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.
Yes, I agree that we are witnessing a last stand within the present political era – one, I would say, initiated by Thatcher in 1979. Starmer is at heart a pragmatist rather than a doctrinal politician – as witness his change of position since he was a Corbyn supporter , and the type of (pragmatic) reasoning he gives for it. I would expect that sometime into his present term, he will conclude that economic growth is not going to solve his problems in the way he hoped, and that reform – pragmatic reform – is needed. Perhaps we will see reform of the NHS in a way that reduces the scope of the services it provides free at the point of delivery?; and reform of the tax system so as to extract more tax from the half of society which are adequately or well off, while avoiding the 20% who are poor and largely avoiding the next band up who are ‘just about managing’? But he is constrained by the need to defend Labour’s heartlands from the attacks of both Farage and the Conservatives. So I expect to see a continuing opportunity for Lib Dems to retain their seats in places such as the south west London suburbs and parts of the West Country which don’t like the attitudes of the core Labour supporters but equally don’t like a right wing Conservative party defending against Farage. .
Yes I think the prospects for the Lib Dems to hold onto their gains looks promising. They may even make further inroads – but they are doing nothing to provide answers to the low growth question.