Labour – thinking liberal

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

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.

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

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

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

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

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

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

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

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

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

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

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

Why can’t we have an honest debate about immigration

MS Copilot imagines arrivals at Heathrow

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Britain’s politics is a function of its electoral system

The changed electoral map. Source: the Liberal Democrats

It was a dull election campaign but an earthquake of a result – not less significant for it having been widely predicted. Above all it shows just how much the country’s electoral system dictates its politics. That is how Labour won, and that is how they will stay in power.

I resisted the temptation to update my electoral predictions last week, as I didn’t have much more to add. If I had I would have talked up the Greens a bit, and also predicted that Jeremy Corbyn would win his seat of Islington North – notwithstanding a very dodgy local poll saying that he was well behind. I sensed that as people became more assured of a substantial Labour victory, with even the Tories saying so, that left-leaning voters, unenthused by the party’s relentless centrism, would vote for alternatives. The Tory tack of talking up Labour, referred to as the “Queensland Strategy”, to try and persuade people to vote Conservative to provide an opposition to Labour, was laughable. The Tories showed much more interest in fighting each other than opposing Labour.

The results proved me broadly correct, including those late predictions I didn’t publish – though I was surprised about how well the pro-Gaza independents did, unseating the prominent Labour front-bencher Jonathan Ashworth, for example, and nearly doing so to Labour big-hitter Wes Streeting. There were two main surprises for me though. The first was just how low was the overall share of the vote that Labour eventually got (about 35%) – much lower than the polling predictions, and with a much lower lead over the Conservatives (10% compared to a consistent 20%, though this dropped a bit in the last polls). This did not have much impact on the result in seats, though; a lot of this dynamic was happening in safe Labour seats, with Labour supporters moving to Greens and Independents, or not showing up to vote. The other surprise was quite how many seats the Liberal Democrats won. My argument had been that weakness on the ground would place an upper limit on the party’s performance of about 50 seats; in the event they won 72 – and nearly won a slew of others. There is an upper bound to Lib Dem performance – but it’s quite a bit higher than I thought it was. In about half the seats the Lib Dems won, pre-election campaigning was weak – but there was enough local council strength for the party to make the case for tactical votes, and there must also have been a bit of help from the national campaign, which managed to increase support for the party overall, over the course of the campaign (though it ended up in vote share more or less where it was in 2019).

Interestingly, the MRP polls, a big feature of this campaign, did not come off as badly as the ordinary ones, though they made similar mistakes with the overall vote shares for Labour and the Conservatives. The Labour victory was at the lower end of the range of these projections, but at least it was within it. They picked up more of a sense of how efficient the Labour and Lib Dem polling was in electoral terms, and inefficient was that for Reform UK and the Greens. They didn’t see the rise of the independents, and the projections for individual seats were often wayward, especially for the distribution of votes between the parties. As I suggested in my comments during the campaign, they exaggerated Labour strength in Lib Dem targets – allowing many a Labour leaflet to suggest that the party was in contention when it was in fact a distant third.

So the Labour victory was big but shallow, with many close results. Indeed, supporters of the previous leader, Jeremy Corbyn, noted that the party won fewer votes than when their man was leading – making the narrative of why Sir Keir Starmer’s stewardship proved so successful much more complicated than the mainstream explanation suggests. Labour did not win, so much as the Tories lost. Sir Keir Starmer did not win over many people to his party (and he lost a good few), but he did not scare as many Tory voters as his predecessor – allowing them to stay at home or vote for Reform.

To be fair on Sir Keir, he seems to understand the thinness of his mandate. He is not using the scale of his victory to suggest that he has public support for radical policies. He is trying to establish a reputation for competence – something the Conservatives lost in the wake of the Brexit referendum. Labour will, of course, relentlessly blame the country’s “14 years of Tory chaos” – never mind that these followed three years of Labour chaos, and that the first six years were not especially chaotic. But whether it was 8 years of chaos or 14 makes no real difference to voters. This is a sensible strategy. The populist right plan a relentless attack on Labour for being “woke” – attending to the “luxury beliefs” of liberals and the identity politics of some ethnic minority politicians. Sir Keir’s best hope of winning the next election is to contrast the wildness of these attacks with the unfussy competence of reality. Good luck with that. He has the discouraging examples of Francois Hollande in France, and Gerhard Schroder in Germany. Two uncharismatic but competent left-of-centre politicians who were/are unable to manage the stresses of modern politics. Still, those leaders were operating in a very different political systems. So long as Labour can keep the right divided, its chances are good.

On the question of the right, I continue to follow the writings of populist promoter Matt Goodwin. I like him because he is reasonably factual, unlike many of his fellow travellers, who trade in conspiracy theories and lies. He did not have a particularly good election. He was elated by the Reform surge after its leader, Nigel Farage, started to seriously engage in the campaign. He went on to breathlessly call an inflection point, with Reform surpassing the Conservatives, backed up his own polling organisation, which proved by some margin to be the least accurate of all those publishing polls. But then Reform flatlined, and Mr Goodwin started to talk about the French elections instead. Looking back on the election, he is now calling the Reform glass half full. It has indeed peeled off the working class/lower middle class part of the Tory 2019 coalition, but it is making little progress beyond that. The Conservatives outpolled them by 10% – and its much stronger ground organisation showed. A pile of second places is no use in the British electoral system – and you need a strong ground operation to turn those second places into wins – just ask the Liberal Democrats. Complaining about the electoral system doesn’t cut it. The chances of Reform doing that on their own in more than a handful of places looks thin.

That leaves a stalemate on the right. Clearly it needs to rebuild the 2019 coalition, across working class and middle class voters, and in the north, south, east and west of England and Wales. Reform can’t do that. The Conservatives have two strategies open to them: the first is to displace Reform from the ground they now hold, and then rope in the middle classes and professionals later. But that will be hard: they have lost trust, and now that Mr Farage is in parliament he is in a strong position to fight them off – unless they can find a way of bringing him on board. The other strategy is to regain the middle ground, and then attack and squeeze Reform nearer to the next election, rather as David Cameron successfully did in 2015 to Ukip, a Reform forerunner. But Tory grassroots seem to have little patience for such a strategy, and they need somebody to lead it who is untainted by the Johnson, Truss and Sunak regimes – their own Keir Starmer. The likelihood is that the party will tear itself apart while trying to decide. This is Labour’s best hope, as they inevitably get bogged down in the mid-term.

What of the Lib Dems? Their large slew of MPs will give them more money, and more clout in parliament. It is a very different party from the ill-disciplined and eclectic group of local activists of the early 2000s, who often opposed Labour from the left. The centre is much stronger – this year’s campaign was notable for the strength of its central campaign, and consistency of its message across the country. They will seek to consolidate their gains, and build up new prospects. Their campaigning will continue with the same voter-led messages (health, care and the environment). But there is a hunger within the party for something more idealistic, defining what the party is all about. There will also be pressure to ramp up messaging around Europe. Perhaps they are shaping up to be part of a coalition with Labour in 2028/29.

But the big message of this campaign, demonstrated by both Labour and the Lib Dems, and in reverse by Reform and the Greens, is that elections are won by constituency-led targeting. The electoral system is shaping politics as completely as ever. Will electoral reform come back onto the political agenda? There are three broad options. The first is the Alternative Vote, which is not much more than a tweak to the existing system, but one which would allow those disenfranchised Reform and Green voters (to say nothing of third-placed Conservatives and Labour ones) more of a say. This would suit the Conservatives best – the Australian experience is that such a system ultimately reinforces the power to the two main established parties. And yet they united in opposing exactly this system when it was put to a referendum in 2011. The more radical alternative is proportional representation, which would suit Reform and the Greens best. This would have Lib Dem support too, though it is unclear that the party would benefit much, and it also has the support of many Labour grassroots.

But such chatter is irrelevant. The Labour leadership is focused on its core “missions”, which do not include political reform – and turkeys don’t vote for Christmas. Until there is a public groundswell to change the system, as there was in New Zealand in the 1990s, there will be no serious move to change things. The British electorate is very conservative, as that 2011 referendum showed. And if such a groundswell was going to happen, I think it would have happened already. Reform and the Greens need to learn from the Lib Dems and embrace local politics.

Electoral efficiency in British elections. From *The Economist*

When will the Tory rot stop?

More from MS Image Creator. I’m getting bored of the “realistic” style so tried a cartoon instead

So just how wrong have I been about the UK general election? My first prediction was that there would be a limit to the Conservative decline (at about 100 seats), and that there was no chance that the Liberal Democrats would overtake them. The Reform UK insurgents would be unable to replace the Tories. In my second post I suggested that the Conservatives would narrow the gap on Labour by squeezing Reform, limiting the overall size of their loss.

The second prediction is not faring well. I was wrong-footed by Reform’s leader, Nigel Farage, changing his mind about standing himself, and being the formal party leader. His initial declaration got Reform off to a bad start, and offered the Tories an opportunity. But the Tories made a weak start, and Mr Farage is back, attracting media like bees to a honeypot, including the supposedly establishment-biased BBC. The Conservative attempt to squeeze Reform supporters has stalled, at least at the national level, and even gone into reverse. More than one MRP poll now suggests that Reform might even pick up a handful of seats.

But I’m holding fast to my first prediction. There is quite a lot of breathless talk about the Tories being crushed, with well under 100 seats retained. One or two MRP polls suggest that they will indeed by eclipsed by the Lib Dems. Reform cheerleader Matt Goodwin, whose Substack is one of my main sources of information on the populist right, is talking of an inflection point, with Reform overtaking and crushing the Conservatives. Even the Financial Times‘s Stephen Bush finds himself dealing with the speculation that the Lib Dems might overtake the Conservatives in terms of seats won – though he still considers this unlikely.

My logic is rather different from that of other commentators, though. It is that the actual results in many constituencies are determined by the activity of local activists on the ground – canvassing, leaflet delivery, posters and such, often referred to as “the ground war”, as opposed to the “air war” of media. The ground war helps voters decide who is really in contention in their seat, and then to decide on the least-worst option. This is more likely to change minds than anything that happens in the air war, that attracts most of the attention. I am a case in point. I have voted for the Lib Dems or their predecessors in every general election from 1983 (my first vote, in 1979, was for the Conservatives). The only thing that could possibly persuade me otherwise this time is if I thought my local Green candidate was in serious contention in my constituency of East Grinstead and Uckfield – she is my local councillor, and the only one of the candidates I know – and whom I’m quite impressed with. She claims that this is the case based on local election results; but the Lib Dem candidate makes the same claim based on 2019 election results (complicated by the fact it is a new seat); meanwhile the tactical voting recommendation from Best for Britain is for Labour, based on an MRP poll. It’s as clear as mud, though I think the Labour claim to be ridiculous. The Tory candidate (Mims Davies, the MP for the now-defunct Mid-Sussex constituency) has not given up, and has been canvassing in our village, in the extreme south of the constituency. She will surely have quite an easy ride back into parliament, even if she fails to get 40% of the vote, which is likely.

The Conservatives lack opponents with a proper ground-war capability in so many of their well-off rural strongholds. Labour have never been strong in these seats; the Lib Dem infrastructure is only there for some seats (locally to me in Lewes and Tunbridge Wells, for example), and the Greens in even fewer (the non-rural Brighton Pavilion in my area). Reform is not constructed as a grassroots organisation, and will struggle without a charismatic candidate and an experienced local organiser – which applies in a maximum of three or four seats, I suspect. The MRP poll methodology only picks up the ground war factor indirectly and underplays it. This makes its constituency predictions unreliable in each individual case, though more plausible in aggregate, which is how their success is usually judged. My guess is that the unique conditions of this campaign mean that their aggregate conclusions are out too in most cases – and that the Conservatives will do better than forecast. Though to be fair, there is quite a bit of variation in the MRP seat projections. The ground war factor mean that it is unlikely for the Lib Dems to pass the 50 seat mark, or the Greens 3.

Furthermore, I think Mr Goodwin is running well ahead of the evidence in his claims about Reform. So far I think only one poll, by YouGov, has placed them ahead of the Tories, and that was a week ago. Aggregated poll trackers tend to put them several points behind. Mr Farage’s volte-face gave the party a boost but it doesn’t look like sustained momentum. They may pick up a lot votes in areas where the ground war is weak, such as in safe Labour seats, which might lead them to widespread second places, but little impact on the overall result (a bit like the SDP-Liberal Alliance in 1983 and 1987, and the Lib Dems in 1992 – though in their case it was mainly safe Conservative seats where they did well).

Having criticised recent MRP polls, though, the overall result predicted by Ipsos-Mori (Labour 453, Conservatives 115, Lib Dem 38) is not far from where I think things will end up – though the individual constituency projections are wayward – giving Labour far too big a share in Lib Dem target seats, for example). MRPs are a poor way to guide for tactical voting decisions. The Tories may do a bit better than this, and Labour worse. I hope the Lib Dems will do a bit better too, but then my hopes have run ahead of the actuality for every election since 1983, apart from 1997.

So, to answer the question posed by my blog title, I expect the Tory rot to stop soon, with their ground war strengths serving to limit the damage. What happens next is the big question – but let’s wait until after the election to consider that.

Postscript

Just after I posted this, three new MRPs came out – and Matt Goodwin breathlessly reported a new poll showing a spectacular surge in Reform support to 24%, with the Conservatives languishing on 15%. This poll was conducted by Mr Goodwin’s own organisation, People Polling, for GB News, another Reform promoter. This is curious. Mr Goodwin is an academic and I have no reason to doubt his professionalism in conducting polls. But it is an outlier. It is clearly becoming harder to conduct opinion polls, and a lot of the result depends on how adjustments to the raw results are made. There is always a lot of soul-searching after elections amongst pollsters, which then leaves the impression that they are refighting the last war rather trying the win the current one. Mr Goodwin says that the key change is that a lot of the previous “don’t knows” are making up their minds, and that Reform are doing very well here and the Tories very badly. There is other evidence for the second of these contentions (though that suggested Labour doing well) – a disaster for Rishi Sunak, whose whole campaign was based on the idea that he could rally “don’t knows” who had previously voted Tory.

I don’t think the new MRPs add anything to my analysis, though I haven’t looked at them closely. They show the Tories coming in at roughly 50, 100 and 150 seats. My opinion is that the higher end of the range is the most realistic forecast. I think generally that the MRPs are over-reporting Labour strength in seats that the party isn’t targeting – probably to the benefit of the Tories, but maybe the Lib Dems too.

20 June 2024

Why the Conservatives should narrow the polling gap

I asked MS Copilot’s image creator to give me 10 Downing Street, London in the pouring rain. This was the most appealing of the results, none of which were anything close to the real No 10. AI is reported to be close to superseding human intelligence.

Rishi Sunak’s calling of a general election for 4 July in the UK was a surprise – mostly for his own party. Labour and the Lib Dems had taken seriously the stories that he might go for 2 May, so although they were surprised, they were also ready. From the moment of its launch by Mr Sunak in the Downing Street rain, his campaign has not gone well. But things should get better.

The election that comes to mind as a comparison is 2017. Then Theresa May had a poll lead over Labour that was as massive, at the over 20 points, as Labour’s lead is now. But this was so narrowed by election day that Mrs May lost her parliamentary majority, ushering in over two years of parliamentary chaos. This was also a surprise election, and an even greater one, as no election was required before 2020. All parties were poorly prepared. Two main things went wrong for Mrs May. The first was overconfidence by her and her advisors, notably Nick Timothy. They took risks with the manifesto (aligning with the popular opinion that Tony Blair had been too cautious with his commanding lead in 1997), notably on the funding of social care. They also decided that they did not need to risk exposing Mrs May to televised leadership debates – which went down badly with the public. The second big thing to go wrong was that Labour, under Jeremy Corbyn, did an astonishingly good job of rallying anti-government feeling to his party. Because nobody thought he could win, voters were prepared to risk voting Labour in protest.

Labour’s leader, Sir Keir Starmer, is not going to make the first mistake. His party’s commitments are cautious to a fault – this is yet another “the same, only different” pitch. Mr Sunak’s attack lines on the party look very ill-judged. He says that he has a plan for the country, and that Labour are just waffling. All the appearances are the exact opposite – and Labour are doing their best to make it look that way. The Lib Dems are being similarly cautious, targeting their message to floating voters in 40 or so parliamentary seats where the party has an established base. It doesn’t look as if the Conservatives are seriously trying to dent the commanding 40% or so that Labour is polling, or the Lib Dem 10% for that matter.

But the Tories are still narrowing the gap. They are looking to bring on board former voters who are currently saying they are undecided, and 10% or more of the electorate that say they will vote for Reform UK. It is a convenient belief for party activists that all they have to do to win is to enthuse potential supporters in their part of the political spectrum, and not to compromise their values by chasing voters undecided between the two parties. Many on the Labour left believe something similar – citing that remarkable 2017 campaign as evidence. There is some evidence for the Tory version, though. A lot of voters distrust Labour – and that is especially the case for those who say they will vote for Reform.

And Reform’s campaign has got off to a weak start. Their main media star, Nigel Farage, has said that he will not stand this time. Immediately the party lost momentum – coming on top of a weak showing in local elections, which the party disdains. I think the Conservatives will successfully squeeze these voters – and their campaigning seems calculated to be towards that end.

It will be harder to rally the don’t knows without an effective scare message against Labour. Former supporters staying at home is always a large part of the poor performance of weak parties. Mr Corbyn succeeded as he was a fresh face, able to command a body of enthusiastic younger activists, motivated by the perceived outrages of seven years of Tory-led government (notably “Austerity”, but also Brexit). The cautious Sir Keir is in opposition, not government, and is not going to offer such a tempting target. Besides the Conservatives have spent decades putting off younger voters in their bid for the grey vote, and have no body of enthusiastic activists to carry their case to the country’s doorsteps. The failure of housing policy, leading to sky-high property rents and inaccessible home ownership, is a notable aspect of this. Besides the completely justified sense of betrayal felt by newer Conservative supporters, rallied to the party for the first time in 2019, is deep. There is hardly a promise that the party has kept; even “Getting Brexit Done” has lost its lustre.

But it is not inconceivable that the Conservatives will be able to raise their support from the lower 20s to about 30%, and narrow the Labour lead to the lower 10s. That will not be enough to stop a comfortable Labour majority. But it will be a lot better than the total meltdown being forecast by some.

The lightbulb moment is past. Why we must break the growth mindset

Back in the 1970s there was a persistent story about lightbulbs (then incandescent tungsten ones) that was trotted forth to demonstrate the madness of capitalism. It was that the life of a bulb was kept deliberately short so as to create demand for replacement bulbs. Apparently it was true – but nobody cared. Whinge as we might at the fringes, politicians and the public were happy to keep the economic treadmill going. Longer-lasting lightbulbs would mean fewer jobs. Those days are long gone. Our lightbulbs now are immeasurably more efficient, and they aren’t built to self-destruct. Few jobs are at stake, and even fewer jobs in countries that use the bulbs. This leaves the world materially much better off. But politicians and economists alike hanker after the those old days – hence their obsession with economic growth.

Even serious economic commentators like the Financial Times’s Martin Wolf can’t break this: Mr Wolf started a recent column with the words: “If the UK’s real gross domestic product per head had continued on its 1955-2008 path, it would now be 39 per cent higher.” This implies that the lack of economic growth in the last 15 years is a failure of economic policy, and not due to a change in the way the modern economy works. This is wrong: instead we should think of the second half of the 20th Century as a unique period in economic history – and recognise that we have long since entered a new era, one in which sustained growth of gross domestic product per head is not a feature – nor even really desirable. Life can get better, but not through consuming ever more stuff.

Economists don’t like to look behind their beloved aggregated economic statistics, which they like to treat as classical physicists once did the measurements of pressure, temperature and volume of gases. What the gas molecules were made of didn’t matter. Some economists try to construct historical time series of centuries and more in an attempt to build a narrative of economic policy, as if to say that there are common economic principles that are everlasting. To them the post-war era in the developed world, and parts of the developing one, featuring consistent growth is a model of wise policy. Firstly through good macro-economic management, with Keynesian demand management, and then inflation targeting monetary policy: these smoothed out the dips and troughs that were a feature of previous eras. Then there was a consistent advance of productivity through the use of new technologies and more advanced management. “Productivity is not everything,” said the economist Paul Krugman, “but in the long run it is almost everything.”

But looking back on it, that golden age was the result of the convergence of four factors, each of which has reached its limit: the post-war baby boom, bringing women into the workforce, the expansion of world trade, and the rising consumption of manufactured goods. The baby boom expanded the proportion of the workforce that was of working age, but by the 1980s the babies were now all of working age while the birth rate had fallen; and as the boomers reached retirement age in the 2000s, the proportion of people of working age shrank. The economist Dietrich Vollrath did the maths and found that this accounted for most of the tail-off of economic growth per head in the 2000s in America – and in Britain the effect would have been greater, if anything. This led to my comment that “Demographics is not everything, but it is almost everything.” The war brought many women into the workforce, but in the 1950s the convention that married women should stay at home remained powerful. But as families wanted to spend more on consumer goods and property (and technology made housework easier), women were steadily brought into the workforce, increasing the overall rate of employment, and thus driving growth. This trend has been slow but steady – the proportion of women at work was still growing through the 2000s – but now there is not a big difference between male and female employment, and in most economies, including Britain’s, the limit has surely been reached.

Freedom of trade has also been an important driver of economic growth, as the laws of comparative advantage and economies of scale came into play – in notable contrast to the pre-war years. First came GATT – the General Agreement on Tariffs and Trade, part of the great post-war settlement. Then, for Britain, there was membership of the European Economic Community – which in turn was given a major lift when this morphed into the European Union with its Single Market. But perhaps even more significant was the steady rise in Asian economies, and the huge increase in trade in manufactured goods – a succession starting with Japan, moving through to the Asian “Tigers” (Taiwan, South Korea and so on) onto China, with India in a supporting role. The rise of this trade, referred to as “globalisation” was transformative. The cost of manufactured consumer goods in the early 2000s tumbled as a result, and was one of the critical underpinnings of economic growth. But this trade is no longer growing – and is probably shrinking, while Britain has left the EU and Single Market. Gains from trade are unravelling. This is partly a product of the rise of protectionist politics, but it is also because economic convergence has reduced the potential gains from comparative advantage. Funnily enough the reversal of globalisation is often celebrated by politicians, almost in the same breath as they call for stronger economic growth.

These three factors are well-known amongst economists, even if they don’t talk about them enough when considering the slowdown of economic growth – compared to familiar targets such as lack of public and private investment, NIMBYism, muddled political policy and so on. In contrast my fourth factor seems to be less well understood. In the post war era there was a massive expansion of consumer goods, from cars to cosmetics. This was made possible by advances in technology during the war, with the development of plastics, for example. Keynesian economic policy helped to pump-prime a virtuous circle of increased supply and demand – the expansion of manufacturing and distribution jobs helping to fuel demand. This cycle became central to the growth of advanced economies, copied by many less developed economies, though, interestingly enough, not so much by China, which is another story (they channeled much more of the extra demand into investment, relying on exports much more for growth). Along the way absurdities like the built-in obsolescence of light bulbs were tolerated. Many view this era, up to the late 1970s in Britain, as something of a golden age: one with a largely stable working-class culture, geographically well-spread, and quite a bit of upward mobility into an expanding middle class – before the destruction of the industrial heartlands that started in the 1980s. This view requires rose-tinted spectacles. Some things were clearly better then: access to social housing, for example; and this, combined with high taxes on the rich meant lower inequality and better social cohesion (so long as you weren’t brown or black skinned). Public services were more generously staffed, though usually terribly managed. But was an era of massive environmental degradation and plenty of social strife; film and television dramas of the era depict people shouting at each other but failing to communicate – which is largely how I remember it as I was growing up.

But this age of expanding consumerism could not be sustained. There are only a certain number of cars, fridges and so on the people can own. There was a limit to the amount of electric light that people could constructively use. And besides, advancing productivity meant that fewer jobs were required to sustain demand, and expanding trade kept up fierce pressure on efficiency. The final blow came when when, for reasons of comparative advantage rather than efficiency, the developing economies of Asia took over a huge share of the production of consumer goods. The 1980s onwards saw massive closures of factories and other infrastructure, such as coal mines.

But the standard rejoinder to this from economists is that these developments shouldn’t really matter. Cheaper consumer goods mean that people have more to spend on other things, and these require people to provide them – and these people can be made more productive. Lightbulbs may have been replaced by cheap LEDs made in China, but the new technology can be arranged into much more complicated and creative arrays, which need people to design and install them. But there have proved to be a number of problems with this idea. Economists will admit that manufactured consumer goods have largely been replaced in the modern economy by services, where productivity is a much trickier thing. They call it “Baumol’s Cost Disease”, teach it in Economics Batchelor degrees, and then forget about it.

Unfortunately, a Batchelor Economics degree is as far as my formal economics training went. The theoretical complexities of an economy where increasing productivity comes about through higher quality rather than quantity, and were an increasing amount of consumption goes into access to land, rapidly takes me out of my depth. But the outcome of these complexities is surely that developed economies do not behave as they once did. One problem is that the modern economy is more unequal. Large numbers of people are now extremely well off by past standards, and we have the phenomenon of “mass affluence”. Millionaires are commonplace. But at the other end of the scale many working class jobs are much less secure than the factory and office jobs of the past. The better-off, meanwhile, spend a lot of their money is on status goods and services, rather than basics. (They also save more, which complicates things more – though overall savings rates have gone down rather than up). One of the key ingredients is human content. In olden times this might be the number of servants you employed; nowadays it is the consumption of personal services and use of products whose whole point is that their production processes are inefficient (hand-stitched handbags, etc.). These often require low-paid people to provide. There is surely a danger that this inequality gets entrenched, and that this is a drag on economic development. This is surely one reason that minimum wage policies have not caused the damage that a consensus of economists predicted in the 1990s.

Then you have the problem of leisure. One way for people to exploit the benefits of higher productivity is to work less. This might be more holidays, or (as in my own case) retiring early. Then there is the hobby economy – where people produce things deliberately on a non-commercial basis for the sheer enjoyment of it. All this is perfectly rational economically, but it makes a mess of classical economic assumptions. And here’s the thing: a society were people don’t have to work as hard to achieve a comfortable and fulfilling life is not a failure. But listening to conventional economists you might think it was. Such a society is taking shape through the freely made decisions of economic agents: it is not a failure of policy. We need to understand how much slow growth is the result humanity realising the benefits of greater economic efficiency, and how much is through dysfunction – and I will admit there still quite a bit of dysfunction about.

So what are my conclusions? Firstly it is that most economists are suffering from a fallacy of composition when talking about productivity and growth. They have a mental model of the supply side of an economy being a single business scaled up (“UK plc”) when the reality is much more complicated. Advances in productivity in one place can simply lead to a reduction somewhere else. Secondly we are often confusing the creation of wealth with its realisation. Many people rationally choose to realise wealth by earning less – and the number is growing. Thirdly, the inequalities in our economy aren’t just a bit of untidiness that will resolve itself, but need to be a central focus of economic thought and policy development – as this is likely to do more to advance economic wellbeing that overall economic growth.

Politically this means that both the left and the right are barking up the wrong tree – at least as represented in Britain by the Labour and Conservative parties. Conservatives hanker after a low-tax high-growth society, powered by free-wheeling entrepreneurs. Those days are long gone. Lower taxes simply increase inequality and have nothing to do with growth. Labour assume that better direction from government towards constructive investment will unleash growth that will generate taxes that will fund improvements to public services. This is a lot less wrong-headed than the Conservative narrative. After the years of chaotic Conservative government, it is surely true that a bit of grown up government will unleash a some catch-up growth, enough to generate a bit more tax revenue – and maybe even to lift growth to the top of the G7, as Labour predicts (doubtless thinking that the other six economies are due for a bit of a stall…). But it can’t last – and the party is not ready for the hard choices that lie when it all fizzles out and they are forced to confront various combinations of austerity and higher taxes.

What we need to do is to take a fresh look at society and its dysfunctions and address that dysfunction through slimmer but more effective public services, and intelligent redistribution. Technological advance continues to offer the opportunity to advance human wellbeing – but we will get there faster if break the growth mindset.