idea that choking off cheap labour from abroad will raise living standards is superficially plausible. In fact it was one of the more plausible claims made by the supporters of Brexit. And having done Brexit, I can understand how mainstream politicians feel the need to try and make the idea work.

But how does political necessity fare against reality? Most people seem to have very little idea of how the high-wage economy is actually supposed to work. It’s a bit like the “Australian-style points system” to manage immigration, which most people think is a jolly good idea, without having much clue about what it actually is, and how it compares to alternatives. The main target audience for economic policy ideas seems to be property-owning retired folk in the English North and Midlands (and in the English South and Wales, to be fair), who have little direct stake in a modern, functioning economy – which is all somebody else’s problem. Meanwhile they insist that there is “no room” for more immigrants – and fear that it erodes English national culture. There is therefore no particular need to explain the actual impacts of policy.

The overall economic theory is clear. If we can raise economic productivity, there is more money per head to go round to support higher wages. By choking off the supply of cheap labour from abroad, employers will be forced to use the available resources, i.e. local workers, more productively. There are two basic problems with this line of argument. The first is that higher income per head on average does not guarantee higher income for everybody. An imbalance of power in the labour market leads to high pay for the powerful at the expense of the powerless. The hope is that cutting immigration strengthens the bargaining power of less powerful. Academics argue about whether it is true – but it is not hard to find anecdotal evidence of just this. A shortage of lorry drivers following Brexit has recently driven up their pay – and with it incomes workers in related fields, like refuse collection. Still, we shouldn’t forget, as Tories sometimes do, that better wages depend on the bargaining power of workers.The second problem is that productivity is only part of the equation – the proportion of working people, or working hours per head of the total population, is critical too. In fact in a modern developed economy it is probably more important – and it has been falling due to demographic pressures, the propensity of older workers to retire on their savings, and (perhaps) lack of access to health care for longer term and mental conditions. Immigration raises the ratio of working people in the short and medium term – which is why so many people think it is a good idea.

Still, let’s put these problems aside, and try to imagine what a high-wage society looks like. It is in fact not too hard to find such societies. They are usually located in spots in the developed world with a low population density. These are often tourist hotspots and it is mainly as a tourist that I have visited them: in Australia, New Zealand, Western Canada, Norway and Switzerland. The first thing you notice is that there aren’t many workers. If you are on safari in Africa, you will get a tour guide and driver as a minimum. In Canada and Australia the same individual does both roles. Go into a shop and there are few people to serve you. And there aren’t many shops. At hotels you carry your own bags. You get something of the Tesco automated checkout phenomenon. Self-service amounts to higher productivity for Tesco, but all they are doing is making you do more work for yourself. An experienced cashier is much quicker. In a high-wage economy you may find yourself eating at home instead of at restaurants – or inviting friends for drinks at home rather than trying to find a bar. The cost of services involving human contact is relatively higher.

So where are the workers? Not so many in the tourist spots, though there will be people delivering high-end products or services at quite a cost. They are mostly somewhere else, delivering highly productive goods or services. In Australia and Canada there is mining; in Norway there is oil; in Switzerland there is sophisticated manufacturing (chemicals and such) and banking. These are linked to exports, so that high-wage countries tend to be high-exporting ones, usually running trade surpluses.

Here’s the key. Some gains to wages for the less well off can be made by reducing profits and cutting top-level pay. But not enough and not sustainably. A large proportion of workers need to be employed in highly productive fields. If businesses simply raised prices to pay for higher wages, we end up where we started by putting so many things out of the reach of less well-off workers. But high productivity industries in the modern era are very productive indeed. They don’t employ many workers and usually need exports to to be sustainable.

And so we can start to see the characteristics of a high-wage economy. Workers must have strong market bargaining power, generally by being in short supply. There must be a strong, highly productive core to the economy, generating a substantial export trade (overall trade doesn’t need to be in surplus in theory – though in practice this often seems to be the case). And most people will have to put up with doing more things for themselves, as the price of services is high – and especially in rural areas. Taxes are also likely to be quite high to to support public services such as health and education – as a strong state underpinning of these, and an effective social safety net, is all part of the ethos – and supports the strong bargaining position of workers generally.

In Britain the problem is obvious. Labour shortages are improving the bargaining position of workers. We are moving towards a self-service economy as these labour shortages sweep through the hospitality industry amongst others. But what of the highly productive core? Here we are faced with a fleet of ships that have sailed. Fossil fuels are depleted and anyway a problem in the zero-carbon future. The country’s manufacturing has been hollowed out – the trade deficit is of very long standing. Financial services provided a lot of punch in the earlier years of the 21st century, but are going through rough patch in the 2020s. Brexit is widely blamed, but in truth the problems are wider. A lot of the strength of the mid-noughties turned out to be fictional – and it was very centred on London. The country needs to look to the future, and not try to recreate old glories. Here the parties do differ a bit. There doesn’t seem to be a coherent Conservative strategy at all. Their basic idea is to create fruitful conditions for investment and sit back and wait. Liz Truss, Mr Sunak’s predecessor, did lend some coherence to this approach. She wanted to create a low-tax, low-regulation haven for footloose international businesses. This idea quickly collapsed, leaving Mr Sunak plying platitudes about innovation. His government looks increasingly paralysed by internal divisions and unable to implement any decisive strategy.

Labour’s big idea is the green economy (something promoted by the Lib Dems and Greens too). This entails a massive investment programme designed to transform the country’s infrastructure as well as develop export industries. This is a good idea, but a lot of the work involved (home insulation for example) is not high-productivity. And there is intense competition for the rest – batteries and wind turbines for example. Still, it doesn’t do to underestimate British inventiveness, and public-private partnerships in this area surely provide part of the answer. Also renewable energy does offer high productivity, without the need for exports. There are other ideas. I have often talked about health care and related services, where Britain has a promising base – and where the NHS offers world-class data for developing new treatments – as the covid episode showed.

But there is a gorilla in the room that the politicians don’t want to talk about. This isn’t Brexit (though they don’t want to talk about that either). This has created problems for developing export industries – but other EU members are further down the path of developing exports and British industries struggled to compete with them in the single market. Britain’s trading problems got worse within the EU, after all, even if there were compensations. The gorilla is public sector pay – especially if we include the issue of social care. High wages mean high levels of pay in the public sector. Not all public sector jobs are badly paid, but the pressure of a tight labour market is putting public services sector under pressure. Staffing shortages are rife in many parts of it. Meanwhile part of the government’s anti-inflation strategy is to hold back public sector real pay levels – which is making matters worse. The answer is either to shrink the public sector or to raise taxes. Of course the politicians hope that an explosion of high-productivity private sector jobs (with associated tax revenue) will come to their rescue. But it won’t happen in time, if it ever does.

This is a tough place to be in, so it’s no surprise that our politicians are slow to confront the truth of it. I have to admit that it is forcing me to rethink some of my assumptions. But I do think that the vision of a high-wage economy is worth pursuing. The main alternative being offered by those interested in social equity is a universal basic income paid by the state. I am deeply uncomfortable with that idea for a number of reasons. Given that, here are two things to be thinking about.

The first doesn’t involve any great rethinking on my part, but remains politically toxic. We need higher taxes. This is not just on various soft-spots and loop-holes in the wealthier parts of the economy – schemes that are predestined to disappoint. Higher taxes need to affect most people. This is because public spending will have to rise to accommodate higher public sector pay – and we need to manage down the level of demand in the rest of the economy to help stabilise it, to say nothing of limiting the need to borrow money on world markets. Of course public sector productivity can be improved (though I prefer the word “effectiveness” to “productivity” – as a lot of the solution is lowering demand by forestalling problems), reducing the need for spending. But our political class, our civil servants, and the commentators and think tankers that critique them, have almost no idea how to achieve this. They are stuck in an over-centralised, departmental mindset. What is needed is locally led, locally accountable, cross-functional, and client-centred services – an idea that is so alien to British political culture that most people can’t even imagine it. So we can’t count on that idea and must settle for replacing the dysfunctional with the merely mediocre, with no cost-saving.

The second idea is even more contentious, and I haven’t properly thought it through yet. It is that inflation is an essential part of the process of readjustment, and we have to tolerate it to a degree – provided that the source of that inflation is a rise in pay for the less well-off. As somebody who grew up in the 1970s, I hate inflation. I think it undermines trust between the state and the governed. I have never subscribed to the view of liberal economists that it can be a tool of economic management. But there have to be exceptions. One example was Ireland in the 2000s, as that country worked through its economic transformation as it integrated with the EU economy, which did involve a spurt in productivity. Wages rocketed, driving inflation up. Ireland was in the Euro, so there was no ability for the currency to appreciate to ameliorate the effect. This was the only way for the country to reach the sunlit uplands – which didn’t stop the European Central Bank from criticising it – something my economics lecturer at UCL said was absurd.

Britain’s position is different from Ireland’s. We haven’t had that productivity spurt. There is nothing to drive an appreciation of the currency. But we want wages amongst the less well-off to rise. Price rises are part of the adjustment – with inflation acting as a tax on the wealthy, as part of a redistribution process. Meanwhile we need to drive capital investment – most renewable energy is very capital intensive, for example – as are most of the ideas for developing higher productivity. That means keeping interest rates low. Which won’t happen if interest rates are jacked up to combat inflation. And, as suggested already, to the extent that inflation needs to be managed, higher taxes are a better way to do it.

This is quite a progression in my personal thinking (and thank you to regular commenter Peter Martin for helping me along the way – though doubtless we still disagree). But trying to get to the fairer, more sustainable society we seek is going to require many of us to change our thinking – and put up with some things we don’t like.

The BBC’s questionable coverage of the US elections

Photo: USCapitol, Public domain, via Wikimedia Commons

The British political class is obsessed with US politics. The right wish to emulate US culture wars and attack “wokeism”. The left (rather more successfully) pick up on the Black Lives Matter movement, never mind our very different racial history. So perhaps it was inevitable that the BBC would cover the US mid-term elections so heavily. But in doing so they have posed deeper issues about the institution.

I try to resist the temptation to comment on other countries’ politics. I last commented directly on US politics in 2021, when I praised the progress being made by President Joe Biden. That quickly became a very unfashionable view, especially after the Afghanistan debacle. I still think he is underestimated – but then I thought that of Jimmy Carter when he was president – another deeply unfashionable view. But want I want to look at this time is not US politics itself, but how the BBC in particular covered it.

News coverage of the US midterm elections was extensive, and especially on the BBC – my leading source of daily news. A Danish general election came and went without comment – in a country with a close cultural affinity with England, if the not the rest of Britain – while reporting on the 10 O’clock TV News from America was almost daily.

The first striking thing abut this coverage was the BBC’s claim that these elections were hugely consequential, a view widely repeated in Britain. They explained how if the Democrats lost control over Congress, then the presidential agenda would be halted. And yet this usually happens in the US midterms, and life goes on. Mr Biden has fought hard to get as much of his legislative agenda as possible achieved before these elections; he always expected his party would lose them. BBC correspondents eventually seemed to realise that this argument wasn’t strong enough to support the trope that these were the most important midterms ever (how sick I get when this claim is made of elections, as it always is). So they said that democracy itself was at stake. The basis of this claim was the number of Republican supporters of Donald Trump, who claimed that the presidential election of 2020 was stolen by Mr Biden. And some of them sought to take control over state electoral processes, so that they could ensure the right outcome next time. This is indeed an interesting aspect of current US politics. But were the BBC following the Democrats’ line a bit too uncritically? I don’t mind their reporters repeatedly saying that Mr Trump’s claims are false – his supporters have been unable to produce evidence that can be tested in court – perjury is a serious matter, after all. But the endangerment of the electoral process in some states is only one issue that American voters have to weigh up.

But this marks a more general Democrat bias to the BBC coverage – a prejudice which, to be fair, is pretty prevalent in Britain. They are careful to present Republican views in their interviews with politicians and in vox pops. But we are left thinking that most Republican supporters are nutters – repeating those election fraud allegations, for example. If this were all there was to it, then it raises the question of why the Republicans are doing so well. Surely Americans aren’t all that stupid? There is clearly something else going on. And that something else seems to be the perceived extremism of many Democrats, which clearly annoys many Americans, and not just less-educated white ones. We will struggle to get any idea of what lies behind this fear from watching BBC coverage – or I suspect that of most other British news outlets. In the end the story of American conspiracy theorists, and the ramblings of Mr Trump, are the more entertaining story, and that dominates our coverage.

Funnily enough, after all the hype of the run-up, coverage of the election results has been very muted. They were almost exactly in line with the more considered predictions (published by The Economist, for example), but probably a bit worse for the Republicans in the House of Representatives. But they still won there – and there will be significant consequences arising from that. Mr Trump seems to have had a measurable negative impact on his party’s performance, but I haven’t seen that story through on the mainstream reporting. We’re now onto the World Cup and COP27. And there is quite a bit of domestic news to be digested too.

All of this is making me think harder about the role of the BBC in news. It remains a trusted brand, and we are lucky to have it in place of the more partisan free for all that dominates the US. But, as a public service organisation committed to balanced coverage, it faces tricky decisions. Not so long ago it got into trouble by “balancing” scientists warning us about carbon emissions with unqualified s**t-stirrers like Nigel Lawson. They have moved on from that, and it is good to see that they are not giving credibility to Mr Trump’s lies about the 2020 election in the name of balance. But, in general, the BBC feels it must follow the news agenda set by others, in which Britain’s diminishing print media have an outsize role. Since this media is dominated by organisations with a right-wing agenda, this causes much wailing and gnashing of teeth amongst people in the left. But there are bigger problems.

The first is the choice of which stories to cover, or not – what makes an important story in the news media is not necessarily all that important in the great scheme of things. We saw this in the coverage of the death of the Queen. This was a big news story, of course, but the BBC followed other media in excluding all other news reporting in the weeks after, until other media outlets started to let other stories in. The BBC wouldn’t devote so much as a minute to “other news” in extended news broadcasts, and instead went round in circles in with interviews with royal correspondents, there being little actual news to report. The BBC could and should have shown a bit of leadership here – five minutes of other news in a 60-minute programme was surely not have been too brave? The time given to US politics is another example, with European politics being neglected by comparison – in spite of the fact that the latter might have a more immediate impact on the country. That Danish general election was quite an interesting story. And then there is the bias towards covering elections before they happen, and neglecting the hard news of the actual results. Even The Economist does this, though. That is the difference between journalism and “the first draft of history”, I guess. Speculation is more fun than facts.

But what about the accusation of liberal bias that is so often levelled at the BBC – and which its coverage of the US election seems to illustrate? This is more complicated than it looks. Another example is racism and antisemitism. A few on the right might grumble about the apparently uncompromising stand that the BBC takes on these issues. But dig down a bit and you find problems. Racists and antisemites are portrayed as nutters that it is easy to dis-associate from. I have seen a couple of television dramas portraying far-right activism, along with its racist and antisemitic tropes. But these activists are cardboard cut-outs – poorly educated white people with a soft spot for Hitler and Naziism. There is much more to racism and antisemitism than this. Will there ever be a drama covering antisemitism in the far left? To say nothing of the muddle between antisemitism and criticism of Israel and Zionism? Of course not. It is too controversial. But this bias annoys both left and right. The right is annoyed by the persistent portrayal of racism as being confined tot he political right. The left complains that discussion of Israel is heavily constrained.

This is all rather depressing. There seem to be two types of news media: the partisan and the dumbed-down. The partisan media thrives on controversy and isn’t afraid to air conspiracy theories and nonsense tropes – and is consequently useless as a source of information. But the “balanced” media are too scared that controversy will damage their reputation for objectivity – and anyway tend to follow the pack in their coverage of stories. Perhaps there is an inevitability about this – but at least the BBC could try a bit harder to be more informative in its news coverage.

Will pragmatism bring success to the Liberal Democrats?

Conservative party members showed little self-awareness this summer. Under their party’s rules they had the final say on who was to be their party leader, and, as they never tired of telling us, the next prime minister. The rest of the country was appalled that such a small, self-selected body of people was playing such a pivotal role in the country’s constitution. The leadership candidates then vied for members’ support by offering ever more crackpot ideas to appeal to their prejudices. And when the winner, Liz Truss, took over as prime minister, she treated her promises made to this small body of people as more important than the manifesto on which her parliamentary majority was based in December 2019. But amid all this self-indulgence another British political party has been rowing hard in the opposite direction by trying to make itself more relevant to the public at large. It is time to talk of the Liberal Democrats.

This follows the party’s own moment of self-indulgence in 2019. It’s then newly selected leader, Jo Swinson, decided to make the party’s raison d’être to act as a rallying point for the overturning of the 2016 referendum on Brexit. This was very popular with party members, encouraging Jo to take ever more radical positions on the subject. The party’s poll ratings climbed; it outpolled the other established political parties in elections to the European Parliament (but not, significantly, Nigel Farage’s Brexit Party). It attracted defectors from both Conservative and Labour parties. At the 2019 election Jo delighted party members by suggesting that the party would win the election outright. But in the grim reality of a general election campaign, as voters confronted the awkward choices before them, this self-indulgence stuck in their throats. The party offered no reconciliation to the half of the country still determined to complete Brexit, and simply promised to keep stoking up a debate that was tearing the country apart. The party’s poll ratings sank, resources were deployed on an electoral strategy that was far too optimistic, and the end result was a dismal 11 MPs, a net loss of one on the poor 2017 result. Losses included Jo Swinson’s own seat in Scotland.

This disaster prompted much soul-searching. One of the party’s most successful politicians, Dorothy Thornhill (serially directly-elected mayor of Watford), was asked to head a review of the party. Disclosure: I am secretary of the party’s audit and scrutiny committee which sponsored this review, and which continues to monitor the party’s response to it – but the views expressed here are very much my personal ones. The review was unsparing int its criticism of many aspects of the party’s management. It’s leading recommendation was as follows:

Based on the lives of ordinary people in the country today, create an inspiring, over-arching and compelling vision which can guide the entire Liberal Democrats organisation for the duration of a parliament, ideally longer.

The party, under its new leader, Ed Davey, has taken this recommendation seriously, and especially that first phrase. Whether the party’s current vision is yet inspiring, over-arching and compelling is open to question. But that it is grounded on the lives of “ordinary” people is not in doubt. The policies that are promoted to the public reflect the concerns of general voters, and not those of activists: the energy crisis, the outflow of raw sewage in rivers and beaches, and many more specific, local concerns. To this Ed has now added the rising cost of mortgages, and the difficulty of seeing a doctor. It is, unfortunately, hard to meld such everyday concerns into something inspiring, over-arching and compelling, but the party is trying. This causes no little frustration to many of the party’s activists and members. They are dying to make a big fuss over the failures of Brexit, for example, and push radical proposals for political reform. But generally voters don’t want to reopen the wounds of Brexit, and have yet to translate their frustration with the political system into demands for reform. A further example of the party’s sensitivity to “ordinary” people was the cancellation of the party’s autumn conference, which had been scheduled for just before the Queen’s funeral. This infuriated many activists, who had booked hotel accommodation and were looking forward to the first in-person conference since covid-19. But it would not have been a good look to the public at large. The counter offered to this by some activists, that the public wouldn’t notice, was hardly an encouraging one.

This was the only party conference to be lost to the Queen’s death. Other parties, large and small, benefited from the traditional extra publicity that arises from such events (though in the case of the Conservatives “benefit” is a stretch). Last weekend the party attempted to make up for this with a set-piece leaders’ speech from Ed – which was dutifully covered by the BBC and the more respectable newspapers. The coverage mainly focused on his proposal of a fund to assist stretched families to manage higher mortgage costs. I didn’t find the speech especially uplifting, but that may be because I am on old cynic, and I was watching it on a Monday morning. But it was coherent and competent. Ed clearly focused the party’s political strategy on winning parliamentary seats from the Conservatives, implicitly part of a coalition to end their time in power. Ed only mentioned other political parties in the context of local elections – where he made an attack on the SNP, but he resisted the temptation to attack Labour. He did make time to advocate proportional representation, but that was the only political reform that got a look in. It did not beat raw sewage in its prominence. Since the Labour leadership isn’t even going that far with political reform, we’ll have to accept that.

Is the party’s new approach working? Membership has plummeted since the heady days of 2019 and the party’s prominence in the Brexit debate. Reduced means stretches the party’s infrastructure, both paid staff and volunteers. But the party is winning elections again, including three spectacular gains in parliamentary elections. It is slowly rebuilding a local government base – but it is very patchy. The party consistently polls around the 10% mark – better than it has been, but short of the party’s heyday in the years 1997 to 2010. This too was a time when local electoral pragmatism trumped ideological vision – only for the party to collapse once it tried to use its electoral mandate by joining a coalition government.

Political vision is a tricky thing, especially in a political system such as Britain’s. Too much and the electoral coalitions needed for success fragment; too little and the party loses its way at the grassroots, which is central to party’s electoral successes. Under Ed Davy the Liberal Democrats are attempting a balancing act. The party is basing its campaigns mainly on issues that resonate with voters, especially those in Conservative-held areas; at the same time it is trying to manage expectations about what it might do after the election (i.e. potentially support a Labour-led government). Meanwhile the party still holds to its core beliefs, on openness, on the environment, and on the need for political reform. This is a balancing act traditionally managed best by the Conservatives – until now.

There may be a path back for the Tories, but it’s a long shot

Photo: Chris McAndrew, CC BY 3.0 https://creativecommons.org/licenses/by/3.0, via Wikimedia Commons

When Theresa May went to the country in the general election of 2017, she promoted herself under the slogan of “strong and stable”. Polls showed the Conservatives heading for a massive landslide. Polling day came a few weeks later, and the party lost its majority. British politics has not settled down since. The “strong and stable” label for the Tories has never looked less appropriate, though that won’t stop the party from trying to use a version of it again. Reliable predictions are impossible, but it’s still worth trying to get some idea about how things could develop from here.

When Boris Johnson won his landslide for the Conservatives in December 2019, it was commonplace to suggest that it would be impossible for Labour to come back to winning a majority in one go. I always thought that was nonsense – an example of the human cognitive bias towards the status quo. It was suggested that a turnaround on such a scale would be unprecedented. So what? Less than three years later under Liz Truss, Conservative polling plumbed to such depths as to suggest not only a Labour majority, but a landslide. Now she’s gone, and the dust has far from settled.

Slowly the poll ratings are coming back to the Tories, but the Labour lead remains massive. The new Conservative leader, Rishi Sunak, is regarded much more favourably than his predecessor by the public, especially on the critical area of economic competence. It is possible to sketch out a scenario whereby he manages to claw his party back to winning a majority at the next election. Economic competence is at the centre of such a scenario.

Now it is important to understand how the public perceives economic competence. It has little to do with actual competence. The critical signs for the public are keeping a tight reign on public spending, and also for the economy not to be subject to dramatic adverse changes. Economic growth does not count for as much as many people seem to think. The bedrock of Tory support is retired. They have paid off their mortgages, have substantial value in their houses, and receive reasonably secure pension income, some of it from the state. They don’t like higher taxes because their income is relatively fixed. But unemployment, higher interest rates, and so on hurt them little. They shrugged at warnings that Brexit would damage the economy, and still do, even as many of the warnings are being realised. They are for economic growth in theory, but against just about any policy that will bring it about. There aren’t enough such people to produce a winning majority, but without them, or a substantial majority of them, the Tories cannot win. Labour under Tony Blair wooed enough of them over to put the Conservatives out of power for more than a decade.

On top of this bedrock the Tories need to win over another swathe of voters with conservative instincts. These are more aspirational; they have jobs (usually in the private sector) and own their homes, or feel that home ownership is within reach. This group is going to be put under pressure by higher interest rates. Mr Sunak may escape blame for the current rise in rates, justifiably or not, thanks to the political ineptitude of his predecessor. But it’s important that the rates don’t keep going up. That means running a conservative fiscal policy. Both he, and his Chancellor of the Exchequer, Jeremy Hunt, seem to understand this. If inflation turns a corner, thanks to easing world conditions for energy and food, the pressure on interest rates will ease and it will look as if the government has managed a crisis well. The Tories would be in a position to raise doubts about Labour or a “coalition of chaos”, and, combined with the redrawing of parliamentary boundaries, there lies a narrow path back.

The threat to Labour of such a scenario is real enough. The public retains a serious bias against the party on economic management. This was made worse during Jeremy Corbyn’s tenure as leader. This wasn’t so much from what he and the party actually said – his shadow chancellor, John McDonnell, proved to be an able communicator – than from a general attitude by the party that used the word “austerity” as a term of abuse. The party made no attempt to pick fights with interest groups on the grounds that “we can’t afford that”. Things are much better under Sir Keir Starmer, though he has not picked able communicators as shadow chancellors – the best that can be said of the current incumbent, Rachel Reeves, is that she is more effective than her predecessor, Anneliese Dodds. Their strategy seems to be, as it was under Mr Blair and Gordon Brown, “the same, only different”: trying to pick only carefully chosen and relatively minor differences, like windfall taxes, but copying Tory policy otherwise. When Tory policy goes crazy, as it did under Ms Truss, this leaves them looking muddled. They were much happier under Boris Johnson, who tried to dodge hard choices altogether, meaning theatre was less pressure on Labour to confront choices it would rather not. Labour will face an awkward strategic challenge under the Sunak-Hunt regime. The “same, only different” strategy is still viable, but it will pose some awkward choices on its attitudes to public spending.

Mr Sunak is left with two major headaches, though. The first is on public services. The government will be forced to constrain resources in order to manage the budget deficit. The timing is awful. Services across the board – health, education, the police, courts, to name only the most obvious – are all under stress, and they are about to be put under further pressure by workers demanding that pay keeps pace with inflation. The job market remains quite tight, so retaining staff is going to be hard. And these public services, mostly, matter to people. The obvious cuts have already been made, and saving money through more competent management is something this government seems to be unable to pull off – years of incompetent leadership are a large part of how they got into this mess. Politicians have lived too long on the notion that message and narrative matter more than operational effectiveness. The government could face constant distraction from one public service crisis to the next, giving the overall impression that they have been in power too long and their time is up. They won’t be able to rely on trying to divert the focus to Labour.

The second problem for Mr Sunak is related: his party lacks competence and discipline. Crisis in public services could be compounded by parliamentary rebellions and questions over his leadership. His need to maintain a broad church of views within the cabinet does not help. Trouble with the Home Secretary, Suella Braverman, illustrates this. She goes down a storm with party activists, and helps keep the culture wars burning – but tub-thumping will help little in trying to run a complex and important brief, which has already suffered from years of poor leadership. She had already been sacked by Ms Truss for what amounted to gross disloyalty (thinly disguised as breach of ministerial procedure). She is more a politician than an administrator. But on the backbenches she could be a thorn in her leader’s side.

To people like me, it is hard not to think that these are symptoms of a political system that may have worked once, but which has long since ceased to do so. Politicians achieve high office by playing the gallery to a small coterie of deranged activists and donors, and where administrative competence and negotiating skills count for little. So it is disappointing that Labour are offering no serious political reform. Activists support the introduction of proportional representation, but Sir Kir has no intention of letting that get into his manifesto. He is worried that marginal conservative voters will react against it. That may be a sound judgement. Perhaps if a coalition is forced on him by the Liberal Democrats, he will entertain some degree of reform. There may be something in Tony Blair’s strategy of being cautious before winning power for the first time, and more radical on the next occasion. But for now it is hard to know whether the Labour party is on the right strategic course, and has enough competent people at the top. To me it looks vulnerable.

But there are good odds on Sir Keir being the next prime minister – and that looks justified.