Politics UK – thinking liberal

Are there modern lessons from slavery compensation?

In the 1837 the British government passed the Slavery Compensation Act, whereby slave owners were paid compensation following the emancipation of slaves in the British Empire. Recently I started to think about this given the repeated claims that governments can’t afford to do things: such things as extra defence spending, investing in the green transition, compensating WASPI women, and so on. The slavery compensation was substantial, but government finances weren’t derailed. Surely the question of affordability shouldn’t be reduced to the level of household budgeting? Sometimes it is quite safe for governments to spend freely without raising taxes. I did some gentle internet research. I was a bit shocked.

What shocked me was that nobody seemed very interested in how the British government was able to afford the compensation, or what the economic consequences of the scheme were. Instead they focus on political questions. More recently this has turned on the injustice of slave owners being compensated for an immoral practice, while the slaves received no monetary compensation at all. This, then, inevitably, gets tangled in the question of modern demands for slavery compensation, promoted by Caribbean governments in particular. You would have thought that the economic questions would have interested writers considering these issues, but apparently not.

The amount of compensation was £20 million. That was about 5% of GDP, by modern estimates (such things weren’t measured at the time). It was, apparently 40% of the Treasury budget – an oft-quoted figure though it isn’t explained whether that is the budget before or after the compensation. Overall government receipts at this point were about 10% of GDP. At the time government debt was about 150% of GDP, a legacy of the Napoleonic wars. There was no income tax, with government revenue primarily drawn from excise duties on imports (notably foodstuffs, including, notoriously, imported corn) and alcohol. So this was a substantial sum, paid when government revenues were highly constrained, and debt at very high levels. Much of it was paid through annuities (only finally bought out in 2015). This would have greatly softened the impact on government finances – but for the most part the receivers of compensation sold their annuities for cash, so the impact would have been significant on the economy as a whole.

What about this impact? I have seen two things mentioned. A television documentary I saw on the topic a while ago suggested that much of the funding was invested in industrial infrastructure, and railways in particular, and so helped promote the industrial transformation of Britain. The Wikipedia article I have linked above suggests that it contributed to a banking crisis – though since the main ones in Britain were in 1825 and 1866, it could not have been all that serious. I have been unable follow the reference to the article that suggested this.

A general survey of historic government finances by the Office for Budget Responsibility (OBR) fails to mention the episode. Income tax was introduced (or re-introduced, as it had been used in the Napoleonic Wars) in 1841, following the abolition of the Corn Laws, which reduced excise revenues. Government debt steadily fell until it was 40% of GDP at the outbreak of the First World War in 1914. This was primarily due to economic growth – the level of government revenue fell to about 6-7% until the Boer War in 1900, when it returned to 10%. This era saw little inflation – attributed to strict adherence to the Gold Standard.

A further modern article on the topic of how the compensation was afforded suggests that the debt for compensation was paid off by taxes from the freed slaves – with the author getting appropriately worked up about the injustice. It is very hard to see how that could have been the case. This looks like yet another example of economic illiteracy amongst commentators and historians. And that is as far as I was able to get. There seems to be no generally available study of the economic impact of slavery compensation. It appears to have been shrugged off at the time as well as later.

It occurs to me that ignorance about economic history is widespread and almost wilful. An example is the belief that Britain lived off its empire – that the relative wealth of British people was at the expense of poverty in the colonies. Economists that have tried to substantiate this idea have failed. Indeed the loss of Empire in the later 20th Century coincided with a period of significant growth. The economics of slavery is doubtless mired in similar ignorance. In this case though the impact of wealth made in the sugar and cotton trades, dominated by slavery in the West Indies and America, is very visible in such places as Bristol, Glasgow and Liverpool. Still, I doubt that anybody has attempted to construct counterfactuals with the use of free labour or alternative sources of trade. It remains a very influential political narrative – that British economic success was built on the slave trade. This is not wholly implausible (unlike the story of ex-slaves paying off the compensation debt), but surely the picture is far more complex. Germany had no slave trade but built an economy that became just as powerful as Britain’s in the 19th Century.

I was hoping to use the episode as example of how governments can make substantial financial commitments without having to raise taxes. That is hard to pin down as the financial system was very different. The government was able to make the settlement using perpetual debt – which is the easiest form of debt to service, though still requiring interest payments. That would not be done today. On the other hand, since most recipients appear to have sold their bonds, there would have a substantial cash injection into the economy. What was the impact?

The first thing to remember is that money is just a social convention: it’s not for real. It’s a lubricant and not a fuel. Overall what matters is how we use real resources – labour, infrastructure, and so on. Slavery compensation created a financial windfall without directly adding to resources – potentially boosting demand without any corresponding boost to the supply side. In a modern economy that could lead to inflation. In Victorian times it could cause financial dislocation – so linking it to a banking crisis is plausible, even if it is hard to pin down what the crisis actually amounted to.

If a financial windfall is not spent immediately, however, but simply banked or invested, then the impact on the balance of supply and demand is limited. If this translates into immediate investment spending, however, such as building railway lines, then the same problems may arise – depending on the exact circumstances. It is usually reckoned that a surge in investment spending is easier to accommodate and consumption, however – and it should, after all, lead to an increase in productive capacity. The idea of the windfall helping to propel industrial capacity and growth is therefore quite plausible. If the money is directed abroad, then it won’t impact the domestic economy either. The Wikipedia article suggests that this might have been the case for slavery compensation. But I find myself in a fact-free zone.

What of modern times? Government is much larger, with revenue at about 40% of GDP, and debt smaller, at about 100%. The currency is freely floating, but under domestic control – unlike the days of the Gold Standard. Inflation is a constant threat now in a way that it wasn’t then. There are two particular problems with large government spending commitments. The first is that the impact could be inflationary, if the recipients quickly add to overall economic demand without any corresponding supply boost. The most effective counter to this is to raise taxes to reduce demand by a corresponding amount – or “funding” the spending. But not all taxes are created equal here: capital taxes, or taxes restricted to the very wealthy, affect demand by much less. Alas very few people in the current political debate have grasped this – instead thinking of this as an analogous to household budgeting. A recent example of this debate is the green investment splurge initiated by President Joe Biden’s administration. This is alleged by Republicans to have caused an inflationary surge. And yet the increase in American inflation was hardly different to other countries that were managed much more conservatively.

The second problem with government spending splurges is on the capital markets. The government may need to fund the spending through raising debt. The capacity of the market to do so is limited, though nobody is sure by how much. The government can fund the debt through the creation of money too – but this creates problems of its own (leading straight back to the inflation problem). Also if a country, like Britain, needs to sell the debt to foreign investors there may be constraints. Ultimately the government may have to borrow in foreign currency to bring such investors in – something that adds hugely to the financial risks. Britain has never been forced to do this – but is that because the Treasury is run so conservatively? It was the financial markets that undid Liz Truss in 2023. But Ms Truss was particularly inept – and we should be careful about using this as a general warning about increasing government debt. There are solutions, other than raising taxes on income and consumption – capital taxes can be used to balance the books, or the markets can be convinced that the government will continue to have the capacity to honour the debt. This would be the case if the finance was to be used for capital projects with a good return – including boosting economic growth and tax receipts.

So let’s think about three examples where people are advocating the government boost spending: defence, green investment and the WASPI women. Defence is the most straightforward. Expenditure is likely to be fed back fairly directly into demand, without a corresponding increase in productive capacity. Economic resources are to be repurposed, from things like healthcare and consumption, to armed forces and munitions. This is likely to be inflationary if not supported by tax rises – and these need to be on income tax, national insurance or VAT to work properly. Or else by reducing public spending elsewhere. This is why it is such a political challenge for the current government. I have heard more than one commentator suggest that defence spending can boost growth – but alas that is more economic illiteracy. This is only the case if it is used to soak up spare capacity in the economy (which was the case in the 1930s, for example). This is doubtful now, unless there is a way of bringing back lots of people from sick leave and retirement. It is sometimes said that war spending has boosted the Russian economy – but inflation is growing there, so this growth is illusory. There is a lot of activity but people generally aren’t better off.

The green transition is another matter. Here the funding is being used on capital projects that boost infrastructure. For the most part these projects have clear economic benefits – especially when used to boost solar power, whose economic benefits could be substantial. Carbon capture and storage, used to prolong the use of fossil fuels, is an exception here: this looks like deadweight loss. The Labour Party suggested that it would raise £80 billion a year for a hugely ambitious programme – but then they lost their nerve and scaled back drastically. The number was a bit of a nonsense, admittedly, but the idea that the government could fund substantial green energy projects through borrowing is perfectly plausible. Of course to the extent that energy is a profitable business, a lot of this could be done through the private sector – but a lot of the infrastructure probably is best done through public ownership, and in particular the electricity grid. The government is being too cautious.

How about the WASPI women? This case is closest to slave compensation. The WASPI women were those adversely affected by in an increase on pension age, equalising it with men. They claim that they weren’t informed of the change in time to do anything about it. I haven’t been following the debate in detail, though I am instinctively sceptical of the merits of their case. Still, many politicians, including those leading the current government, have expressed support for compensation in the past. I see that an amount of a bout £60 billion has been suggested – or about 2.5% of GDP. As a one-off cost this does not have the same implications as increasing defence spending, for example. In particular it is unlikely to have a huge immediate effect on demand. A lot of the money will be saved and invested. The people concerned are retired, and doubtless want to improve their lifestyle, but they are also likely to be conservative about it, and save much of it initially. It is unlikely to do much for economic growth, however, though to the extent that the funds are used for investment, there might be some benefit; if people use it to stop working, however, there would be a negative impact. The whole thing is probably much more affordable than it looks – not unlike the slavery compensation.

Alas we will not have a sensible debate on this. Doubtless the government fears that if it gave ground on the WASPI women, it would give a boost to many other aggrieved parties (those in leasehold flats, for example). Still the costs of economic illiteracy are great indeed if governments are needlessly constrained.

Is Rachel Reeves looking backwards or forwards?

Her growth ideas are a blast from the past

I have never really warmed to Rachel Reeves, Britain’s Chancellor of the Exchequer. She hid behind a wooden exterior without revealing anything beyond carefully-crafted PR messages. Still, she was eminently qualified for the job (more so than most of her predecessors) and she has helped transform Labour’s credibility, when her predecessor in the shadow role, Annaliese Dodds, was floundering. I also want to keep my inner misogynist in check: I bristle at a certain type of smartly-dressed, carefully presented, armour-plated, middle-class Labour female politician that has been prominent since New Labour days in the 1990s. I have been giving her the benefit of the doubt.

I forgave Ms Reeves when she announced the withdrawal of the pensioners’ winter fuel payment (or the means-testing of it, to be precise) leading to a blizzard of vituperation. I still think that it is a good policy, even though it is now clear that its political presentation was disastrous. And when she quickly settled many public sector pay disputes I thought this showed evidence of some welcome risk-taking in trying to fix longer-term problems against short-term financial pressures. Her first budget, though, was underwhelming. The only thing that was remotely bold about it was increasing the cost of lower paid employees through adjustments to employers’ National Insurance contributions, and raising the minimum wage. This seems to be a move against employers trying to solve problems with cheap labour. And the budget was sold with a patently dishonest narrative, that the government had discovered a black hole in the country’s finances. The black hole is real enough: but Labour had known its basic contours long before the election: these had been set out by pretty much every intelligent commentator, including, for example, the Institute for Fiscal Studies. Labour simply chose not to call it out.

My reaction to the budget seems to be widely shared – it helped sustain a negative zeitgeist around the economy, which is discouraging investment. Lacklustre GDP statistics (which in reality are pretty meaningless as a performance indicator) supported the negative mood. Ms Reeves has then decided that she needed to lift the mood a bit, with a string of public appearances pushing the idea that the government will not compromise in its search for growth. The good news is that this extra exposure at last seems to be breaking down her woodenness and she has been more inclined to answer questions rather than just spout pre-prepared sound-bites. The bad news is that what she is communicating is pretty disappointing.

Clearly Ms Reeves is anxious to get across the message that the government is really, really keen to encourage investment by reducing red tape. This is a popular theme right now, with the Trump administration trumpeting the message in America, and The Economist has a long article on the subject this week. I have a lot of sympathy. Most regulation is badly designed and implementation is usually even worse. Bureaucrats (in both private and public sector) lay on cautious over-interpretation, and then spend their time chasing innocent minor infractions and slowing down worthwhile projects, rather than tackling the harms that the regulations were designed to prevent. Sometimes this is a necessary evil, but surely we should aspire to do much better. Alas, all this is popular thing for government ministers to say, but there is a huge creditability gap, as they rarely deliver anything worthwhile. And that is especially true of Labour politicians. Their core supporters adore regulations (they are often the ones tasked with managing them) and any worthwhile deregulation hits stiff political resistance. Ms Reeves clearly knows this and realises that she needs to make an unpopular gesture to show that she means business. So she chose airport expansion, and expansion of London’s Heathrow airport in particular.

This has a great deal of symbolic value. Heathrow expansion has been a political football for as long as I can remember. Its advocates have always justified it in terms of “growth”, and there is a fierce NIMBY opposition. These can be presented as London elitists – but there are no obvious beneficiaries to the project outside the country’s richest region. Driving this through would be a signal achievement, showing that the government really does mean business.

There is a plausible economic case to be made for expanding Heathrow – The Economist makes an attempt this week, based on its value as a hub airport for Europe. Ms Reeves failed to make it on her media round. This included an extended interview with Justin Webb for the Today Podcast. In it she insisted that the potential impact on carbon emissions has been neutralised since it was last reviewed by the use of biofuels. Well there are ambitious targets for the greening of aviation fuel globally – but these lack credibility and look more like a smokescreen for the aviation industry. There is no way that Britain’s pressurised agricultural sector could produce these fuels itself. The Economist doesn’t even try to suggest this (though another article suggests that Brazil might turns itself to this fuel, if it can find sufficient investment); it just says that the use of electric ground vehicles (a lot of the pollution comes from the ground, apparently) and the diversion of flights from other other ports mean that the impact on carbon emissions is reduced. I don’t understand why Ms Reeves chose to make her central argument on such tricky ground.

I am personally unconvinced by the economic case for Heathrow expansion, even though it is no longer in my backyard (though Gatwick is, but that’s another story). I have a more quotidian worry. The new runway would cross London’s orbital M25 motorway, which would have to go through a tunnel underneath. The western M25 is a critical road artery (pretty much unavoidable if you want to travel to western parts of the country from here in East Sussex); it has already been badly disrupted by the rebuilding of its A3 junction. That work will barely be finished before it would again be disrupted by the construction of the tunnel. That will have its own impacts on economic activity. That’s small beer – but the prospect of re-launching the expansion programme for the managers of Heathrow remains a very daunting one – and notwithstanding government support for the next 4 years – they may not be willing to risk another failed project.

What is striking about Ms Reeve’s dash for growth, though, is how retro it looks – and not just Heathrow. The infrastructure projects are concentrated in the already prosperous South East (including two more airport expansions) and the government promises to play fast and loose with environmental objections. Gone is the idea of “Levelling up” or a “Northern Powerhouse”, to try and secure growth by helping less prosperous regions catch up. These ideas were admittedly Tory – but they helped keep the so-called Red Wall of seats in the North, Midlands and Wales in play. Labour won these seats back in their landslide, and it is striking that the government is leaving them out of its flagship programme, given that these same seats are subject to a surge of support for Reform UK. But it represents economic orthodoxy (the prevailing culture in the Treasury after all) – and thus the government’s seriousness about the whole thing.

That’s striking because the government is still pushing back against two other bits of orthodoxy. It won’t seriously engage with the EU about substantive trade integration for fear of reopening the Brexit wounds (this time in deference to that Red Wall). And it continues with its ambitious strengthening of workers’s rights; orthodox economics would suggest that this will discourage investment. Businesses are now hoping that they can pressure the government into watering these down. They may well make headway.

All this is rather depressing. Some of the ideas are perfectly sound, and it would be really encouraging if the government could push them through – the Oxford-Cambridge corridor (including rebuilding a railway line stupidly closed by Beeching in the 1960s, in accordance with the then economic orthodoxy), and a further lower Thames crossing. But a retreat into old-fashioned orthodoxy feels like the government is trying to revive a lost past, rather than providing a vision of a hopeful future.

Perhaps that’s unfair. The government is desperate to try and create a more hopeful zeitgeist. Attempts to try and paint a more hopeful and optimistic vision, around green energy for example, have fallen flat in its absence. One of the government’s ideas for regional development involves reorganising local government. also the government sets great store by the gutting of planning laws (and the local government reorganisation into bigger units may also have the aim helping drive through planning applications). These will take time to yield results. Ms Reeve’s budget will increase public spending over the next year, and this should rev things up a bit. Once the mood shifts to something better, it may be time to be a bit bolder.

Perhaps so, but my abiding impression is of a Chancellor who lacks a bold vision of a new, modern economy, and is unduly reliant on the conventional wisdom of her Treasury civil servants. I hope I am wrong.

First published on Substack

Liberals must rethink the state to renew their appeal

Were the neoliberals right after all?

People on the political right are still enjoying themselves now that Donald Trump has assumed the US presidency. Unlike his first term, but much as was forecast, he has established real momentum. He has surprised even me in how he has managed to bend his narrow majorities in the legislature to his will – in contrast to his last presidency. Opponents seem largely stunned into silence. Even The Economist is trying to put a hopeful gloss on things. But it is not enough to predict that this is hubris before a fall: the alternative liberal and left narratives have been shattered. How are they to be replaced?

The Trump euphoria puts me in mind of two episodes, one from the recent past, and one from history. The recent one, which I have already written about, is Boris Johnson’s landslide victory in December 2019. This was accompanied by much hubris, which rapidly unraveled for the same reasons that Mr Trump’s will: impossible promises and valuing loyalty over competence in senior appointments. Such euphoria is common – I can also think of Joe Biden in 2021, Barack Obama in 2009 and Tony Blair in 1997. All led to various levels of disappointment, notwithstanding some genuine achievements. Opposition appeared muted at first on these occasions too. Interestingly, there was no euphoria last year when Labour achieved a landslide victory after 14 years of Conservative-led government in Britain.

The other episode is much darker because it did not precede a fall: Hitler’s assumption of power in 1933. Hitler’s democratic mandate was a weak one, but he used his access to the levers of power ruthlessly to generate momentum that won over some of the sceptics and many of the undecided. He used this momentum, including the propagation of many fascist narratives, to dismantle the checks and balances of the constitution and secure his power. It took twelve years and the worst war the world has ever seen to dislodge him. There are elements of this in Trump’s accession: he has shown disregard for the constitutional order; he relentlessly promotes false narratives; he commands a party that is intensely loyal to him personally; there is a willingness to threaten violence to get his way. But Mr Trump is no Hitler – he is much more driven by personal narcissism; he is less shaped by a racist narrative (though he’s happy to co-opt many who are racist); he is more influenced by a libertarian narrative, quite unlike the Nazi one; he appears to genuinely dislike war, even as he likes to issue threats, where Hitler saw war as destiny. And he is much older and time-constrained. And the USA in 2025 is not Germany in 1933 – democracy is much more deeply embedded, government is much less centralised, people are much wealthier, and there is no shadow of a major military defeat. But some very bad things could happen. In the end, though, this brand of politics is likely to get weakened and collapse as it will self-evidently be unable to deliver. Hitler had the opportunity of a Keynesian expansion of the economy to transform incomes and jobs; Mr Trump does not.

But such an insight is little help to liberals. Mr Trump’s victory marks a serious defeat. The actual margin may have been small, but he was a manifestly unsuitable candidate, promoting extreme policies. He has a base that accepts pretty much all of what he says – but he also persuaded many millions of less committed people, who saw through his schtick but nevertheless still thought he was a better bet than the liberal alternative. And the momentum following his victory will have only consolidated his support. After his first victory in 2016 there may have been a “Did we really mean to do that?” moment amongst many who voted for him. There will be few doubts this time – indeed people will be anxious to prove to themselves that they made the right choice. The relatively muted liberal (and left) response is warranted. This is a necessary step on the path to renewal. In 2017 there was denial and anger; now we are in negotiation and depression. One of the things that I have learnt since my idealistic 20s is that all lasting change must go through these stages of grief. You must get beyond the anger, but that path leads through depression. You can speed the process up but you can’t avoid it. So depression now is a good sign – it means that people understand how serious the problem is and are a step closer to renewal.

I find myself thinking back to 2017. Then, in the aftermath of the Brexit referendum, Trump’s first victory and the rise of the far-right in many European countries, I pondered how to save liberalism from the rising tide of populism. But the mainstream response was less to reflect on failure, and more on the call to resist. Denial and anger won. Emmanuel Macron won a remarkable victory for liberalism in France; Joe Biden was elected in America on 2020; Boris Johnson’s populist coalition fell apart almost as soon as it had been created. But then Mr Trump came back harder and wiser. Mr Macron came unstuck not despite his attempts to promote serious economic reform, but because of them. Mr Biden’s path of hope and denial was no more successful than Mr Macron’s telling of hard truths. Sir Keir Starmer’s Labour Party may have won in Britain, but he secured only 34% of a relatively low turnout, with the populist Reform UK surging. And now his government finds itself prisoner of its denial of the problems that the country faces.

The problem is that the world has changed. The economy has changed so much that a reordering of government and society is required to meet it. Current ways – with a substantial government payroll and vast social safety net – were based on a growing economy, which allowed an ever increasing tax take, and an ever-increasing workforce as the baby bulge worked through its working years and women were drawn into the workforce. The production side of the economy steadily expanded, allowing the state to expand, and especially to provide services and benefits to older people. But the baby bulge is joining their ranks – they are now living much longer previous generations too. Those older people, either retired or winding down productive work, are delivering a double whammy – exiting the productive, taxable economy, while demanding ever more resources from the state. To sustain this in the traditional way, requires a combination of three things: increased productivity, gains from trade, and immigration. But productivity gains are harder to get, and require unpopular disruption; the opportunities for gains from trade have diminished; and immigration is creating social stresses, especially in housing, where in most countries supply is not keeping pace with demand. The result, right across the developed world, is economic stagnation and widening government deficits. This may not be as unsustainable as many pundits profess, but it can’t go on indefinitely. The capital required to keep things running, from domestic savings or from trade surpluses in the less developed world (notably China) must have limits.

There are opportunities as well. The two big ones are clean energy – and especially solar power – and information technology (including, but not restricted to, AI). Also the need to reduce over-consumption in developed countries can be linked to a compelling case to protect the environment, especially from climate change. Further developments in life sciences also offer the prospects for improved length and quality of life: not just from more effective treatments and procedures, but also from a better understanding of how to live healthily.

The right are currently thriving on a diet of denial. They think that good, and improved, standards of living can be sustained without higher taxes, adaptation to clean technologies, or higher levels of immigration. But they have no coherent plan for doing this and are heading for disaster. They are in denial and anger, while liberals are in negotiation and depression. What does renewal look like?

The first thing to say is that the political left has proved an utter failure and is imploding. These have been liberals’ traditional allies – and indeed in America most people make no distinction between liberals and the left. The left has lost its connection with working classes – not keeping pace with how these classes have changed. Instead their base is government workers, and workers in non-governmental organisations which are mainly sustained by governments. They have a huge stake in maintaining the size of government, and giving the government more to do through creating and enforcing rules and regulations. This amounts to managing social problems rather than solving them. This was evident in the left’s shrill opposition to “austerity” in Britain following the great financial crisis of 2007-09, and especially the policies of Conservative-led governments from 2010. This is increasingly unsustainable. Furthermore the left has disappeared into a rabbit hole of identity politics focused on ethnic minorities in particular. They have developed a new language – “cultural appropriation”; “white privilege”; “micro-aggressions”; “critical race theory” – which they seek to impose by regulatory fiat, meaning that majority communities feel they are constantly treading on eggshells, while minorities are encouraged to express offence at a broader and broader range of things. Challenge is suppressed (“cancelled”) rather than taken on. I suppose the hope was that regulations would lead and hearts and minds would follow. But instead they have created stress and people are reeling – including increasing numbers from minority communities. Many are cheering Mr Trump’s roll-back of DEI (Diversity. Equity and Inclusion) initiatives, and not just those on the hard right. It is not that the aims of DEI are wrong, but that they seem more of a job-creation scheme than a solution.

Just how far the left appreciates its failure, and how much they are stuck in denial and anger, I don’t really know. But it is clear that the left is losing political traction everywhere. They may yet be part of a liberal-led political coalition, but they are not enough to defeat the right. Liberals need to distance themselves from the left and attract the centre-right, who will become rapidly disillusioned with the radical-right.

What does that mean? I think it means that liberals need to take a more robust and critical view of government – seeking to make it much more effective and efficient. I am taking care not to say that it should shrink – but it does need to achieve more with the same level of resource, and retreat from areas best left for people to work out for themselves. Fundamentally that means trying to create a better-ordered society with healthier lifestyles – so that fewer public services are needed to fix problems. Funnily enough this is pretty much exactly what the British Conservative leader, Kemi Badenoch, is saying – though she is much better at diagnosing the problem than offering any coherent solutions. In policy terms I think we can see a number of specifics, thinking especially of the British perspective:

The drive by the government to improve efficiency by the application of AI is half-right – but it is in danger of being a solution in search of a problem. The objective should be to re-engineer public services holistically – with AI and other technologies enablers. Otherwise we will simply automate bad practice. The key is to break down departmental silos – with solutions based on the needs of people rather than a collection of abstract problems.
The NHS presents a particular problem. No amount of reengineering is going to allow it to keep pace with increased demand. And trying to solve those problems without addressing social care, as the government seems to be trying to do, is nonsense. Vastly more resources are needed for social care and health services – especially if we are to rely less on cheap labour imported from abroad. This means higher taxes or a much enlarged private sector, or some combination of the two. Funnily enough the last government, between Boris Johnson and Rishi Sunak, made an important step in that direction with their hypothecated National Insurance. Reversing this may have been may have been Liz Truss’s most consequential and most destructive achievement. Now mainstream politicians seem unable to face up to the challenge. That has to change.
Taxes will surely have to rise on exactly the “working people” that the current government is trying to avoid raising taxes on. These taxes are the most economically efficient for a number of reasons. My vision of a smaller state is based largely on reduced demand for its services (except health); but this will take time to achieve and there will be short-term costs. Achieving all the required investment through additional borrowing presents some big risks.
The current government is right about many of the things it wants to do. Investment must continue in clean energy infrastructure, requiring NIMBYs to be dealt with more robustly. Social housing must be expanded – as lack of availability of housing is behind so many social problems. Deregulation may be helpful but it would be better if this was part of a vision of more effective overall governance than an invitation for lobby groups to peddle their hobby-horses. I am less convinced about expanding air travel, though.
The UK needs to re-embrace the European Union. This will have to be gradual – focusing on making trade more efficient. For all the Union’s many flaws, economic integration with our closest neighbours is one way to make the economic activity more effective, and we will need all effectiveness we can find.
Mass immigration, however, for so long the safety valve for the British economy, will need to be brought down. It is creating too many stresses and does not provide a long-term solution. That is the main reason why both taxes will need to rise and public services made more effective and efficient. Politicians should start making that connection with the public. Lower immigration does not come for free.
The private sector – and capitalism – must be embraced as the most efficient way of reconciling supply and demand. But there must be minimum levels of income so that all have a degree of consumer power. And monopoly capitalism must be closely watched. Some services are genuinely better provided by the state.

It strikes me is how much overlap there is here with old neoliberal ideas, which emphasised smaller government, a less regulated private sector and lower taxes. I don’t think lower taxes can be part of the equation, because of the demographic pressures, especially in a lower-immigration environment. And neoliberals were more relaxed about migration. Neoliberals are an object of loathing by the left – who are inclined to suggest that capitalism has failed, without providing any idea of an effective alternative. This is another reason that liberals need to break free of the left until and unless it goes through its own process of renewal.

And what is the vision? It is of a well-ordered society with low levels of crime, inured into healthy lifestyles and carbon-negative. Nobody should struggle to secure some level of decent housing and other basic needs, provided that they make a positive contribution to society in some way. I don’t think that is impossible, but we have a long way to go. Perhaps above all liberals need to think more about what this vision is and how it might work. Only then will we have a persuasive case to make to people who do not currently think of themselves as liberals – on both right and left.

This post was first published on my Substack account.

What do we learn from the grooming gang scandal?

A political pile-on distracts us from institutional failures

One of Elon Musk’s tamer tweets over the New Year

Over the New Year the grooming gang scandal flared brightly here in Britain, inflamed by tweets on X by its owner, Elon Musk. Politicians of various stripes piled on; establishment types came back with “nothing to see here,” with varying levels of indignation, before making interventions that should have been done some time ago. It has now died down again, as Mr Musk’s attention has moved on. But the episode is instructive.

The scandal concerns the grooming and abuse of teenage girls in a number of English towns (and presumably other British towns too) by groups of Pakistani-heritage men from the late 1980s on. The scandal was brought to public attention in the 2010s and has been flaring up periodically since. Abuse is probably continuing in some places – it has been so hard to contain because it was so widespread, especially if you consider group-based abuse more widely than that perpetrated by this ethnic group. The abuse was not investigated at the time it was occurring because the girls, from a lower class background, weren’t taken seriously, because there was a perceived sensitivity around the ethnicity of the perpetrators, and because authorities were generally struggling to take child sexual abuse seriously. It is far from the only child sexual abuse scandal circulating – others include the Church of England and the Catholic Church, and children’s homes (i.e. what used to be called orphanages).

Political exploitation of the scandal was led by what I will call the “far-right”, because I can’t think of a better term. Unfortunately different people mean different things by this term – so I need to explain what I mean. I am talking about extreme white-nationalist groups that believe in the use of violence to promote their beliefs. The de facto leader of this fringe is “Tommy Robinson” (not his real name, but that’s another story), now in prison, but with a following in social media, including in the United States. This group focuses explicitly on the racial aspects of the scandal (the victims are overwhelmingly white). Their political objective is the removal of people with brown or black skins (doubtless with exceptions), and a stop to their immigration. They have very little public support – their tendency to violence and the explicitness of their racism puts people off. Tommy Robinson has been vocal about the scandal for many years, and so far as his supporters are concerned, he is being victimised by the establishment for his troubles, and should be freed. Mr Musk has piled on his support for this, though how far he actually supports far-right objectives I am less clear; more likely he doesn’t really know who he is.

The next group to move in are what I will call the populist-right – which includes the Reform UK party led by Nigel Farage, and the Substack activist Matt Goodwin. These eschew the violent methods and explicit racism of the far-right, though their critics accuse them of implicit support of both. Their objective is to stoke up anger at an out-of-touch liberal elite. They don’t put forward specific policy solutions (though opposition to immigration is a central theme of theirs): in this case they are simply calling for any kind of public enquiry that the political establishment doesn’t want. They just want to scratch the itch until it bleeds. Ultimately their aim is to take political power. Reform UK polled in the teens in the 2024 election, and have 5 MPs, including Mr Farage. They now poll in the 20s, in the same ball-park as Labour and regularly overtaking the Conservatives. They are much more popular than the far-right, though to date a majority of electors has a strong dislike of them – which doesn’t stop the populist-right, especially Mr Goodwin, claiming that they speak for the majority.

And then finally came the Conservatives. In government they followed the establishment line, but now in opposition and worried about Reform, they are calling for a national enquiry, after calling for the publication of an ethnic analysis of abuse statistics that had already been published. The focus of this enquiry seems to be different from the call for a public enquiry that precipitated this particular flare-up – which just focused on the town of Oldham. The government had turned down the call for a central government-led enquiry in favour of a locally-led one. Some Conservatives, notably shadow justice secretary Robert Jenrick, are channelling the populist-right.

What about the establishment? They want to generalise the case of the Pakistani gangs into the wider problem of child abuse (which they say is much, much bigger) and adopt general solutions to the whole field, marginalising the racial aspect. They point to a public enquiry by Alexis Jay that reported in October 2022. There is no need for a further high-level enquiry, we just need to get on with implementing the Jay recommendations, they say – though it turns out that this implementation has not been particularly rapid. If further enquiries are needed for specific towns, these are best to be locally-led – and, indeed, there are several successful examples of these. Labour are following this establishment line, and, though I have heard nothing explicit, the Liberal Democrats and the Greens are too.

What of the victims? Everybody claims to be putting them first, but that is hard to swallow. The BBC has found a few, and interviewed them. These women want a public enquiry – the motivation seems to be the feeling that the world has moved on since the original scandal broke, and they want more attention paid to it. I suspect they want the circle of accountability to broaden, beyond the direct perpetrators, to include those whose poor judgement and prejudice allowed the abuse to persist for much longer than it might have done. That would be a valid concern – though many local political leaders have paid a price, following local enquiries.

The victims seem to have been mainly from what used to be called “broken homes” – lacking a secure family life, and in many instances in institutional care. The authorities regarded them as unruly and badly behaved, and the authors of their own fate. Lacking a loving home environment, they were very vulnerable to grooming tactics. The police and those responsible for their care were unwilling to help. This has been put down to class prejudice, though the difference in social class between the victims and those that might have helped probably wasn’t that great – so the prejudice was a more complex thing. I would like to think that things have moved on, but I am constantly surprised about how persistent prejudice can be.

A further aspect of these cases is the accusation that the authorities were soft on the perpetrators because of their ethnicity. This aspect is played up by both the far-right and the populist-right. The police are accused of fearing accusations of racism. There does seem to be at least some basis for this. But from the accounts I read when the scandals first emerged, it was a bit more complicated than that. Local government in the towns concerned was typically run by Labour councils who had a monopoly or near-monopoly of councillors. This meant that the key politics was between the various factions of the Labour Party and not public elections. These included paternalistic ethnic groups (typically referred to as “community leaders”) who were allowed to run their patches as their own fiefdoms. The problem largely stemmed from this: these leaders would rally round the accused individuals to protect their community’s reputation – and did not seem to be overly worried about it themselves. (Much as churches have in their own abuse scandals – lest anybody think this behaviour is specific to ethnicity). Any attempt to disturb this arrangement would indeed have been branded as racism – a standard defence of such community leaders and their political associates. The way that the British electoral system (more precisely English one now, as Scotland and Wales have reformed theirs) creates local one-party states is a democratic disgrace that both Labour and the Conservatives shrug at. It is much harder for such unaccountable relationships to flourish in properly competitive electoral systems. One of the biggest mistakes of the Liberal Democrats in coalition in 2010 was not to insist on local government electoral reform – rather than accepting a referendum on the Alternative Vote that set the cause of electoral reform back. This is beyond the scope of any mooted enquiry into child abuse, of course.

What of public enquiries? This is the standard British response to any scandal. The British way is to adopt a cumbersome process that usually takes years to get anywhere, and usually without any serious impact once it is finished. Politicians are accused of using them to kick issues into the long grass. As this episode shows, though, that isn’t entirely fair. In this case it is the voting public that seems keen, with politicians taking their lead from them. There seems to be something about the process of compelling witnesses to testify in public that the public likes – a case of the process achieving a degree of accountability that the wheels of justice don’t. The government’s case against the need for a new national enquiry is a sound one though. It actually delays the process of justice.

But this case is about a lot more than ensuring that criminal sanctions are brought against the perpetrators. It is about getting a degree of accountability for those who enabled the abuse to go on, often in open sight. Local enquiries can do that – and the government has announced five more. But there are also wider systems failures – and we are not likely to see much recognition of this.

I have already mentioned the tendency for one-party states to dominate the political leadership of local government – and this often creates a culture of paternalism and coverup. There is a further problem with the management of children and young people who lack a stable home life – and especially those who are institutionalised. Some public institutions actually work quite well: primary schools for example. But social services are hopelessly overstretched. Attitudes of the professions involved may have improved in the last 50 years, but resourcing has not kept pace. It is widely known that early interventions are the most effective – and the Labour government of 1997 to 2010 was making some headway – but this gets lost amid shorter-term public spending priorities, and the austerity years did for any progress. There was indeed too much waffle and verbiage (consultant-speak) in the government’s approach – but the direction was right. I am not as critical of austerity as many – but this is one of the areas (along with the criminal justice system) where very short-sighted cuts were made. The failure was both allowing the abusers to get away with what they were doing, and not looking out for vulnerable young people.

What is required is not more inquiries. What is needed is good political leadership, both locally to strengthen communities, and nationally to ensure that adequate resources are made available. This is not totally lacking, but it should be much, much better.

First published on Substack here

The SNP needs a reinvention

Copilot again. This is too optimistic for the current state of the SNP, but climbing a high mountain in shorts may be an apt metaphor

The last in my post-election survey of Britain’s main political parties concludes with the Scottish National Party. Alongside the Conservatives, it was a big loser in the general election, being reduced from 48 seats to just 9. But they still control the Scottish parliament, with no election until 2026. They are down but definitely not out. But they will need to do some should searching if they are not to sink back further.

Firstly, though, I must offer a health warning. I am not Scottish, and I have few political contacts north of the border. I am not plugged into politics there in the way that I am in England. So this is very much an outsider’s view. Still outsiders’ views can have value – and Scottish politics does impact English politics through our shared nation.

The SNP’s fall over the last two years has been dramatic. Until 2023, the party was sweeping all before it in Scotland. Nicola Sturgeon, its leader, was one of the most experienced in British politics, and presented a calm, reasonable face to the party – she was a gifted political communicator. And yet behind this calm exterior, all was clearly not well. The performance of the Scottish government under SNP control was lacklustre, on such basic issues as health, education and law and order (Glasgow having an astonishingly bad record on drugs). Ms Sturgeon presented a much more credible public face during the covid pandemic than England’s Boris Johnson – but Scotland’s results were no better. The SNP seemed too interested in politics and not enough in administration. It preferred to stay close with interest groups, rather than undertake tough reforms – apart from a botched reform of Scotland’s police. The reforms that there were centralised power to the Edinburgh government. Its Green coalition partners proved highly ideological and spent little effort engaging with the public. The Scottish government then took on a reform of gender recognition laws that was aligned with the leftwing-liberal consensus, but poorly aligned with general public opinion. This was heavily promoted by the Greens, but actually drew support from across the political spectrum. Public protests and celebrity opposition (notably from Scottish author J.K. Rowling) seemed to take the Edinburgh elite by surprise. When the UK government (led by the very unpopular and chaotic conservatives) blocked the law, it won rare approval north of the border. Meanwhile the party’s goal of Scottish independence remained a long way off, as the UK government refused a second referendum.

And then the incestuous goings on in the SNP’s internal management were exposed in a police investigation into possible misuse of funds. Ms Sturgeon retired as leader just before the storm broke. The alleged abuse (using funds donated to support an independence referendum for general electioneering) was not necessarily all that serious – and its illegality has yet to be resolved. But the scandal exposed very unhealthy governance. The party’s reputation was in tatters, not helped by the selection of a hapless new leader, Hamza Youssef , who seemed to expose the party’s lack of depth in talent. Was this party really capable of running an independent country? And that led on to the collapse in SNP vote and representation in the UK parliament. Labour surged in Scotland.

But all is not lost. The goings on at the SNP have not had much impact on support for Scottish independence, which runs at about 40%. This is not enough to win a referendum, but it is weighted towards younger voters, promising a majority in future. And the SNP has no serious rival in its leadership of the independence movement. The attempt by former leader (the late) Alec Salmond to establish a rival party was a dismal failure. Meanwhile Labour’s hapless start in government has wounded its main rival for votes north of the border, while the Conservatives remain weak, and Reform UK lacks the punch it has in England or Wales.

But the party must pose deep questions to itself. Politics has changed. The Scottish political elite has converged around a social democratic consensus. A big inspiration seems to have been the social democratic governments in Scandinavia – countries which, after all, are comparable in size to Scotland. While social democrats have been in retreat in England (and Wales), they assumed Scotland was different. The country produced a Remain majority in the EU referendum after all. But the whole world is moving against the social democratic – liberal – left consensus, including in Scandinavia. Immigration has become a top political issue. Gender-critical views, rejecting the extremes represented by Scotland’s self-identification laws, are mainstream. People are becoming wary of minority identity politics. A rising dependency ratio means that people question state benefits. Tax rises are resisted. Scotland can no more escape these trends than Scandinavia, where populist parties have been doing well. And more conservative views within the SNP, represented by leadership challenger Kate Forbes, are becoming more visible. Indeed Ms Forbes is clearly the most dynamic of the party’s senior politicians.

The question for the SNP is how far it follows these trends, and adopts Ireland as its model rather than Denmark or Sweden. Low taxes and a weaker welfare state are core to politics there. So far it has managed to scoop up the anti-establishment vote, by virtue of its support for independence, alongside more mainstream supporters. This could easily fray, with the Conservatives and/or Reform picking up support.

The current leader, John Swinney, is one of the party’s elders, and looks like a stopgap before the party takes its next bold steps. He will doubtless try to pick up disillusioned Labour voters while ignoring the conservative threat. I don’t think this will work, although it could lead to a messy result at the next Scottish election, whereby no majority can be formed without either the SNP or the conservatives.

The SNP would surely be better off if Mr Swinney stepped back, and let Ms Forbes take the reins. The left is in retreat, and the SNP needs to recognise that.

The Green Party needs to move away from the radical left

Another clichéd but copyright free image from Copilot

My survey of the British political parties moves on to the Green Party. The Greens had their most successful general election by far in July, winning four seats – they have had only one since 2005. And given the fragile nature of British politics, where small percentage shifts can change election results dramatically, the party is at its most influential on political events. Let’s look at them through the traditional SWOT framework, much beloved of professional facilitators.

Strengths

The Greens’ biggest strength is that they have a strong political brand. Everybody thinks they know what the party in general stands for: protection of the environment, sustainability and action against greenhouse gases. As a Liberal Democrat activist, I know this well: my party’s brand is much weaker. In local elections where neither party did much work, the Greens would regularly beat us. The Greens could put out dense, unreadable literature and it didn’t matter. People got the message that the Greens were active locally: they already knew what they were for. The party now regularly beats the Lib Dems in London Assembly elections, fought on proportional representation, where brand is critical, as it is so hard to communicate directly with so many voters. Meanwhile, environmental threats, and especially climate change, are so palpable that the brand has the power to resonate with the public.

A second strength is that the party has built up a bit of a local base of activists in swathes of the country. This has allowed them to succeed in Brighton, win a council in Suffolk, and parliamentary seats in both these places and in Bristol and Herefordshire too. This base seems to have two main sources: rural environmental campaigners (Suffolk and Herefordshire), and metropolitan left-wingers (Brighton and Bristol). All successful political parties are coalitions, so the fact that these groups are quite different is not a bad sign of itself.

Weaknesses

Alas both these strengths have a flip side. The brand is strong, but it also has a negative aspect, which currently restricts the party’s strength. Not everybody is comfortable with their environmentalism, and they can get associated with ideological extremism – which puts a lot of people off.

Likewise, though the party has areas of geographical strength, these are quite localised. It is not a mass movement represented in all of the country. Four seats is a good result for them, but they are along way from dozens of seats – much further than their rival lesser parties – the Lib Dems (who are already there) and Reform UK.

A third weakness is that their culture militates against disciplined, effective organisation. They insist on having two co-leaders, for example. While their strong brand allows them to pick up a proportion of voters easily, organising themselves to run campaigns to do more than this has been a struggle for them – more so than for the Lib Dems who make this transition much more easily.

Opportunities

The party’s biggest opportunity is that the Labour Party lacks challengers to its left, while angering left-inclined supporters. This feels not unlike the Liberal Democrats during the last Labour government (1997 to 2010), a period when they had a high vote share and won over 50 seats in three successive elections. They had a similar mix of rural and metropolitan support. Nowadays the Lib Dems are more focused on challenging the Conservatives than Labour, as they are their rivals in all but a handful of their seats (and the SNP most of the rest).

There is a rural opportunity too. The government has shown it is happy to face down rural opposition to its plans. To be clear, Labour doesn’t dislike rural communities, but it is happy to see a degree of collateral damage in their pursuit housing targets, green infrastructure and rich tax avoiders. This is a more competitive market though: Conservatives, Lib Dems and Reform all have a case to make too. But where the Greens are already strong in rural areas, they have the opportunity to advance further.

Threats

One threat to the Greens is the Lib Dems. The overlap between the parties is striking – in the priority given to the environment, and in generally socially liberal attitudes. Prior to this year’s election, though, they conspired to largely keep out of each other’s way – though there were no formal deals. There was just a mutual understanding that if they fought each other too hard, then the benefit would be to the Tories. But the Lib Dems parliamentary success has given them renewed confidence to challenge the Greens, especially in rural areas (like where I live in Sussex). Where the Lib Dems have established themselves they are generally better organised and better disciplined, and the momentum given to their party by success in July will also give them public credibility. The Greens should be able to handle this easily enough where they are already strong, but expanding this base will be harder. The Greens are probably less threatened in metropolitan areas, though, even where the Lib Dems used to be strong.

Perhaps a bigger threat is the party’s attachment to far-left politics. This is great for picking off disillusioned Labour supporters, but it runs against the political zeitgeist, where younger, ethnic minority and working class voters are increasingly put off by leftwing identity politics. These voters are starting to feel that the left doesn’t really care about the mundane issues of jobs and cost of living. Three areas stand out. The first is leftwing protests over Gaza, which the Greens have been strongly supportive of – actively seeking votes from Muslim communities. A second is the Just Stop Oil protests, which have periodically disrupted traffic or damaged works of art. These are separate from the Green Party, but that might not be so clear to voters. A third is the clash between “gender critical” activists and supporters of trans rights.

This last may not bother ordinary voters so much, but it poses a threat of a different sort. Under an employment tribunal case in 2021 it was established that gender critical views (i.e. people who say that birth is fixed from birth and cannot be re-assigned) are protected under the Equality Act. This is a very dangerous ruling for parties where the prevailing attitude that is gender critical views are not far off in kind to white supremicist ones. The Greens, along with Labour the Lib Dems and the SNP are struggling with this. But the pragmatic streak in each of the other parties makes it easier for them to make adjustments. Not making adjustments exposes parties to legal cases and substantial costs as both the Greens (being fined £90,000 in September) and the Lib Dems (who recently conceded a court case and may attract a similar fine, never mind legal costs) have already found. I don’t know how close the Greens are to making the necessary adjustments, but Trans supporters can be very militant, so this will be a struggle.

Conclusion

Green parties elsewhere in Europe have seen a struggle between “realists” and “fundamentalists”. It is the latter that give these parties so much of their energy and drive, but political advancement, and especially participation in government, requires a more pragmatic approach. Indeed environmental action will only succeed when it becomes quotidian – so widely accepted that people automatically assume that it is in their self-interest. Greens must either become more quotidian themselves or be left on the political margins. Such is the choice facing the Green parties in Britain.

Reform UK: reaching for the sky?

Another AI image from Copilot. Rather pleased with this one

My survey of the British political parties reaches Reform UK, the third most important party in terms of vote share. It is hard to understate the influence of this party, the creature of veteran British politician Nigel Farage. In the recent election it made more inroads into the Conservative vote than any other, allowing Labour to win by a landslide on a modest share of the vote; it also helped the rise of the Liberal Democrats, though to a smaller extent. It won only five seats itself, but even this was a bit of a breakthrough in Britain’s electoral system. One of the biggest questions in British politics is whether it can sustain its influence, or whether it will wither, as most third party challenges do in Britain.

Reform’s strategy is to channel the populist backlash that can be seen across most of the western world, from Donald Trump in America to the AfD in Germany. It rages against liberal “elites” and their woke policies, and most of all it rages against high levels of immigration. By and large the established parties handle this criticism badly, accusing it of being racist, amongst other things – even as more and more people from ethnic minorities subscribe to populist politics. The Conservatives are less inclined to do this, but they are badly split between those that want to hop onto the populist bandwagon, and the more establishment types who think that populist politics lead to bad policies. This strand of politics allows Reform to win 15-20% of the national vote, with an effective ceiling of probably about 30%. This invites three questions. What happens if the party reaches this ceiling? Can that ceiling be extended? And does the party have the leadership and organisational capacity to do this?

Supporters of Reform UK, including Matt Goodwin, often cited here, think they represent a forgotten majority. But polling consistently shows that support for their agenda is in the 20-30% region. The rest of the electorate diverges sharply in their views on most issues, and the party has very negative favourability ratings in the population at large. But 20-30% is still an awful lot of people, and if the party could find a way into winning the bulk of them, that would have a big impact. For a start, the Conservatives would be unlikely to survive. Reform’s achievement of about 14% vote share in July proved disastrous for the Tories. No credible route back to power exists for them without pushing Reform back to substantially less than this. Such a Tory collapse would then put Reform in contention to win many seats from Labour, especially in the old “Red Wall”, a swathe of constituencies from Wales to the Midlands to Northern England, based on towns with people who feel left out and left behind. These seats turned to the Conservatives under Boris Johnson in 2019. But how many could they win? I haven’t tried any psephological modelling – but it is surely unlikely that they could even challenge the Liberal Democrats for third place in parliament. They are stuck in the same place as the Lib dems used be in their years of relative success in 1997 to 2010. Lots of votes, but hard to turn these into seats – the Lib Dem vote is now a lot more concentrated, hence its substantial parliamentary presence. Labour would continue to do well in this environment, unless the Lib Dems started to find ways to break out their current geographical containment.

To move into true contention as a challenger to Labour requires Reform to seek an extra 10-15% of the vote, from people who currently disapprove of the party. This is what Donald Trump has successfully done in America, but which European parties in the same space are finding much harder. But our electoral system more closely resembles America’s than it does even France’s, still less those of German and Italy (although there the populists have found a path to power through alliances). Unlike America, Britain does not have a substantial body of active Christians who are appalled by the liberal values prevailing in the governing class. Neither are the liberal left quite as out of control as they have been in America, to stir up those resentments. But what America does show is that economic grievances, and the unsettling effects of mass immigration, can be stoked up among groups, such as younger voters and ethnic minorities, that used be reliable supporters of the left. Wokery played a role in the American realignment in supporting a “there’s madness on both sides” narrative – but it was economic grievance that clinched it for Mr Trump. It is possible for a winning coalition of voters to be built by Reform, or, indeed, by the Conservatives.

But can Reform pull it off? They first have to destroy the Tory challenge, in local elections, and the Welsh Senedd could play a role here. They then need to carry out the second part of the two-step I described in my previous post about the Conservatives. This means drawing support from a number of formerly Conservative politicians and businessmen to give the party some sort of aura of respectability. Reform starts with two advantages. Its leader, Nigel Farage, is an immensely experienced politician and a gifted communicator (the BBC can’t get enough of him). He (unlike the former academic Mr Goodwin) would understand the analysis I have just written, and clearly knows what he has to do. The second advantage is that the Conservatives have a toxic legacy from their years in government after 2019, when they showed themselves to be chaotic and incompetent. The party’s new leadership is clearly struggling to put distance between them and this legacy.

But the Tories have a huge advantage: they have political infrastructure – organisation, networks, administrative competencies. Here Reform are weak: they are way behind the Lib Dems, never mind the Tories. Uniquely amongst Britain’s main political parties, the party has a corporate structure, which makes it easy for the leadership to control, but much harder to build the networks the party needs to sustain a successful political movement. Mr Farage clearly recognises this, and building this infrastructure was a central theme at the party’s recent conference. But it doesn’t help that populist politics tends to attract event more cranks and argumentative types than other forms of politics, and fewer of the steady organisational types. Rapid expansion risks collapse into chaos.

But the potential remains. Reform’s poll share is holding up well after the election. There looks to be plenty of scope for stirring up economic grievance and resentment. Reform UK is very much the party to watch at the moment.

Can the Conservatives master the two-step?

Copilot’s idea of a two-step. Copilot has become very chatty all of a sudden, but much slower at generating images. Is this a portent for the development of AI?

I’m not a dancer. I have no idea whether the two-step really is the appropriate metaphor for what I want to describe – and a quick online search doesn’t really help. But in my survey of the state of Britain’s political parties I have come to the Conservatives. What they need to achieve requires two distinct steps. The question is whether their leadership has the skill to do this, or whether it will tumble in the process of trying.

The Conservatives suffered an unmitigated electoral disaster in July: both in terms of share of vote and in seats won it was their worst performance in living memory… and considerably beyond that. They lost votes in three directions, to Labour, to the Liberal Democrats and to Reform UK. This is all the more remarkable because in 2019 they achieved a landslide victory and it was widely assumed that they would stay in power for the foreseeable future. But this dramatic reversal contains the seeds of hope: politics has become so volatile that even a disaster on this scale can surely be reversed in less than five years? The party now has a new leader, Kemi Badenoch, who is bringing a fresh approach to the leadership. For reasons that I have explained in my earlier post on Labour, incumbency is a tough gig in a world where economic growth has suddenly become much harder to achieve. And Labour’s vote share makes it look vulnerable. Recent opinion polls already show the Conservatives with a small lead, albeit with a still dismal share of the vote.

With rather touching naivety the Financial Times political columnist Stephen Bush suggested a short while ago that what the party needed to next was to grapple with the new economic reality (though he does not frame that reality in quite the same way as I do) and come up with a policy framework that addresses it. Oh dear! Success in current politics comes with magical thinking. Look at the impossible policy programme put forward by Boris Johnson to allow the Conservatives to win big in 2019. Look at Donald Trump’s winning formula in this year’s US election. There is no reward for presenting voters with tough choices, and especially not in a very competitive political market. The party has no need to grapple with the awkward realities of public policy. But that is not as easy as it sounds. Any old magical thinking will not do. After all Labour under Jeremy Corbyn also indulged in magical thinking in 2019, and that was disastrous. The party has to create a narrative which resonates across a wide audience.

Successful politics is about coalition-building: aligning support from disparate groups of voters. Mr Johnson successfully built one that embraced working class voters in Northern, Midland and Welsh constituencies, alongside professional voters in prosperous suburbs, and traditionally conservative rural voters. Mr Trump has done something very similar. This is not easy. Matt Goodwin, the radical-right political commentator, correctly identifies that just such a coalition ensured the Conservative victory in 2019, and the party’s betrayal of the working-class element sealed its defeat. But he then goes on to excoriate those suburban and metropolitan voters (“elites”) that were part of the coalition as being the scum of the earth. How do you rebuild the coalition then? Political activists like Mr Goodwin actually aren’t that interested. They want to promote the interests of one part of a winning coalition, and are uninterested in any compromises that might be needed to bring about ultimate success.

That sounds unhelpful to a Conservative leader, but he isn’t entirely wrong. That seems to be the lesson from America. Mr Trump, while building his successful campaigns (as opposed to what he actually did in office) never compromised with his “base”. This consisted of two distinct, though overlapping groups. These were working class voters with lower educational attainment, who are often looked down on by governing elites, and conservative religious communities, who have their own policy agenda, and dislike of irreligious liberals. Once these groups were secure and enthusiastic, he could work on less committed groups, and persuade them to suspend judgement on issues that they were less comfortable with, and indulge in magical thinking in others. These people were persuaded that it was time for a shake-up, and that the Republicans would surely not be as bad as they sounded. This is what I am describing as the two-step. Secure the radicals first, then move onto the moderates.

It is not the only possible two-step. The more traditional one is to make a strong bid for the “centre ground”, and then turn to the radicals to say that “this is the best you are going to get”. This is the Tony Blair version of the two-step, which secured him three electoral victories for Labour. It is also what Sir Keir Starmer is doing for Labour currently. The radicals-first two-step does seem to be easier to do from the political right. Mr Corbyn did make a valiant attempt with this strategy for Labour, and it came much closer to success in 2017 that most people expected. But he did not understand how to keep the more sceptical voters on board. He was no match for Mr Johnson.

Both versions of the two-step are open to Mrs Badenoch. In the radicals-first version, she would move her tanks onto Reform UK’s lawn, and use the party’s superior resources and organisation to crush it. She needs to lean in to the sort rabid ranting indulged by Mr Goodwin, and weather the criticism from her own side. And then, in about 2027, she needs to start promoting scepticism for Labour, and getting more moderate Conservatives to suggest that she isn’t so bad, and that Labour are truly awful – in the way that so many less extreme Republicans have done for Mr Trump. The centre-first option would involve crafting an appeal to more professional voters first, and then crushing Reform. To be honest, this does sound much harder. Professional voters are much harder to woo with magical thinking, and that would indeed mean confronting some of the policy dilemmas that Stephen Bush was suggesting. Sir Keir understands this well, and would challenge her at every step.

Either way, it requires both political guile and forcefulness. There is no way through the middle with the two-step. Is Mrs Badenoch up to it? It is very early days, and it is hard to tell. The early signs are not encouraging (for her party – more encouraging for those who do not wish her well). It does indeed look as if she is trying to thread a middle way, a bit like the ill-fated Ed Miliband tried for Labour in 2010 to 2015. She enthusiastically attacks wokeness, but she is also trying to give her approach a bit of intellectual rigour, so as to dress it up for more professional types. That gets her into trouble. Is she, or is she not, in favour of maternity pay? She may find these early days bruising, but she may learn from them – much as Sir Keir did in his early days as Leader of the Opposition.

The jury is out. She is already attracting a heavy weight of sneering and criticism. If she does try to carry the battle to Reform as her first step, then a lot more of this is to be expected, and her ratings will dip in the population at large. But if the Reform ratings start to come under pressure we will know if she is winning. I don’t wish her well, but it will be interesting to watch.

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.

A Budget that poses as many questions as it answers

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.