Labour: last stand of the old politics

Copilot again. If I had asked it to make the knight look like sir Keir Starmer I don’t think it would have allowed me

A while a go I promised to offer my thoughts on each of Britain’s six main political parties. I started with the Liberal Democrats, the party I know best. Today I move on to Labour.

Labour won an exceptional majority in this year’s general election – and unprecedented in the scale of its advantage over the Conservatives. But this is based on under 35% of the popular vote, on a relatively low turnout. A big victory was widely forecast, so perhaps many of the party’s voters stayed at home. That’s hardly a ringing endorsement, though; the Conservatives surely suffered more from the stay-at-home effect. There is, therefore, a sense that Labour’s advantage is fragile, and could be lost after a single term. To be fair, Labour’s leadership seem very aware of this. Perhaps that is one reason why their first months in office seem to be plagued by a strange hesitancy. The Conservatives, under a new leader, sense there may be an opportunity – especially since Donald Trump’s victory in America shows that the electorate’s anti-incumbency mood works even more easily for the right than it does for the left.

This uncertainty is because we are in a transitional period in global politics. This is the onset of the low-growth era. Until now politics has been based on the assumption that steady economic growth would improve living standards across the population, and drive increased tax revenues that can be spent by expanding benefits or increased public services. There are other ways of looking at this problem. Advocates of Modern Monetary Theory produce strong arguments to suggest that governments don’t spend money raised by taxes – they simply need to manage the balance of income and expenditure so as not to let inflation loose. In an innocent age of just a few years ago, when inflation seemed to be yesterday’s problem, it seemed that governments could run up big budget deficits without any problem. But inflation in America is one of the reasons for the anti-incumbency mood, alongside the not unrelated issue of immigration. Liberals can be quite dismissive of inflation – but it is politically toxic. Most people regard it as a breach of the trust they place in state institutions.

By and large, politicians are in denial about the arrival of the no-growth era, and so are most political commentators. They suggest that growth is a matter of finding the right policy mix, with the right political drive behind it. Growth is a political choice, they say. But it isn’t. Low growth results from a convergence of economic circumstances (a less favourable trading environment; adverse demographics; the state of technology; climate change), and the revealed preferences of the public from their consumer and political choices alike. Practically until the US polling day, The Economist suggested that the Democrats’ political fortunes would be changed once the US public started to appreciate the country’s excellent growth record over recent years. It doesn’t seem to have dawned on them that the American public is protesting at the costs of that growth. So far all I hear is the very lame argument that voters think their pay-rises are due to their own achievements, but that rising costs are due to political failure. Meanwhile the Republicans have won comfortably with an anti-growth agenda, although, of course, they and their voters seem to think that its is the opposite.

The problem for Labour is that they are dug into the old growth assumptions. Their plans don’t add up without it. They may be lucky – as there are some specific opportunities for Britain. They might even reach their objective of achieving the highest growth in the G7 – though mainly because the other six countries will perform so poorly. Having said that, Donald Trump’s concerted attack on world trade is bad news for Britain. Another problem is that their pre-election promises on taxes have forced tax rises on business that look distinctly unhelpful for private sector growth – though the overall fiscal effect of the recent Budget was positive.

Meanwhile the public’s anti-growth mood remains. They are sensitive to inflation – the risk of which is heightened by using fiscal policy to drive growth. They don’t like immigration, which is essential to manage the skills shortages that growth throws up – even if not all immigration actually eases growth. Most infrastructure development, including housing, throws up vociferous protests, which causes delay and cost overruns. The problem, though, is that the public remains subject to severe cognitive dissonance. They still think that they are pro-growth policy and have the possibility of stable or lower taxes, a strong social safety net, including state pensions and the NHS, and robust public services. Alas it is in no politician’s interest to bring this dissonance to the point of resolution. With the possible exception of the Greens, no political party is remotely close to tackling it.

What is the answer? That really is the topic for another post, as I’ve digressed far enough from the state of the Labour Party. But there are opportunities out there, and it should be possible to promote improved wellbeing even in a world where conventionally measured growth remains low. But it requires a whole new approach to managing our society.

Meanwhile the Labour government is left with little choice but to try and muddle through, and hope for some economic and political good luck. If they want to make a drastic change in course, they will have to do so by presenting a new manifesto at the next election. It is too early for them to start preparing for that, at least in the open. It is possible that they will start to understand the economic reality in three years time or so and rethink their strategy. But their chances of reaching a second term, which they will desperately want, mainly depend on what happens to the opposition. Here things look much more promising.

The populist backlash is likely to grow. Labour is unlikely to be quite as inept as the Democrats were in fending it off. They are cautious to point on immigration, though unlikely to stem the flow by enough to assuage the public; they will probably keep their woke tendencies at bay. But popular frustration with slow progress will grow, and much of their agenda on infrastructure and clean energy will draw criticism. And yet the populist mantle is being fought over tooth and nail by the Conservatives and Reform. Neither looks strong enough to prevail over the other, leaving the opposition to Labour divided. The Liberal Democrats, meanwhile, will try to consolidate their grip on the Tory left flank. Four years is a very long time in politics, but this dynamic, which won Labour its outsized majority, is their best chance of victory next time.

Meanwhile Sir Keir Starmer, the party’s leader, will start to find his party gets unruly. He has too many MPs to keep quiet with government jobs or the prospect of them. Leftwing causes will come along to challenge is plodding centrist cause. But the growing threat from the populist right may well be enough to keep these in check. Having won power, his party really doesn’t want to lose it.

That is lucky for Sir Keir. The central premise of his party’s programme – that it can restore economic growth to about 2% per annum – is unattainable for more than a couple of years. His is the last stand of the old politics. The new has yet to fully take shape.

Coverage of America’s unpredictable election displays the usual bias

I asked Copilot for a picture of a squabbling crowd in America and this is the result. I suspect political guardrails prevent them including the US flag…

One of my rules here is that I don’t like to comment on elections before they happen. Most news reporting on elections happens before the results are known, because, I suppose, it is more newsworthy. And that’s fair enough if your audience are voters in that election – they have a decision to make. But for others the most important thing about an election is its outcome, the point at which most newsmen seem to drift away, for foreign elections anyway. But the coverage of the United States’ general election tomorrow has become a massive thing in itself. And I want to comment on that before we know the outcome.

The first thing to say is that the coverage here in Britain is massive. My main source of daily news is the BBC, and they are throwing huge resources at it. Alas they often don’t have much new to report. It is quite interesting to see in pictures, or hear real voices, to illustrate what I have read about in more substantial reporting in The Economist and elsewhere – but it has become repetitive. This is typical of the BBC’s “headless chicken” editorial policy. They let their agenda be set by other news outlets (as they see themselves as reporters of the news, not makers of it), set a time budget and fill it even if they have nothing to say – meanwhile suppressing coverage all sorts of important news in areas they consider less newsworthy. Things are not quite as bad as they are when there is a death in the Royal Family, but I’m getting some of the same feeling.

For somebody like me, endless repetition of messages by the BBC and others makes we want to challenge them. These include: this is a very close election; it will be decided in the seven swing states; it is the most consequential election in a generation (or more); American politics is toxic and dysfunctional (to be fair the BBC does not push such an opinionated view – though it is very widely held). All of these contentions have plenty of evidential support, but none of them should be regarded as established facts, as most coverage seems to imply.

Is the election close? Yes, all the respectable polling says so, and the campaigns are acting that way. But accurate polling is very hard to do. In the last two elections Donald Trump’s support was significantly underestimated. There are many unique characteristics about this election, and that is going to make it just as hard to predict: learning from past mistakes can simply lead you to new ones. You can make a case that there will be a comfortable Trump win (a repeat of previous polling error, resulting from a broadening of his appeal across ethnic groups, etc.) or a comfortable Harris one (more motivation from outraged female voters, etc.). We don’t know.

Will it be decided in the seven swing states, or perhaps just the biggest of them, Pennsylvania? A recent poll showing Kamala Harris ahead in Iowa (due to predicted high turnout among women voters) raised eyebrows as this is a regarded as safe for Trump, and may well be one of those polling outliers. But it is entirely possible that the intensive attention both campaigns have been paying to Pennsylvania make this an atypical state, and the winner there loses the overall election. Meanwhile it is possible that one of the parties will flip one or more states outside one of those seven and this could prove decisive.

This is the most consequential election in a generation? That is what both campaigns are saying, and it is what a lot of others were saying too. But it’s what they always say – and especially last time. A Harris win is not going to stop the backlash against “elites” from middle America, even if it means the end of the road from Mr Trump himself. She will not put into action the sort of radical programme that Joe Biden did – as she has not prepared a long for the job as he had, and she will be more constrained politically – she is likely to face a Republican-controlled Senate. And as for Trump, he may in some ways be much better prepared for power than he was in 2016, with many more loyalists ready for the call to assist his administration – but he himself is more erratic and even less focused – and as narcissistic as ever. We could well get a chaotic regime that achieves little and quickly becomes constrained by its unpopularity. Yes, the election will be highly consequential – but so was the last one, and the one before – and well you make the case for earlier elections too.

American politics is toxic and dysfunctional. Actually the first of those is pretty much incontestable – toxicity is a Trump and Republican strategy to help motivate their voters. Ms Harris is trying to break with that, which is welcome, but not necessarily a winning strategy. But dysfunctional? There is dysfunction – most notably with the failure of bi-partisan border legislation purely to make a political point. But The Economist Lexington column makes a good case that democracy is actually in quite good shape. The candidates are moving to the middle ground; party support is breaking out of its ethnic silos. And in today’s Financial Times Rana Faroohar points out that there is dysfunction in wider American society, with too much inequality and with governing elites obsessing about the wrong things. But there is widespread recognition of this wider dysfunction in American society, and perhaps the raucous debate, and highly contested nature of its politics will start to produce the sorts of changes it needs for renewal – and has a far better chance of doing so than if a more stable and controlled politics prevailed.

Humans are far from the rational creatures that many like to think they are. Our predictions for the future are too heavily influenced by our experience of the past. We think that our battles of the moment dwarf those of the past and future in their importance. Both biases are running rampant in the news coverage of this US election.

A Budget that poses as many questions as it answers

More from Copilot

This week Rachel Reeves, Britain’s chancellor of the Exchequer, delivered the first strategic Budget the country has had since George Osborne’s in March 2016, unless you count Kwasi Kwarteng’s short-lived effort in Autumn 2022. Mr Osborne’s effort was, of course, simply maintaining the strategic course he set when he first became Chancellor in 2010, and on which doubled-down in 2015 once he’d dispensed with his Liberal Democrat coalition partners – a strategy usually referred to as “Austerity”. That was to shrink of the British state’s footprint, reversing the trend established by Labour, especially from its second term starting in 2001. Ms Reeves is reaffirming the role of the state, but whether that is simply consolidation or a decisive expansion remains unclear. What is over is the firefighting, bluff and pretence of the years 2016 to 2024; there is now a serious engagement with the challenges confronting Britain.

Mr Osborne’s budget of 2016 was quickly overwhelmed by the Brexit referendum in the following June, which saw a new prime minister, Theresa May, and Chancellor, Philip Hammond. They rejected the Osborne strategy with a turn against Austerity. But the mess left by the referendum result was not conducive to clear strategy, as nobody really understood what the result meant. Was it the creation of a small-state “Singapore on Thames” as many senior Brexiteers wanted, or just a grumpy turning inwards? Any chance of the new government coalescing around a coherent strategy was destroyed when it lost its majority in the snap election of 2017. A new government emerged under Boris Johnson in 2019, but his strategy was to have his cake and eat it – to avoid any difficult choices: a strategy not to have a strategy. Liz Truss and Mr Kwarteng took over in 2022, and although they did appear to be strategic, their efforts collapsed almost before they had started. The Rishi Sunak and Jeremy Hunt regime’s only strategy was to try to survive until their political fortunes turned. They pushed through cuts to National Insurance based on fictional forecasts of future government spending. It was fundamentally unserious.

Labour’s first job after taking power in July was to restore those public spending estimates to some kind of reality, without sparking the kind of panic over fiscal probity that Mr Kwarteng had done. They made this job much harder because they chose to humour the Conservatives’ fiction on the public finances rather than challenge it. They promised not to raise taxes on “working people”, and specifically not Income Tax, National Insurance or Value Added Tax. Since taking power they then suggested that they had discovered a surprise “black hole” of over £20 billion, or perhaps £40 billion. But mostly this was known about before the election – and repeatedly pointed to by the Institute for Fiscal Studies. But no political party addressed the issue properly – not the Lib Dems, Reform UK or the Greens, never mind the main two parties. All said that public services could be maintained based on implausible taxes on other people, or equally implausible cuts to benefits. Ms Reeves decided that raising employer National Insurance was not too egregious a breach of election pledges, and went for that. This raises the overall tax take to its highest ever level as a ratio to income, but well within European levels. Whether this really means the largest extent of the state ever, I suspect, depends on how you treat benefits, which is more of a negative tax than a part of the state apparatus, and which have been steadily creeping upwards. But looking ahead beyond the next two years, Ms Reeves continued her predecessors’ fictions on public spending, and cut safety margins to nothing, in order to demonstrate medium term financial targets were being met.

That was because the Office for Budget Responsibility (OBR) forecast meagre growth. Labour’s plans had always been based on improved economic growth – but they cannot give the OBR anything solid enough to raise their forecast. A lot of growth comes from the zeitgeist, out of reach to policymakers and economic forecasters alike. And many of the government’s pro-growth policies have yet to be worked out. Landing a big extra tax burden on businesses in the short term, moving to workers medium term, leaves a bit of a credibility gap there, and it’s hard not to think that Ms Reeves is relying on a positive change to the zeitgeist to get her out of the hole.

Still, the government was never going to solve its economic challenges in one go. This budget is seen as a necessary first step, setting a credible baseline from which to move forward. To me that is a convincing enough narrative, but one that clearly leaves many questions. I have already mentioned growth. Social care is an issue that overshadows all health and welfare spending – and even the Tories attempted to tackle it on occasion – but it has so far been ignored by the government. The government wants to increase the efficiency of government services – but so has every government I can remember: what makes this time different? And many stretched government services, notably those within the remit of local government, are getting little if any extra funding: how sustainable is that?

The one thing going for the government is that expectations are dismal – it will not be so hard to beat them. They aren’t making the mistake that Mr Johnson made in 2019. A good run of luck could change the climate completely.

For me the jury is still out on this government. This Budget isn’t a bad start by Ms Reeves, but many more tests are to come.

The American economy’s success is driving the toxicity of its politics

Credit MS Copilot

“Don’t bet against the American economy,” says The Economist in a recent special report. I understand where that sentiment is coming from. Over the years I have read many prophesies of doom, or at least of decline, for that economy, and often found them persuasive. On each occasion they have proved false. Two thoughts have struck me from this report: first that America’s success can’t be replicated by Europe, and that Europeans shouldn’t try; and second that America’s economic success, paradoxically, lies at the heart of its toxic politics. It is that last paradox which might cause the American success to unravel, as, to be fair, the report acknowledges.

My first insight flows from the principle of comparative advantage – a core economic insight originally articulated by David Riccardo in the 18th/19th Century. It is part of Economics 101, and is the critical idea about what drives international trade, and why such trade is mutually beneficial even if one economy imports stuff that it could make more efficiently for itself. It’s all about opportunity costs, as more modern language than Riccardo’s would have it. At a strategic level the theory of comparative advantage has massive predictive power – explaining so much of the world economy as we see it, including, for example, why exchange rates don’t match purchasing power parity. But as you try to get into more detailed, and tactically useful, predictions, economists have been unable to turn it into anything more precise, in spite of one or two attempts. Therefore it is left out the economic models that drive so much of the work of economists, and it does not progress beyond Economics 101. That is why so many economists, not least writers at The Economist, often forget that it is there and seem ignorant of how it actually plays out. So far as I can see, the great (and late) economist Paul Samuelson is one of the very few economists of modern times to properly have internalised its implications. He it was who pointed out that as undeveloped economies converged with advanced ones, the gains from trade between them would diminish, at the expense of the advanced economies. This does much to explain the relative economic stagnation of advanced economies since the financial crash of 2007-09, compared with the era of rampant globalisation before it (which happened after Samuelson died, having forecast it) – though there are other factors, not least demographics. And yet this is never mentioned amid the wringing of hands about the backlash against global trade, which is generally blamed on politics alone. And yet the invisible hand is so often behind the politics.

I have a another insight arising from Riccardo’s thesis. America’s recent success compared to Europe, as The Economist‘s report points out, is based on high-tech industries, where productivity has soared, while it has plodded elsewhere. This success is surely based on the scale of America’s market, and the relatively lack of legal and cultural barriers to trade and the movement of labour. This is clearly a source of comparative advantage over Europe – though not to China, which has a very similar advantage. This means that the relative productivity of the tech sector compared to others (making aircraft, for example) is always going to be greater in America than in Europe, apart from a few specialist niches. That will drive America to specialise in hi-tech industry, while Europe’s direct competitors will diminish – to the benefit of both, as an Economics 101 student can readily explain. If this the way of the invisible hand, then why does The Economist (and such luminaries as Mario Draghi the EU éminence grise with an economics training) spend so much time bemoaning Europe’s lagging hi-tech industry and urging it to to try harder? Economically literate politicians, like Mr Draghi, often do this sort of thing because it is a convenient argument for policies that are actually about economic efficiency in general . Journalists in more sophisticated publications have no such excuse. Europe is never going to match America, or China for that matter, in some areas and it will be a waste of effort trying. Meanwhile they are doing well enough exporting the many products where they do have comparative advantage – Europe does not operate with a large trade deficit, after all. Of course European leaders must keep trying to improve economic efficiency, and perhaps watching America will act as a spur, but a clearer understanding of the workings of comparative advantage would mean better-directed public investment.

Back to America. The Economist does not fail to attribute some of America’s success to an entrepreneurial zeitgeist – but it points to more solid factors too. First is that it has comparative advantage in industries that happen to be highly productive – not just in hi-tech, but also oil and gas. The former advantage stems from the size and flexibility of America’s product and labour markets – something that only China matches (India seems to be closer to Europe in this respect); the latter from a geological endowment. That’s all very well, but it creates tensions. The successful industries take off, but the corollary is that many others are left behind – and through the laws of comparative advantage – become less internationally competitive (as the dollar strengthens, and as they have to pay workers more to compete with the more productive sectors). This creates what Donald Trump calls “American carnage” – the flip side to economic flexibility, as factories close and more productive workers flee to the booming parts of the country. How much the imbalance between globally successful industries and the mainstream is driving high inequality is an interesting question. The Economist suggests that the poorest quintile has seen significant income growth in recent years with tighter labour markets – but in the middle of the income distribution there may be more stagnation – as the higher income groups continue to do fabulously. But if things happen quickly in America, the human cost is going to be high. Rapid growth breeds “carnage”.

A further source of advantage, according to The Economist, is access to large numbers of immigrants, and not least those flooding across the southern border. This seems to act as a lubricant: jobs get filled more quickly in the growing parts of the economy. Europe has immigrants too (though not China) but finds these harder to integrate. And yet this is a central driver to the country’s toxic politics.

And so the rapid change to the structure of the US economy, and the flood of immigrants that its success attracts, are driving a sense of dislocation among Americans, which in turn is driving the highly destructive direction of US politics. This is placing all its critical institutions under threat. Four dangers lurk in particular: the capture of US institutions by a big business elite (“rent-seeking” in economic jargon); rolling back international trade through tariffs and other measures; clamping down on immigration; and finally macroeconomic instability arising from public finances going out of control.

The concentration of big business, leading to capture of the political system and the corruption of institutions to protect established business from competition (often in the name of social stability), is a familiar process. We see variations of it in many places (although sometimes, as in Russia and Hungary, the relationship between political leader and business elite is more complex) – and , indeed, it is alleged to have happened in America in the late 19th Century. The concentration is happening in America now, as is the business elite’s dabbling in politics (most egregiously by Elon Musk) – but The Economist does not think it is leading to significant anti-competitive practices. Competition between the major hi-tech companies remains intense and the pace of innovative product development is hardly slowing. We might raise eyebrows about the way money buys influence in the US, but it does not appear to be a big threat to the US economy.

The backlash against foreign trade is a more substantive concern and especially the advocacy of tariffs. This seems to be mainly driven by Donald Trump – and as such it is one of his most distinctive contributions to economic policy – but the Democrats are copying him. It is hard to see how such policies will do much to help the American public – their main effect will be to raise costs. However it may not do much damage to the main drivers of US economic health: the technology giants and the oil and gas industries. It is not good news for the rest of the world, however, especially Europe.

Anti-immigration will also probably not hurt as much as it could – unless Mr Trump is actually tries to fulfil his campaign rhetoric about mass deportation. The Economist is also quite sanguine about the impact of public budget deficits, which few politicians seem to be taking seriously. There remains little threat to the US Dollar as the world’s preeminent currency, and hence the ease with which dollar finance can be obtained.

Still, there does seem to be an unhealthy cycle here. Growth in the American economy remains robust, but it is driving US society apart. Politicians and commentators alike focus on the choices at the next election, always described as the most important in modern times. But neither side is able to deliver a killer blow to the other. If Mr Trump wins next week’s election, his movement will have to find ways to survive his departure, amid the inevitable chaos of his administration. If Kamala Harris wins it is hard to see that she can convince Trump supporters that she is taking America along the right course, continuing to fuel the destructive radicalism of the right. One way or another this political toxicity will surely affect the astonishing robustness and resilience of the US economy that is one of its main drivers.

Liberal Democrats: reaching for the sun

Picture from Libdems.org.uk

My life being what it is, my posting on this site will remain erratic. I do take time thinking about my posts and composing them – so I have to make time while juggling with other things. After an absence of over a month, I am planning to run a series of posts here on the British political parties after the election of July. We have entered a period of multi-party politics, with no less than six parties able to have a significant impact on the next General Election (Labour, Conservatives, Liberal Democrats, Reform UK, Greens and the Scottish National Party – I am perhaps being a bit dismissive of Plaid Cymru). I plan to have a look at each of these six.

I start with the Liberal Democrats, the party I know best. I joined its predecessor the SDP in 1981, and my membership has been continuous ever since. I have been active as a local party officer (Treasurer and Chair) and election agent. I have served as Treasurer of the London party, and on a couple of policy working groups. And I have attended many party conferences, though not this year. I am no longer very active locally, but I do belong to the party’s Federal Audit and Scrutiny Committee – so do regularly exchange with senior officials of the party, albeit only tangentially on the subject of political strategy. I gave the current leader, Ed Davey, his Chair’s reference so that he could stand as a parliamentary candidate in Kingston, before he first won the seat in 1997. I’m no outside observer, but I will try to comment as if I was – with a bit of inside knowledge. As a member of the family, though, I will refer to the main protagonists by the first names.

The party managed a superb result in July, with 72 MPS, the best result for it or predecessor parties since the days when the Liberals were a party of government a century ago. This was delivered on the basis of a relatively modest share of the vote (about 13%) that was actually a small decline on its previous performance. This has added immeasurably to its stature; it is taken much more seriously by the outside world, and its supporters are happy. It feels like a big moment for the party, which for the past five years has been teetering on the edge of extinction and irrelevance, and it poses the big question of who the party is and what it is for. It is worth looking at this in the context of the party’s history.

When the party was created in the aftermath of the 1987 election, from a merger of the Liberals with the SDP, the party was at a very low ebb. Its fortunes revived under the leadership of Paddy Ashdown. Paddy wanted the party to matter. It was his aim to enter government in coalition if he could, and to influence government even if that wasn’t feasible. As New Labour emerged under the leadership of Tony Blair he saw an opportunity to influence that party in a future government by working alongside it in opposition to the Conservatives. In the 1997 election Labour won a landslide, and needed the support of no other party. But it was a breakthrough election for the Lib Dems too (winning over 46 seats, up from 20 in 1992, although with a lower vote share). There continued to be a relationship with Labour, and it was possible to see Lib Dem influence, especially on constitutional matters. But the relationship was going nowhere. Labour did not see the need for it. Tony Blair was “unpersuaded” by the case for electoral reform for parliamentary elections, the Lib dems central objective. Paddy resigned and was replaced by Charles Kennedy.

Some people in the party look back on Charles’s leadership as a bit of a golden age. The Conservatives remained unpopular and the party was able to harvest disaffectedLabour voters. But there was muddle at the heart of it. This period peaked in the 2005 election, when the party won 65 seats, on the back of Labour unpopularity over the Gulf War in particular. With the third successive substantial result for the party, it seemed to be part of the Westminster furniture. And as MPs retired they were replaced, not by local activists as had been the way before, but by political professionals working internal politics, in the manner of the Labour and Conservative parties. There seemed to be (almost) such a thing as safe Lib Dem seats, not so attached to the personal local standing of the MP. These political professionals started to dominate the parliamentary party, and one of them, Nick Clegg, became its leader. The objective of these professionals was clear: to enter government in coalition, so that they could shape policy. This seemed like the natural next step in the party’s growth and maturity. But its offer to the public was not a clear one. To insiders the party was bound by its liberal and internationalist values, but this was less important to voters.

In 2010 the party did well to hold onto 57 seats in the face of a resurgent Conservative Party. With a hung parliament, this was the moment the professionals had been looking for: they entered coalition with David Cameron’s Conservatives. The party made a solid contribution to this government – it is striking how many successes over the 14 years of Conservative-led government have the party’s fingerprints (renewable power and gay marriage, for example), and how things went wrong after the party left (Brexit…). But the party’s left-leaning supporters felt bitterly betrayed. This was especially deep for three groups in particular: students, let down by the introduction of tuition fees in spite of promises made during the election; public and third-sector workers, who developed hostility to austerity, which threatened their jobs, into a near-religion; and working class voters, shocked at the party’s support for Tories. Nearly half the party’s support vanished almost overnight. Then the Conservatives, sensing weakness, pulled won over many of the rest by playing on the fear that the party would let Labour in. The 2015 election was a massacre – the party only just hung on to 8 seats. Third place in parliament went to the SNP. Like Icarus, the party had flown too close to the sun and were punished for their impudence.

The party managed something of a revival following Brexit, as the party most committed to opposing it, recovering to 12 seats in the 2017 election. New members flooded in. Under Jo Swinson, another of the 2005 intake, though somebody that had to win her seat from Labour rather than walking into a held seat, the party doubled down on its opposition to Brexit, while Labour vacillated and the Conservatives turned into hardline Brexiteers. The party launched a well-funded campaign in the December 2019 election suggesting that they might lead any government that emerged – as way of avoiding the question of which of the others they preferred. But they flew too close to the sun again, and support melted: they were limited to 11 seats, in spite of decent vote share by post-2015 standards. The high hopes of many members at the start of the campaign were crushed; quite apart from the party’s own poor performance, Boris Johnson’s victory meant that Brexit would indeed be “done” – something that they had become passionate about.

Ed Davey took over at this low point. It needs to be remembered that he has witnessed all this history first hand. I first remember him when he moved into our local party area in the late 1980s; for some reason I have it my mind that he was ex-SDP, though he must have moved in after the merger. He was working as an economist at the British computer company ICL (which was later subsumed into Fujitsu) but not long afterwards he took up a position as an economics researcher for the central party. He then became the parliamentary candidate in the Liberal council stronghold of Kingston, where he enthusiastically adopted the Liberal style of community politics, and won a striking victory in 1997, when his seat wasn’t one of the official targets (it didn’t stop me going to help…). He witnessed the evolution of the party in the period of its significant presence in opposition from 1997 to 2010, but he wasn’t part of the intake of 2005, who did so much to shape the culture of the parliamentary party. Nevertheless he became a minister in the Coalition, eventually at cabinet rank – and appeared to be having the time of his life. He took to being a minister like a duck to water. A lot of the credit for Britain’s remarkable progress on renewable energy is down to him, though he was building on groundwork laid by Chris Huhne. But he lost his seat in the 2015 massacre, though he won it back in 2017. I worked with him on fundraising for the Lib Dem London Assembly campaign of 2016, where his wife was a candidate.

Ed is not for flying close to the sun, unlike his predecessors Nick and Jo. The party reorganised with a highly professional Chief Executive, Mike Dixon, recruited from the charity sector (by Jo, to give credit where it is due). It focused on the mundane issues that were the primary concern of voters: health and social care, sewage pollution, and so on. It concentrated resources on areas where the party already showed strength – primarily in Conservative-held suburbia. Strong message discipline was developed; activists were encouraged to knock on doors to talk to voters. The reward, in July, was beyond all but the wildest dreams of activists (Lib Dems can dream wildly). This, of course, was a question of capitalising on the opportunities made by the other parties – especially the Conservatives and SNP, but Labour helped by not scaring voters. But experienced Lib Dems know all too well about having an opportunity and fluffing it during the campaign. Many of the victories were massive. In a parliament where there are an unusual number of close results, and MPs with under 40% vote share, the Lib Dems are in a relatively comfortable position (although there are a few close results, of course). They would have done extremely well even if Reform UK had not spit the Conservative vote. There are not many second-placed seats left, though I live in one of them. This sizeable number of MPs looks eminently defendable, though in some places campaign infrastructure needs to be built.

So, where on earth does the party go from here? The message from Ed is to show humility, and to keep working on the themes that party campaigned for – it is important to maintain the trust of the electorate. But how do you expand on such a good result, and what is the party building up its parliamentary presence for?

The party itself is more coherent than at its previous high of 2005. Its MPs look distinctly professional, and it draws a huge amount of its support from professional people. The working class supporters it used to attract have not returned, by and large. It is a party of middle class angst. When populists like Matt Goodwin rage against the “elite” and their “luxury beliefs”, they include people like Lib Dem supporters, who, in fact, are frustrated with their powerlessness. They want the country back in the European Union; they look sympathetically at the plight of refugees; they want to confront the black spots in British history; they wouldn’t mind a bit if an Indian or African family, or a gay one, moved in next door; they want state schools to promote these values. But these values do not have mass appeal. In polls the Lib Dem vote share hovers in the range of 10-15% and never beyond.

Still, there are two electoral opportunities. One is to keep mining from the seam that has already given so much: disaffected Conservatives. That party has to scratch the populist itch, and chase voters that supported Reform, the Lib Dems’ polar opposite. More liberal and pragmatic Conservatives will surely continue their exodus. And then there are disaffected Labour supporters. There are bound to be a number as the government faces grim choices on public spending, and the more liberal must choose between the Lib Dems and the Greens. There are very few Labour seats that are realistic targets for the Lib Dems, but attracting Labour supporters will help secure the Lib Dems’ existing gains, and even to pick off a few more Conservatives (for example in the seat where I live, East Grinstead and Uckfield, where Labour has a significant vote). In some relatively affluent middle class suburbs where the party is still third, they might be able to move to second place, to either party.

Some of the party’s members want to attack a distinctly conservative Labour government from the left – as they believe Charles Kennedy’s party did in the Blair years. But that risks putting off many of the voters that the party has drawn from the Conservatives. The party can push for closer integration with Europe, however – such as joining the Customs Union or even the Single Market. The party can’t afford to ignore people who voted for Brexit, but it is not nearly so much of a problem for them as it is for Labour. Brexit is widely seen as a disappointment, and the number of people who voted for it is in steady demographic decline. One day the party might even talk about rejoining the EU – but that remains a long way off. If there is an upwelling of support for electoral reform, the Lib Dems are ready to embrace it. Beyond that I don’t any big shifts in campaigning themes.

What’s it all for? The Liberal Democrats are a natural party of government, even if they so rarely exercise power. They are happy to engage in conversations about the sort of compromises needed to make things happen – it’s part of the mindset of a professional, perhaps. At conferences activists discuss detailed proposals for policy as if power was round the corner – to the incredulity of outsiders. And where the party controls councils, it is very pragmatic. For example, a neighbouring council to where I live is refusing planning permission for local housing developments regardless of their merit, and it is suffering fines as a result, because of implacable opposition by the Greens and Conservatives alike. Lib Dems protest that this is nonsense – the fines take away resources from desperately stretched public services. And they know that the shortage of housing is extreme. Instead they want to engage with the planning process and allow some developments and while opposing others. This pragmatism contrasts with the Conservatives, who gradually became a party of protest, even while in government.

That pragmatism will manifest itself with measured opposition at the national level, compared to hysteria from the Conservatives and Reform. But it only goes so far. The party is not engaging with the critical economic debate on how to balance taxes, public services and benefits. And how to balance the demographic need for immigration with the pressure it puts on infrastructure such as housing. Instead they complain about pressure on public services and cuts to benefits, while only suggesting half-baked gimmicks to raise extra taxes. This, of course, copies Labour strategy before the election – but the party shows no sign of engaging with the difficult policy choices that any government must face.

But the party now has an army of MPs, which will be supported by an even bigger army of paid researchers and the like. They will want something more than mere political survival. In my view the party needs to aim for working in coalition with Labour after the next election, if that party’s majority vanishes, as well it might. Perhaps it is still too early to think of such things, and the party needs to learn the lessons of the previous coalition episode. It would help if the party was on the up, and entering coalition from a position of strength.

Ultimately, if the party can’t fly close to the sun, it is unclear why it should exist. How far Ed recognises this I don’t know. But he does know how important it is to ascend with humility. And I am sure he is right there.

Labour’s dishonesty at the election is catching up with it

05/07/2024. London, United Kingdom. The Prime Minister, Sir Keir Starmer and his wife Victoria arrive at Number 10 Downing Street upon his appointment. Picture by Kirsty O’Connor/ No 10 Downing Street

Sir Keir Starmer, Britain’s Prime Minister, can be summed up in a single word: Focus. He is learning the problems that this characteristic brings. His focus on winning the election on 4th July has made his life much harder now that he has won. Labour has made an awkward start to its term of office.

In government Sir Keir’s focus is on five “missions”. This is an admirable approach compared to the chaos of Conservative governments, especially since 2016. We can quibble about the design of those missions: number one is “kickstart economic growth”. Growth makes a poor target: it’s both a bit like targeting happiness, which is something that happens when your are trying to achieve something else, and a bit like targeting the birth rate, which just isn’t under state control. It is under this heading that housing is being tackled: much better to have targeted housing specifically, surely. Social care doesn’t make it into the five – which cover the energy transition, law and order, education and the NHS (or in fact health) – but which of the others would you drop? Neither does immigration, which would have featured in any Tory big five – but that is more understandable. Focus is integral to achievement,- but it comes at the expense of risk management. A lot of the skill of management is learning how to balance the conflicting requirements of focus and risk management. Sir Keir must not be too relentlessly focused – he needs to have a strategy for dealing with the many other issues that have the potential to derail. He needs to use trusted colleagues for this.

What Sir Keir had clearly hoped was that the sight of a government clearly focused on achieving the nation’s priorities would present such a contrast to the previous government that he would have a prolonged honeymoon – especially as there is no coherent opposition. That has not been so. The summer’s big unforeseen event was the rioting that followed the Southport murders – but these played to Sir Keir’s strengths. A strict no-excuses crackdown was what the public wanted and this was delivered without hesitation. But from this emerged a big problem: neither he nor his most important colleague, his Chancellor of the Exchequer Rachel Reeves, are good communicators. They are wooden in their presentation and in their responses to questions. This has not helped them in their presentation of bad news about the government finances, the need for continuing austerity, and in particular the cancellation of the winter fuel allowance for all but a few state pensioners, just as fuel costs were rising again. They are blaming this on the previous government covering up a black hole in the nation’s finances -but this is coming across as insincere. Not without reason.

The problem is that the “black hole” in government finances is not at all surprising – so acting surprised looks fake. Throughout the election campaign the Institute for Fiscal Studies, a well-respected think tank, complained that all the parties were painting too rosy a picture of the nation’s finances. It really wasn’t hard to see why. The previous government was trying to use inflation to squeeze public sector costs – and noticeably force down the real pay of public sector workers. On this basis they fairly transparently cooked official forecasts that they could make cuts to National Insurance – even after they had tried to raise the tax in 2022. But Labour were silent about all of this, choosing not to challenge the Conservative’s general policy direction. Both parties seem to have been obsessed by the thought that the 2024 election could be a repeat of the one in 1992, where the Tories successfully built a campaign on “Labour’s Tax Bombshell” that turned a seemingly inevitable victory for Labour into defeat. Labour promised not to raise any of the main taxes (Income Tax, National Insurance and VAT), matching a Tory promise and said they would match Tory spending projections except in a few specific places. They were evasive on the clear implication (highlighted by the IFS) that this meant austerity in most aspects of government spending. Sir Keir’s focus was on winning the election with an outright majority, and he wanted to leave nothing to chance. If he was being dishonest, then he was no more so than the Tories, the thinking g seems to have been.

But, as my mother used to say, two wrongs don’t make a right. Labour could have been more honest about the state of the nation’s finances before the election, and they weren’t. The focus on winning the election has made the task of government much harder. Sir Keir has been desperate not to repeat the Tory habit of over-promising and under-delivering, and has been caught out over-promising. He is, of course, trying to pin this on the previous government, in the manner that David Cameron’s coalition government pinned the blame for its austerity policies in 2010 on the previous Labour one. But Mr Cameron, his Chancellor David Osborne, and even his Lib Dem deputy, Nick Clegg, were all much better communicators than Sir Keir of Ms Reeves (not that this did Mr Clegg any good…). Their hopes rest on the fact that with the next election four or more years away, some more positive events may have overtaken this difficulty.

I am disappointed. I had allowed myself a brief moment of hope. The speed with which the government settled the various public sector wage claims seemed to show a degree of imagination. They must have overcome firm Treasury pushback that “we can’t afford it”. But the better country that they want to bring into being features a happier public sector workforce, and better pay for the bottom and middle quartiles, and less dependence of cheap overseas immigrant workers. Squeezing public sector pay, with no plan for when any catchup might happen, is just takes the country further away from this goal. This is the reason I think that Jeremy Hunt, Ms Reeves’s predecessor, was one of the most disastrous Chancellors of recent times. He swallowed the Treasury logic on payrises and then made things worse with tax cuts.

But that flicker of hope has been suffocated. No evidence of such a degree of long-term vision has emerged. Instead the story was that the urge to settle the disputes was because they were unpopular and a distraction, and the previous government could be blamed. I was particularly disappointed that the government allowed the Treasury to defer the previous government’s plan to tackle the growing social care crisis, for the nth time. The government has to stick to its promises on tax, and social care didn’t make it onto the big five priorities. But the long-term consequences are not good, and some kind crisis is in the making. Labour’s focus on the election is making the challenge of decent long-term government harder.

Still, it isn’t all bad news for the government. None of the contenders for the Conservative leadership look capable of leading a revival for that party. The rift on the right, with the success of Reform UK, looks as if it will do for Labour what the rift on the left did for Mrs Thatcher in the 1983 and 1987 elections – enable landslide victories on the basis of lacklustre vote share. And the Lib Dems show some of the same problems as Labour. A relentless focus on doing well at the election at Tory expense leaves them ill-equipped to tackle Labour. The prospect that Sir Keir will get a second term remains good. The mandate that he seeks at that election will be critical to the success of his project overall. He needs to give himself much more room for manoeuvre.

PS Other commitments mean that this will be my last post for at least a couple of weeks. I plan to resume after the Lib Dem conference with my thoughts on what that party should do next.

Why can’t we have an honest debate about immigration

MS Copilot imagines arrivals at Heathrow

“Somebody needs to HONEST with the British people about the immigration CRISIS.” Thus begins a recent Matt Goodwin Substack rant (the capitals are his). He has a point: no politician wants to lay out the difficult choices raised by immigration policy. Needless to say, that lack of honesty applies just as much to Mr Goodwin.

Mr Goodwin is an itch I continue to scratch, I’m afraid. He is increasingly unhinged, and now regularly pushes the boundaries of racism, and goes over the boundary of Islamophobia, in my view. I used to read him because his academic training led him to be reasonably factual – but that is increasingly untrue, and anyway with his cherry-picking and lack of context, factual accuracy is pretty useless. His writing is also getting longer and more rambling, making it quite hard to read – though, interestingly, he is putting a greater proportion of it in the public domain (I refuse to be a paid subscriber, because this implies support, and he uses the funds to promote his output). But I still feel I need to know what he’s up to.

Mr Goodwin’s article is an attack on the Labour government’s policies against illegal immigration in particular. It is part of Mr Goodwin’s effort to stir up a frenzy of hate against Labour’s wokism – clearly imitating the way Republicans stir up hatred of Democrats. The difference is that he is also highly critical of the Conservatives – but that is another story. But if you try to discount the ranting, he does make some valid points about gaps in the government policy. Most illegal immigrants claim asylum, and most of the claims are granted. And even where those claims aren’t granted, many are from countries, like Afghanistan and Syria, that we can’t deport people back to. The business model, as Tory politicians like to call it, of the people smugglers is intact, so we can expect the small boat crossings to continue unabated. The tacit assumption seems to be that the government feels that the level of inflow is tolerable. The plan is to process the claims more quickly, so that claimants don’t have to put up at government expense for as long, and start integrating into society more quickly, taking jobs and paying their way. But the government does not say this, giving validity to the accusation that they aren’t being honest.

The question of illegal immigration is one dimension of immigration policy. Legal immigration is no less controversial. Here the new government seems content to continue with the last government’s policies. The policy here seems to be to reduce the immigration statistics through making policies on workers’ and students’ families more restrictive, and hope this, along with a calming down of flows from Ukraine or Hong Kong, will take the sting out of the public criticism. Alas the public don’t respond to statistics, but to concrete developments. From immigration these are pressure on public services and housing, poorly integrated immigrant communities, and public money being spent on housing asylum seekers (especially when these are housed in hotels in poor areas). If asylum seekers are processed more quickly – the Tories at one point deliberately prolonged the process in the hope that it would put people off – the housing at public expense should decrease. But it is far from clear that the other problems will be much affected by current policies. Stretched public finances mean that little is being done to expand capacity – and there are no quick fixes on housing supply. As for integration, the government’s stricter stance on bringing families over means that successful integration is less likely.

The deeper problem with legal immigration, of course, is that there is a high need for immigrants both as workers and as students. This is where much more discussion needs to be. Liberals tend to wave away this question, simply saying it proves that the country needs current immigration levels. But the problems with housing and pressure on public services remains. Conservatives suggest that this is an “addiction”, but do not engage with serious ideas about how the country might break the habit. On the assumption that higher-paid immigrant workers aren’t too much of a problem – they integrate easily and bring valuable skills and entrepreneurship – then we need to think about lower paid workers. Could we encourage more locals out of the workforce to tackle the roles that need filling (typically in healthcare, social care, hospitality and agriculture)? Could we make do with less of these services? Japan is an example of a country that is beset by similar (actually worse) demographic pressures, but insists on keeping immigration to the minimum. There are plenty of problems, but it can be done. I think the first thing is that rates of pay for these roles will have to rise, making it easier to recruit and retain staff already here. A productivity revolution is unlikely in these sorts of services (though Japan is trying to use robots), so it means that they will be more expensive. That means some combination of higher taxes, inflation and service closures (fewer rural pubs for example). This is where conservatives like Mr Goodwin aren’t being honest with people. The Conservative Party, for example, seem obsessed with the idea of lower taxes, and are still saying that the government needs to restrict public sector pay. They probably don’t understand how contradictory this is with their calls for lower migration.A more honest public debate would force them to confront the question.

And what about illegal immigration? Conservatives (including Mr Goodwin) are railing against the international treaties which provide the guiding principles of British policy. They want them gone in the name of sovereignty. So that they can do what? There are two main ideas: push the boats back in the Channel, and return migrants regardless of the dangers they face. These policies work better in pub discussions than they would in practice. The boats used by the smugglers are flimsy: they are practically sinking when the authorities reach them. Pushing them back means letting their passengers drown. This would go down well in some quarters, but it is hard to see that as being sustainable in a civilised country. And sending people home to Syria and Afghanistan? The logistics aren’t promising, and those countries probably wouldn’t want them back. And if they did, there would be plenty of stories of returning refugees being mistreated and even killed. British did something like this after the Second World War, forcing Russian Cossack refugees back to the mercies of Stalin. Standards have changed since then.

The awkward truth is that the best hope for managing refugees is internationally, in close cooperation with our European Union neighbours. That would not reduce the flow – but it would make it more orderly. Refugees could apply for asylum from abroad (France, say), and if granted come across legally. Others would be returned to France, etc. But in order for our neighbours to accept returnees, we would have to agree to a substantial legal flow. It is ironic that Brexit has given Britain less control over its borders – not even the Remain side in the referendum predicted that. National sovereignty is an overrated idea in the modern world. The world is in the middle of a refugee upsurge and Europe in particular can’t avoid it. Britain needs to be part of managing it in stead of pretending that the problem is somebody else’s.

The public is entitled to feel let down by its leaders, who spot an opportunity to stir up trouble, but are unable to implement solutions once in power. Now that they are out of power, the two factions of the right will probably try to outdo each other with tough rhetoric, while not engaging with the deeper issues. Surely the best chance for for the centre and left (Labour and the Liberal Democrats) is to be honest. Instead we get denial. The issue will continue to poison British politics for the foreseeable future.

What we expected was grief

Obelisk at Southport (2013) Picture by Rept0n1x

“What did you expect? Britain’s protests reflect DECADES of elite failure.” Thus starts a Substack post by populist commentator Matt Goodwin. This was in the aftermath of a violent attack on a mosque in Southport which in turn followed an appalling stabbing in that town, when three little girls were murdered, and several others injured.

What we expected, Mr Goodwin, was that the victims would be given due respect, and that their friends and neighbours be given the space to come to terms with the horror of what occurred. And we expected that time would be given for the facts of the incident to be established, and for lessons to be drawn from those facts. We expected common human decency. We did not expect the community’s grief to be hijacked by outsiders to promote their particular frustrations and grievances. At least the riot gave the community a chance to show their real mettle by turning up to help clean up the mess afterwards, and offer the mosque’s congregation messages of support. But, alas, further riots have taken place in other towns, well and truly hijacking a proper response to the tragedy – though at least these are leaving the town of Southport alone.

Mr Goodwin’s diatribe is worth reading for any of those wanting to get a better understanding of the undercurrents in British political life. It’s a powerful polemic and, apart from being too long and a bit repetitive (making it hard to re-read), it is well-written. The idea is to make people angry, and not to put forward a coherent argument in a process of debate. But Mr Goodwin is an academic, and a coherent argument does lie behind it, and, though there is a lot of insinuation, it is reasonably factual (though taking facts out of context is very much his method) – unlike much of what gets written in this space. It is worth trying to understand it, and drawing out where it is right, where it is wrong and where it is hard to know. That’s what I want to do here.

Mr Goodwin’s argument is that the riot stemmed from a protest by “ordinary people” fed up with the effects of mass immigration, which is disrupting society and making it less safe. The critical fact about the murders, so far as Mr Goodwin is concerned, is that the the arrested suspect is the son of a Rwandan immigrant, allowing blame to be put at the door of immigration policy. Mr Goodwin’s ire is directed at policies, including “unrestricted” immigration, being practiced for “decades” by a liberal governing elite, taking in all the main political parties (apart from Reform UK and its predecessor, Ukip), the mainstream media, and government agencies. These liberal policies are excessively indulgent to minorities, he suggests, and do not take account of the impacts on “ordinary people”, who feel they didn’t consent to them, and don’t recognise their country any more, after decades of change. I could go on – Mr Goodwin is especially vitriolic about the Labour Party and left-wing academics, of which he doubtless has a lot of direct personal experience. Notwithstanding the complaint that these voices of complaint are unheard, readers will doubtless be very familiar with what is being said. Indeed these views have been expressed by Conservative politicians, such as Suella Braverman. They are frequently heard, though rarely endorsed, on mainstream media, and especially the BBC. Mr Goodwin does unequivocally say that attacking the police is always wrong, and in a later Substack post, he condemns all the violence as simply damaging the communities in whose name the complaints are being made. But he also complains of double standards over how the police and politicians handle these protests compared to those made on behalf of Palestinians, say – or counter demonstrators, often by Muslim men, which in some cases have been violent too. His critical argument is that the protests should not simply be dismissed as being the work of “far-right” activists, and it isn’t just a matter of misinformation and disinformation. It is a symptom of millions of people being utterly fed up.

So, where do I think Mr Goodwin is right? Firstly, that alongside the violence, is a voice of protest that is a reflection of many people’s views. Mr Goodwin suggests that these are drawn from a majority of “ordinary people”. That’s a stretch – but his alternative characterisation of “millions” is surely on the money. Many people would hear what Mr Goodwin has to say, and thank him for expressing their views faithfully. It’s a lot of people, and they feel ignored or betrayed by the political class. The Conservatives under Boris Johnson courted such people in the 2019 election, and won over many of their votes on the basis of promises to limit migration and “level up” left-behind places. A vision was painted of a high-productivity country, with higher wages, which did not depend on immigrants, especially lower-paid ones (I’m not comfortable with the usual formulation of “lower-skilled”). But this was a have-your-cake and eat it vision, typical of Mr Johnson, that did not acknowledge the difficulties in reaching such a promised land, and the costs. Those costs are skill shortages in industries such as healthcare, social care, agriculture and hospitality, to name only the most obvious. These skill shortages lead to higher wages, which was exactly the intention, of course. But these, initially at least, lead to inflation. It’s not possible to pay for the higher wages through higher productivity in the short-term, and often higher productivity actually occurs in industries that are not directly affected by the skills shortages, meaning that things have to be rebalanced. Inflation is inevitable, even if is part of a temporary process of readjustment in the economy. Higher inflation means higher interest rates and more expensive mortgages. Mr Johnson’s government was not ready for this, and in any case was blown off course by the Covid crisis, followed by the Ukraine war and the rising costs of fossil fuels. After he went, as the chaos and low-level corruption of his government became too much, the Conservatives changed tack. They became passionate opponents of inflation, and obsessed with cutting taxes. That meant taking a hard line on public sector salaries, and letting inflation cut the real cost of public services – which in turn led to an increased dependence on cheap imported labour. The government buckled under the pressure of labour shortages, and other pressures to revive short-term economic growth, and allowed immigration levels to continue at high levels and even to increase. It is not hard to see why so many people feel betrayed and angry. A reaction was to be expected.

The second place where I think Mr Goodwin is right is that immigration is causing real stress. The most important stress point in my view is in housing. The rise in property rents – in the region of 6% per annum since the start of 2022, according to the Office for National Statistics – and significantly higher in places like London -is causing widespread hardship. The country struggles to expand its housing stock fast enough – with dysfunctional planning controls, to say nothing of labour shortages. In this sense, the popular plea that immigration should be stopped because “we are full” has some merit. Claims on immigration’s other effects, on public services and public order, are much harder to substantiate. But the impact on housing is serious enough by itself.

I have a little sympathy with when Mr Goodwin says that a lot of policy at public agencies has been inept, and left-wing fads have been given too much headway. This is especially the case with universities, although a lot of this has been driven by student action, and the “cancelling” of speakers, often on flimsy evidence. The Tavistock Clinic’s life-changing treatments on young people with gender dysphoria leant more on fad than evidence. Looking further back in time, but still very prominent in Mr Goodwin’s list of evils, was the lack of action to combat the grooming of girls by Asian gangs in a number of towns – this had a lot to do with old-fashioned class prejudice, but it was also regarded as politically sensitive. Having observed some of controversies at Liberal Democrats conferences over the years, I get that with some people you are not allowed a proper conversation on sensitive issues.

There are number of grey zones – claims made by Mr Goodwin or his critics that are either hard to establish in fact, or where the evidence is mixed. The narrative that the unrest is all about “far-right” thuggery is pushed hard by the government, and fully supported by media such as the BBC, and criticised by Mr Goodwin. But there is clearly a lot of politically directed thuggery going on, and while I’m not comfortable with the label, I don’t have a better one than “far-right”. But there are a lot of others who come along to watch or cheer the thuggery on, including people local to the areas affected. Still, the thuggery is a serious law and order challenge, and the public expects political leaders to deal with it firmly. Anything that sounds like making excuses for people crosses an important line. This is something that Mr Goodwin seems to be finding out for himself: in his latest message, ironically titled “The British People need to feel safe,” he gives the impression of being under siege, and he appeals for more people to make subscriptions too support the promotion of his message. Here he does say unequivocally that he is against the violence – something he didn’t quite do earlier, except when the violence was directed against the police.

Another part of the grey zone is the claim that certain immigrant communities are making the country less safe. One BBC correspondent has been saying that violent crime has been falling through the period when the number of immigrants is rising. But the quality of British crime statistics is not what it was – and reported crimes depend on other factors than the number of crimes committed. And what if crime is falling because people are going out less? A lot of illegal immigration is linked to organised crime, and I would not be surprised if certain immigrant communities were linked to crime. But a lot of the right-wing tropes about no-go areas and such are nonsense. I used to live in an inner London borough, with large immigrant communities. But the danger posed to a single young woman walking home there came from a white British police officer. If I wanted to develop an idea that there was a national crime wave of violence against women perpetrated by white men, I would find it easy to produce a litany just as horrific as Mr Goodwin’s on immigrant crimes.

I’m also putting Mr Goodwin’s claim about multiculturalism in that grey zone. He promotes the common right-wing trope that multiculturalism has failed. This was not evident where I used to live – including when I was a chair of governors at a multi-ethnic primary school, where white British were in a minority. Local parents, from all communities, simply wanted their children to do well for themselves. The school adapted to the fact that so many children were from homes with English as a second language, and achieved national average performance regardless. But this isn’t always so. There are places where integration has not worked well – for example in some northern towns – and politicians seem short of ideas about how to move on.

There’s a lot more grey: claims made by Mr Goodwin where the evidence is in fact mixed, if it exists. Where do I think he is out and out wrong? One place is pinning the blame for the policies he likes on a tiny elite (sometimes widened to an “elite class”) imposing policies on an unwilling majority. That governing elite has a hinterland of people that largely share their values, even if they disagree with policy specifics, that runs into millions of people. This is after all how the politicians get elected. They include many people like me, who feel just as unable to shape public policy as people throwing bricks at police in Rotherham, and who don’t take well to be called a governing elite. Describing the political class as an elite has its sinister aspects too. Often this language is used by people who want to gain power and plant their own governing elite, which then moves on to practice self-enrichment using the state privileges. This is what happened in Hungary and Poland, for example. It is hard not to see Donald Trump’s entourage in that light. The striking thing about the liberal elites in Britain and elsewhere is how honest they are. It’s a question of being careful what you wish for.

A further place where Mr Goodwin is clearly wrong is blaming public policy on the elite’s “luxury beliefs” though I don’t think he uses that phrase in “What did you expect?”. There is a reason that public policy has taken the direction it has in the last couple of decades or so, including mass migration, and it is not a dilettante governing elite imposing its luxury beliefs. It’s because the country faced serious challenges, and this seemed to be the easiest way to meet them. I have already described how Mr Johnson’s government fell apart because of the impossibility of the vision he promoted. The is not to say that a low-immigration economic model is infeasible for Britain, or even undesirable. It is just a lot harder to get there than the idea’s supporters claim. Brexit is another example of a policy that was promoted without making clear what the full implications were. There was a case for Brexit, but one that involved a difficult transition that was glossed over or disbelieved by its supporters. And now our politicians are trying to promote the idea that the main tax rates can be left unchanged while public services are repaired. And so the government is kicking a response to crisis on social care into the long grass in order to preserve tax rates. It is fair to accuse our politicians of not being honest about the choices the country must make. But, I’m afraid the electing public are deeply complicit with that. If anything the luxury beliefs are the ideas that low immigration and post-Brexit prosperity can be acheived easily.

And finally there is the issue of culture. Mr Goodwin wants to suggest that there is a British culture that is being undermined by mass immigration, and foreign beliefs imposed by the elites. But culture is a moving target. Not so long ago pregnant women would commit suicide rather than endure the disgrace of being a single mother. Even more recently being gay was considered by most to be a disgusting perversion. Pretty much the whole of society has moved on. And our culture has always been part and parcel of a worldwide cultural melange. And it wasn’t all that long ago when British commercial emissaries, armed forces and religious missionaries went out into that wider world to export and impose our culture on the developing world – the era of Empire. Indeed I think Mr Goodwin wants us to be proud of that empire. But that history leaves us very open to importing cultures from elsewhere, through immigration amongst other ways – from our former empire, and from Europe, to which our history is so closely bound. Our country cannot live in isolation – we cannot escape treaties, international conventions and obligations, as there is no such thing as absolute national sovereignty. And by taking a fuller role in the wider world, we can make it a better place, by ensuring European security, or saving the world from global warming, for example. By trying to pretend that things can be otherwise, Mr Goodwin is simply stirring up trouble for no positive end.

There is much that is wrong with Britain. Class prejudice remains – and I think that lies behind much of what Mr Goodwin complains of. So does racism and misogyny. Drug addition and unhealthy lifestyles are rampant. Too many young people are drawn into violent gangs. There is too much sub-standard housing. And too many of these things are not being confronted by the political class – or the public that votes them into office. Mr Goodwin did the country a service after the Brexit referendum, when he tried to illuminate how many of our fellow countrymen felt. But he has gone way beyond that, as he is promotes a destructive political agenda, fuelled by false ideas. By trying to exploit the grief of Southport, or at least excuse those that are, he has sunk to a new low.

National finances don’t work like household budgets. That doesn’t help Labour

Government finances are under water. OK, a weak link but I’m bored of AI images and public domain photos. Bosham in Chichester Harbour this weekend, by my own hand.

Taxation and public spending is very much on the political agenda here in Britain. The Chancellor of the Exchequer, Rachel Reeves, is claiming that there is a £22 billion black hole of unfunded spending commitments in the government finances, left by a Conservative government addicted to brushing problems under the carpet. There is much talk of how her Labour government might raise taxes to plug this hole and meet expectations of improvements to public services and the social safety net.

This makes it a good time to ponder the economics of all this. Public debate encourages us to think of the state’s finances in terms of a household budget: public spending must be covered by taxes, or else the national debt gets out of control, which in due course could mean throwing the country to the mercy of foreign creditors, or burden future generations. This narrative has the merit of being easy to communicate and sounding like common sense. Try telling voters that this is not how things work, and they will immediately become suspicious. The US Republicans, to my knowledge, are the only politicians to have succeeded with a different narrative: the so-called “Laffer curve”, whereby tax cuts pay for themselves through economic growth. Former British Prime Minister Liz Truss tried this out on the British public in 2022, but it went very badly. Her supporters argue that his was actually through bad luck – but most politicians now treat the idea of “unfunded” tax cuts or spending commitments as politically toxic, as well as economically unwise.

The Laffer curve is in fact just one argument against the household budget narrative – but it is not a huge departure from it. Households may borrow to invest, so states should be able to so as well. If a budget deficit leads to a future increase in revenues, or lower costs, then surely it is sustainable? Labour tried to make this case with a proposal for massive investment in clean energy infrastructure – but lost their nerve as the general election loomed. Joe Biden’s administration is actually implementing such a programme in America, but the public there are resolutely sceptical. You have to believe that the future benefits are for real – and the public is generally unbelieving. Not without reason, as the processes of accountability are weak.

A further, and well-established, argument against the household budget narrative might be called the Keynesian critique. This follows the argument originally put forward by the great economist Maynard Keynes, after stringent budgeting by governments during the Great Depression of the 1930s made things worse. If there is spare capacity in the economy – a typical feature of recessions – then it makes sense for the government to run a deficit to raise demand and employ unemployed workers, creating a virtuous circle of growth – and stopping a potential doom-loop of savings leading to reduced demand leading to further savings. Governments should use taxes and spending to help manage overall demand, to ensure that the economy runs at an efficient level of capacity. This idea is very popular on the political left, who generally assume that the economy is always working below capacity – but it is not always easy to tell if there is spare capacity. Many people thought that high unemployment in the 1970s meant that there was spare capacity then – but generous fiscal policy simply seemed to stoke inflation – “stagflation”. In fact the escalating price of oil, amongst other things, meant that the economy was in a period of transition, which caused the high levels of unemployment without a ready supply of potential new jobs. I thought something similar was happening in Britain after the great financial crisis of 2007-2009 – and that this was the justification for the 2010 coalition government’s austerity policies (which were rejected by the left with religious fervour). The pre-crash economy had been too dependent on fake gains in financial services and related business services, meaning that it wasn’t just a case of managing aggregate demand, but allowing for a degree of restructuring, which takes longer. I don’t think anybody else made that argument. Supporters of austerity used versions of the household budget narrative, while most economists said that austerity was the wrong policy because aggregate demand was weak. I still think I was right – though by 2015 the case for further austerity had largely gone, meaning that further cuts made by the Conservative government from that year were excessive.

A final critique of the household budget narrative is made most prominently by advocates of Modern Monetary Theory (MMT). They point out that where countries control their own money supply (which is the case for Britain and America, though not the Eurozone), then they don’t need to worry about the national debt, because they can just create the money to fund it. This, in fact, is exactly what many governments did during the period of Quantitive Easing (QE) in the 2010s. For some reason, MMT is regarded as heterodox economics, and its advocates akin to heretics by conventional economists. I have never entirely understood this – it has always seemed to be a matter of politics rather than substance. Some MMT advocates delight in attacking orthodox economics, not always with secure logic, and this no doubt creates a backlash. Nevertheless MMT economists such as Stephanie Kelton produce well-argued work which is thought-provoking in a good way (this article in the FT gives a flavour). The central proposition is that the limiting factor for fiscal policy is inflation, not debt. While inflation in the developed world appeared dead and buried in the 2010s, MMT became popular on the left, as it suggested that large budget deficits were sustainable, supporting their argument that austerity policies were primarily “ideological”. In the 2020s, with inflation back in the picture, we don’t hear so much about MMT, though their analysis remains just as valid. My personal scepticism of MMT is that its advocates don’t tend to think enough about the difficulties of managing a small open economy, which has to manage its economic relations with other economies (and exchange rate policy in particular) – a situation that fits the British economy more than the American one.

What all these insights point to that there are two important constraints to fiscal policy rather than simply whether there is enough money: inflation and foreign debt (if we accept the MMT argument that domestic debt isn’t a problem if inflation is under control). Low inflation is central to a country’s feeling of economic wellbeing. I would suggest that maintaining the value of the currency is one of the sacred duties of the state – and governments play fast and loose with this at their peril – though most liberal economists are more relaxed about this. And foreign debt can interfere badly with a sense of national sovereignty. The reason that the recent left-wing Mexican president Manuel Lopez Obrador was so keen on limiting government expenditure was exactly that: a fear of foreign debt (and an example of how austerity is not always a matter of right wing ideology). Where governments have dormant inflation and little need for foreign debt (through a current account surplus), then budget deficits can run wild – this is the case with Japan, for example. In Britain things are considerably trickier. The country now has an inflation problem, and a long persistent current account deficit, which complicates managing the national debt. It is hard to know how much of a constraint the latter problem actually is. It hasn’t been tested to destruction since the 1970s (if you discount the Truss episode), when the government called in the IMF, though some suggest this was just political theatre. The country has had no trouble in financing itself from abroad in its own currency. The country’s dependence “on the kindness of strangers” is a popular scare story put up by officials of the Treasury and the Bank of England to keep politicians in their place. And yet, like inflation in the early 2020s, you don’t know if you’ve gone over the limit until it’s too late. It was a debt problem that did for Ms Truss’s bid for freedom, after all. That was a dislocation in the domestic debt market because of some technical issues with pension fund financing. I have oversimplified things by referring to “foreign” debt – but the presence of foreign investors affects the disciplines required across the whole market. That episode showed that management of the national debt has to be strategic – it is not a simple matter of ramping up a budget deficit and seeing what happens.

Meanwhile, I suspect that inflation in Britain remains a serious problem, in spite of the headline rate returning to 2%. In the public sector the government is no longer able to resist above-inflation payrises: you can only defy the market for so long – this is a large part of Ms Reeves’s black hole. That may ripple through to the wider labour market, as the previous government feared. Meanwhile there is enormous political pressure to reduce levels of immigration – and it isn’t just politics: high rental and property prices, in part driven by immigration, is causing serious hardship, and disappointed expectations amongst younger people. Politicians talk of encouraging a high-wage high-productivity economy, not dependent on cheap immigrant labour, and it might be that the country is in transition to just such a destination. But all economic transitions involve bumpy rides, and inflation is often part of that journey. That matters because under the country’s current economic governance, the Bank of England will not reinstitute QE, and make government debt easier to swallow, when there is a threat of inflation. And while reforming economic governance might be a good idea, in the short term it would carry a heavy risk of the destabilisation of financial markets.

So, with a clear menace of inflation, and more difficult markets for government debt, the government is likely to have to raise taxes. And here politics has created a further problem. Easily the most effective taxes are Income Tax, National Insurance and Value Added Tax. These are effective because they have a large base, meaning that small percentage increases have a big impact, and because they have the most direct impact on aggregate demand, helping the management of inflation. And yet Labour has ruled out increasing these taxes (other than through the “stealth tax” of freezing tax-free allowances). There was, in fact, a political consensus on that policy: no party is suggesting that there should be any increases – which is seen to add hardship to those already suffering from higher inflation. That leaves various flavours of capital taxes or wealth taxes. These have the political advantage of primarily affecting the better off, but they help with the national debt rather than inflation – their impact on demand is limited. And they are often evaded by people with tax advisers. That is the big problem with the idea, popular on the left, that increased state spending can be financed just by taxing the rich – such a policy would be inflationary and likely to underperform its targets.

Something has to give. The government will struggle on with continued austerity and increasing some fringe taxes, hoping for a growth bump. But growth is bound to disappoint, inflation will refuse to die, and interest rates will remain uncomfortably high. One commentator has written that it will not be until a second term that Labour will start to seriously address how the country manages the state – through some combination of higher (and doubtless reformed) taxes and reduced state ambition. If the Conservatives remain in a mess, that may become politically feasible. Up until now Sir Keir Starmer’s aim has been to secure an election victory, and to impose a more serious style of political governance. That is a start but it is not enough.

Time to get used to the idea of Trump’s return

Picture: Scottsdale Mint

Back in 2021 it had seemed impossible for Donald Trump to return to the White House. Even in 2022 it seemed that his brand was diminished – as candidates he endorsed did badly in Congressional elections. But we should have known better. For the first time in his political career, the man looks unstoppable. We must now think what many of us liberals had thought unthinkable: he will be President again.

Pretty much everybody I know regards the prospect of a repeat Trump presidency with horror, including a handful of Americans. Some Britons do like Trump, but most treat him as a bit of a joke – a caricature of the worst American stereotypes, and transparently narcissistic. This country has had enough of un-serious politicians after the chaotic period of Boris Johnson’s ministry, and his successors’ indulgence in gesture politics. It is one reason that Sir Keir Starmer’s popularity ratings are now high – seriousness is his most demonstrable virtue. You don’t have to be a liberal here in order to dislike Trump.

But it is clearly different in America. The first way that Mr Trump has been able to make a comeback is that he has fired up a supporter base that has enabled him to take over the Republican Party. He has made short work of his rivals, and any Republican law-maker that doesn’t pay homage to him will have their careers quickly terminated. Mr Trump has been able to forge a special bond with this supporters. He plays on their sense of grievance, and the feeling that the political establishment despises them (which they often do…). This seems is intuitive – I have called him a right-brained genius – following the once-fashionable idea that people are a product of a rational left brain and an emotional and instinctive right one. The irony is that this idea was promoted by liberal types to suggest that Western culture was excessively left-brained and destroying the world – and that the world needed more right-brained thinking. Alas this analysis turned out to be too left-brained.

The interesting thing about Mr Trump’s genius is that other conservative politicians have been unable to replicate it. Ultimately they are too calculating and they can’t hide it, and that undermines their authenticity. That fate has befallen Florida Governor Ron De Santis, once billed as being more dangerous, because more rational. We will have to see how Mr Trump’s Vice Presidential pick JD Vance works out. He is clearly a calculating man, but he gets much closer to his boss’s rhetoric than Mr De Santis did – and his empathy with white working class Americans is authentic.

The second reason for Mr Trump’s comeback lies with the current President, Joe Biden. He did well to beat Mr Trump in 2020 – and he has been highly effective in office. Too effective, perhaps. A narrow victory in a campaign that was mainly about the fitness for office of his opponent was not a mandate for many of the radical measures that he brought forward. There were two particular problems. The first was that inflation got out of hand on his watch. Some of the blame may lie with the fiscal generosity of his predecessor, and some arose from international events – but Mr Biden threw in plenty of fiscal generosity of his own. Inflation is now back under control (apparently) but it has left deep scars in its wake, notably with interest rates still high, and petrol prices over 20% higher than in his first year of office. Mr Biden’s supporters like to paint a rosy picture of their man’s economic achievements – but no amount of aggregrate economic statistics can mitigate the pain that many American people have gone through. The second major problem is the chaotic scenes on the border. Now I haven’t been following that particular issue closely, and it is clearly being hyped up by the Republicans – but there does seem to have been a lack of focus by the Biden administration in its attempts to play a number of competing interests.

And then there was the question of Mr Biden’s lack of physical fitness for office. His disastrous debate performance with Mr trump only confirmed what many people had suspected. As I write, he has now thankfully bowed out – but only after an obstinate period of denial. His likely replacement candidate is the Vice President, Kamala Harris. She doesn’t get a very good press (though how justified that is I find hard to assess). My feeling is that she would do a better job than Biden of mobilising the Democrat base, especially younger voters, but will struggle with neutral voters. But the Democrats campaign has lost momentum, and will need to be completely reset.

I don’t think Mr Trump’s survival of the assassination attempt will make more than a marginal difference. It gave him some momentum at a useful time, which doubtless helped bring some donations in. But he and his party reverted to type so quickly afterwards that surely few voters will be swayed.

Mr Trump still has those two big points in his favour: the economy and the border. For some reason many American voters, even those who are otherwise sceptical of Mr Trump, think that he is a better bet for managing both issues than whoever the Democrats throw up. In the case of the economy, that’s a bit bizarre. He plans to raise prices for ordinary Americans by imposing tariffs, while reducing taxes for the better off by adding to the national debt. Reducing immigration, if he succeeds, may make things worse by raising inflation – though it could help lower-paid workers. Still, the idea that a businessman is well-placed to manage the economy a strong one in America. And if Mr Trump’s record as a businessman is a flawed one, years of starring in The Apprentice have clearly impressed many Americans.

And as for the threat Mr Trump poses to American institutions, many Americans clearly don’t think he will be that bad in practice – and perhaps those institutions have been corrupted anyway. The only criminal convictions that Mr Trump has so far suffered were from a distinctly dubious case legally, giving some substance to Mr Trump’s accusations of “lawfare” against him. Other cases may be stronger but the American judiciary has played along with his efforts to kick them into the long grass. Mr Trump has never made himself out to be a saint, even if he sometimes claims to be an instrument of God.

So what are the consequences for us Europeans if Mr Trump succeeds? The most serious is the war in Ukraine. Most European leaders want wear the Russians down, and force them to conclude the war on terms that they cannot paint as victory – and so weakening their threat. They hope that Mr Trump can be manoeuvred into supporting this – but they know it is unlikely. More likely is that he will force Ukraine into a ceasefire. Russia is then likely to regroup and rearm – although it is possible that the enormous cost of the war will start to rebound on Vladimir Putin’s regime. The European powers will have to reorganise their defences, and reduce their dependence on US weaponry.

Economically the main threat is Mr Trump’s proposed tariff regime – but the main economic damage is likely to be wrought on the Americans themselves, and then their neighbours in the Americas and Asia. But it is unlikely to help Europe’s struggling economies – hastening the awkward political choices that permanent low growth will entail.

A difficult four years beckon. It may not come to that, of course. The last month or so have already shown how fast politics can move. Mr Trump seems to have taken his recent successes as as justifying his continued focus on his base – rather than softening his image to appeal to uncommitted votes. If his opponents can succeed in making the threat of a Trump regime look less abstract – by focusing on concrete issues like abortion, rather abstract ones like “democracy” and “the rule of law”, and if their candidate looks properly presidential, more sceptical voters can be persuaded to vote him down. Perhaps, even, he will go too far and look start looking more dangerously deranged, even to some of his erstwhile supporters. We have been hoping for that for eight years, though, and nothing he does seems to faze his base.

Americans will do what Americans will do. We in Europe will just have to live with whatever they choose to do. That’s democracy, I’m afraid.

Postscript: 23 July

The news that Joe Biden was withdrawing broke while I was finishing the article. Anxious to publish, I edited it without changing the overall thrust. But the whole dynamic of the contest seems to have changed. Kamala Harris has launched her campaign built up real momentum – it looks as if she will be chosen without contest. The Trump campaign seems to have been wrong-footed. They have no shortage of attack lines on Ms Harris, whom they despise as much as her boss. But the main ones look weaker than the focus on mr Biden’s capacity, while the Democrats have some attack opportunities of their own: capacity issues can be turned back on Trump, and maybe they will even get a chance to attack some of Mr Trump’s policies – like his disastrous looking economic ideas. Alas Ms Harris’s early attack lines seem to focus on Mr Trump’s criminality and lack of moral fibre. That’s old news and won’t sway many, surely. Matt Goodwin, who had been predicting a Trump landslide, meanwhile rushed out an article suggesting that Ms Harris is an even more hopeless candidate than Mr Biden.

It will be a couple of weeks before we see if Ms Harris is making a serious impact on Mr Tump’s lead. American voters have a way of bringing me down to earth, so my wiser self is saying that the main thrust of my article still stands – even if my optimistic self thinks that the spring in the step that Ms Harris is showing must have some sort of positive effect.