Labour – thinking liberal

Britain’s politicians are in denial – are the voters?

From the Office of Budget Responsibility: Economic and fiscal outlook November 2023

This week’s Autumn Statement by Britain’s Chancellor of the Exchequer, Jeremy Hunt, was a miserable affair, full of political chicanery with little to effort to tackle the country’s deepening problems. Worse yet, the opposition parties (Labour and the Lib Dems anyway), for all their huffing and puffing, are also unable to face up to these problems.

The Conservatives billed the set of measures as the biggest set of tax cuts since the 1980s. And yet the overall tax burden is rising as the freezing of tax allowances and thresholds will bring ever more people into tax or higher rates of tax, and increase the proportion of income people pay as tax. An even bigger problem is that the government has been using inflation to squeeze public spending, while services across the board – health, education, the police, the courts, and the list goes on – are clearly overstretched and in many cases breaking down – with collapsing buildings and rising waiting lists. The Chancellor offered not a penny to alleviate this crisis, while planning a further squeeze in the years ahead. Labour and the Lib Dems gleefully pointed out the first problem, but failed to address the second. They will stand by the announced tax cuts, while offering only gestures (taxing non-domiciled residents, or private schools, for example) to help fund public services. These tax-raising wheezes are nowhere near enough to match the scale of the crisis. Meanwhile all parties suggest that a bonanza of economic growth is coming to the rescue, without acknowledging the severe headwinds that will limit the country’s long-term growth prospects.

I am also highly sceptical of the one measure that seems to be getting widespread support – the full expensing of investment in machinery and systems against corporate profits. It is said that this will boost business investment, which is sorely lacking. It is in a fact the revival of a policy that failed in the 1980s, and was abolished by Nigel Lawson, the Tory tax-cutting Chancellor, who has been about the only holder of that post in memory that had a grasp of how the tax system as a whole worked and could be reformed. Back then it created a tax-avoidance industry and encouraged wasteful investment with fancy kit, rather than the thinking through of business processes which is the real key to improved productivity. That fiasco occurred at the beginning of my professional career as a Chartered Accountant, where I could see the nonsense it was creating up close. Alas the current crop of politicians and their advisers are too young to remember this. And it is of little use to new businesses, where the need is most acute, as these typically do not generate enough profit for this to be of use. What a silly waste!

Meanwhile the fiscal climate is getting a lot worse. Interest rates are rising at time that the size of the national debt is historically very high. If interest rates are higher than the overall rate of growth, and there is a budget deficit, then a debt spiral threatens, which, if it leads to an international loss of confidence in the public finances, could usher in a severe financial crisis. At the moment it is actually quite hard to understand how much of a problem this is. You should be comparing real interest rates to real growth rates – i.e. after inflation. But there are mixed signals on real interest rates. If you compare the nominal rate on government lending, it is if anything less than reported inflation – indicating a negative rate. But yields of index-lined bonds are positive and have risen sharply. Meanwhile the budget deficit is quite high – at 4% of GDP. It wasn’t so long a go when none of this seemed to matter. Interest rates were low, and the Bank of England’s Quantative Easing (QE) programme made large government debt look manageable. But conditions have changed. Inflation has made money much tighter – with interest rates rising, and QE going into reverse. I am starting to suspect a deeper change is afoot in the world’s capital markets. Earlier this century a number of countries ran large trade surpluses – notably China, Japan and Germany. This made trade and budget deficits more stable in countries like the UK and US, as the surplus countries had plenty of spare currency to provide funding. As the world’s trading environment is getting more difficult, this may changing – though it is not yet evident in public statistics. After over-reacting to fiscal risks in 2010, and moving into austerity too quickly, the opposite risk beckons. But the Autumn statement proposes tackling the budget deficit only slowly, leaving the very high level of net debt virtually unchanged. Politicians seem to assume that as inflation comes down things will simply go back to the easy financial environment that pertained before. This is complacent.

More from the OBR report – government plans make little impact on public debt

If that is complacency, the politician’s attitude to economic growth is outright denial, though some economists who should know better seem to be in the same place. It is assumed that the UK’s poor performance has an easily fixable cause. More investment perhaps, or encouraging more people into work, or perhaps lower taxes. Rachel Reeves, Labour’s Shadow Chancellor, blithely talks about sorting out public services through economic growth – even applying the first-person to the process, as if growth was the gift one individual, and not the collective result of many millions of decisions. International comparisons seem to show that Britain’s productivity lags against peers. All that we need to do is fix this, the argument goes, and we will unlock growth. Well it may be that a burst of catch-up growth that is obtainable – but I suspect that these comparisons reflect an irreversible de-industrialisation, when a swathe of high-productivity industries left the country in the 1980s and 1990s and will not return. But stepping back, most or all of the developed world faces a number of headwinds that reduce growth potential, and in some case send it into reverse:

Demographics: more people are retiring as lower birth rates take their toll. Immigration can make up some of the difference, but is politically fraught, and stresses housing resources.
Trade: as globalisation runs into reverse, gains from trade are turned into losses. The UK is spared the American obsession with “near-shoring” or the reversal of the off-shoring of industries – but we have our own demons unleashed by Brexit.
Overdevelopment. The increasing consumption of goods, a critical driver of past growth, is simply a phase in economic evolution that has clearly ended. People move on to improve their quality of life in other ways. Meanwhile massive increases to the productivity of manufacturing industry mean that its impact on the total economy is much reduced. All this means that lower productivity parts of the economy, including many public services, loom larger. Productivity gains are harder to get, and where they happen the result is not so much increased production, but a transfer of resources to low-productivity sectors.
The energy transition. The country needs to make big investments to sources and distribution of energy, and its more efficient consumption. While the end result is desirable, in the meantime this will push down consumption. This, in fact, applies to pretty much all forms of investment. The country has become used to high consumption and low savings – reversing this won’t necessarily reduce growth as it usually measured, but to many people it will feel that way.
Housing. One way of achieving growth, or at least burst of catching up, is to allow people to move to places where the most productive jobs are. But these areas lack enough housing to accommodate this. Britain’s house builders have growth rich on the skilful management of land portfolios, rather than the actual building of houses, which many are actually very bad at. They have no incentive to increase the pace of building. And if the pace is increased, skill shortages quickly become evident. And I haven’t even mentioned slow and restrictive planning processes. Politicians at least show some awareness of this issue, but action never matches the promises.

The days of steady economic growth over the medium to long term are over, whether we like it or not. The best we can hope for is a short-term spurt. There is plenty of potential for human wellbeing to improve, but this will manifest itself in other ways.

The central problem is the funding of public services and maintenance of social safety-nets. A combination of two things are required here. The first is higher levels of taxation – and mainstream taxes which directly affect demand, and not gimmicks around capital and wealth (the latter may help make debt more manageable, but won’t suppress demand and prevent inflation). The second is a radical reform of public services so that demand for them is reduced – reducing the level of social problems, so that we require fewer police, courts, hospital beds, etc – and managing those problems so that they are solved early rather than passed from agency to agency. Alas we have very little idea how to bring such a change about – though we can see that some countries do this better than us (Japan, Switzerland, Denmark perhaps). A radical reform of government is clearly a part of this, with less centralised control – but it needs much more than this: decentralisation by itself could actually make things worse. With the possible exception of education (which has become more effective rather than cheaper) the reform efforts made by our governments in the last twenty years have taken us in the wrong direction – from Labour’s over-centralisation, to the de-skilling and outsourcing of the Conservative and coalition years. Unfortunately the choice between the two approaches of higher taxes or radical reform is not a binary one. Reform will require substantial investment, and that is likely to mean higher taxes in the short term at least.

If our politicians are in denial about all of this, how about the public? They surely understand that public services are in a dire state – and that fixing this will not come cheap. But they are too wrapped up in their own personal struggles to spend any energy on demands for change. Politicians are in denial for a reason: they don’t just a lack imagination and perception, but they also know a voter-loser when they see it. Still, Labour are clearly presenting a more realistic prospectus than the Conservatives, even if it is based on wishful thinking. Their poll lead at least seems to show some wider awareness by the public at large. And we must grasp at that straw.

Starmer triumphant

Photo: Petr Kratochvil PubicDomainPictures.net

Recognition of Sir Keir Starmer’s achievement as Labour leader has been grudging. Even as Labour dominates the opinion polls with leads of over 10%, and local elections and by elections confirm it, the response has been “Yes, but…”. Any straw in the wind that might throw doubt on Labour’s dominance is leapt on and magnified. Labour’s victory in two by elections last week, in two ultra-safe Conservative seats, should end that, following as these do a spectacular victory over the SNP in Scotland in a another by election. The party can win almost anywhere it chooses to fight.

The three October by elections each throw a different light on the stranglehold Sir Keir now has on British politics. The first, in Rutherglen and Hamilton West, on the outskirts of Glasgow, shows that Labour is at last breaking the SNP stranglehold north of the border, which resulted in Labour winning just one seat in Scotland the 2019 general election. The constituency was marginal but the swing was huge. This follows the implosion of both the SNP and the Conservatives, which had been the second party in Scotland. This is important, as Labour failure here under both Ed Miliband and Jeremy Corbyn was a critical aspect of the failure of both of these leaders. This makes winning an overall majority in the country as a whole much easier, both directly and indirectly, as the prospect of the SNP holding the balance of power has been used to scare English voters into voting Conservative.

The second by election was in Tamworth, in the West Midlands. This seat shared characteristics with the “red wall” seats that used to be Labour, but which have been swinging to the Conservatives since 2010, and especially in 2019 – and which voted heavily for Brexit. In this case the Conservatives first won it in 2010 and improved their margin in each of the elections in 2015, 2017 and 2019 (even in 2017 when the national swing was against them). Labour’s success here is a sign that Labour is at last reversing this trend; even if it can’t back to 2010 in a general election, pre-2019 will bring in plenty of seats.

The third seat was Mid-Bedfordshire which is altogether more middle-class, and a classic, largely-rural safe Conservative seat that they have always held. What was particularly interesting this time was that the Liberal Democrats fancied their chances here, after their four spectacular by election victories this parliament, including two from third behind Labour, as in this seat. The argument was that many voters might contemplate voting Lib Dem but would never consider Labour. The Lib Dems put in a massive effort on the ground. But Labour’s success in the safe Tory seat of Selby suggested to them that they could win here, putting the Lib Dems in their place. And so it proved. Apart from the battle with the Tories, this was a trial of strength against the vaunted Lib Dem by election machine. Labour won.

Labour can’t win just by reinstating their red wall losses, even back to 2010, or recovering the seats lost in Scotland in 2015 – they lost in 2010 after all. But progress in Mid-Bedforshire and Selby show that they are making ground everywhere except, perhaps, in a few areas where the Lib Dems are already well-established, and London which they already dominate. By contrast their failure in Uxbridge, on the same day as Selby, and which the Conservatives and their supporting commentariat took to be a sign of hope, is an outlier. It is a London seat and London is the one area where the party had progressed since 2010.

All this brings to mind the build-up to the 1997 general election, and Mr Blair’s landslide victory for Labour, when Labour was similarly winning across a broad front. Then too, the Conservatives clutched at every available straw; they talked of creating “clear blue water” between themselves and Labour, much as they do now, without using those words. The Conservative prime minister was John Major, and his advisers kept saying that “the darkest hour is just before the dawn,” oblivious to actual cycle of light (the darkest hour is midnight). Meanwhile Labour shadowed Conservative fiscal plans in order to head off fears about extra taxes – and generally tempered its radicalism. I recently heard a claim that Labour promoted radical policies before 1997, and so should not fear doing so again. This is nonsense: any radicalism was confined to constitutional policies that were popular amongst key minorities, and few others cared much about. There were no promises on country-wide electoral reform or English devolution, and radical increases in spending on the NHS, for example, did not come until Labour’s next term.

But there are differences between now and 1996, and they are interesting. Then Mr Blair was putting most of his energy into winning over liberals. He had an unwritten pact with the Lib Dem leader Paddy Ashdown, but it was a scary time to be a Lib Dem – what was the point when Labour seemed so interested in liberal ideas – promoting education, Scottish devolution, freedom of information – and even some signs of flexibility on electoral reform? Sir Keir is not interested in any of this – except with the adoption of a green agenda, though he is hedging even on that. The Tories have alienated liberals so thoroughly that he doesn’t have to try to win them over. Instead, he is focusing on Brexit-supporting working class and lower middle-class voters, which Mr Blair did not completely neglect (his law-and-order policies were designed to appeal to them), but treated secondary. Sir Keir dead-bats the endless culture war provocations that the Tories throw at him and drives home his message on chaotic state of public services, important to this group. Sir Keir’s uncharismatic style seems calculated to reassure, compared to Mr Blair’s slippery charisma.

Of course, Labour’s strength largely reflects the Conservatives’ weakness. And yet there is little they can do to correct that. Their attempts to imitate the US Republicans with nativist and culturally conservative causes, and rowing back on green policies, seem to have little traction with their key audience, while alienating middle-class liberals, who have been a key part of their electoral coalition. Perhaps their best hope is to stoke up fears of tax rises under a Labour government. But the dire state of public services has probably reconciled most people to higher taxes, and the Conservatives have shredded their reputation for competent management. Even those who think the prime minister Rishi Sunak is competent, will not think the same of most of his colleagues, and will have noted how often the party ditches its leaders.

Big swings can happen in a short space of time. A notable case was in 2017 when Theresa May lost a commanding lead over Labour in weeks. But that was a snap election when neither side was prepared, and Mrs May compounded it by trying to capitalise on her lead by putting risky policies in the party manifesto. Most people expect the Conservatives to close the gap a little, leaving Labour with a small majority or just short. But a complete Tory meltdown is also on the cards, such is the party’s weak credibility and penchant for self-destruction.

There are legitimate questions over Sir Keir’s policies. His talk of making public services work better through reform, and not by radically increasing funding, is just not credible. Furthermore, the public finances are looking weak. High inflation means a tight monetary policy. The country still depends on funding from foreigners, and yet the funding environment is getting much more difficult. Promising to fill this gap by growing the economy lacks credibility too, given the headwinds of demography, the retreat on open trade, and the rise of low-productivity services.

But whatever the doubts, Sir Keir Starmer is offering a much more convincing alternative government to the Conservatives, and there seems to be nothing the latter can do about it.

Tax reform must be properly thought through before going to the country

Oh dear! The New Statesman magazine is returning from its summer break with what it obviously hopes to be a major piece by Harry Lambert, its editor, to challenge Labour Party policy. Mr Lambert shows his credentials as a journalist with extensive reportage. But there is nothing here that anybody who wants to seriously understand tax and the economy to get their teeth into – it is the intellectual equivalent of ultra-processed food. Your taste buds might be excited but it is not nutritious fare. To be fair, it’s not immediately apparent that either the Labour leader, Sir Keir Starmer, or the Shadow Chancellor, Rachel Reeves, are seriously interested in economics – and these are the people the article sees to influence. But the pair are very much interested in hard politics, and the article fares no better in that department.

The article reinforces my suspicion of anything in a journal billed as a “long read”. I’ve noticed a propensity to do this both in The Guardian and the Financial Times. I take this as a warning to stay clear, to avoid articles that aren’t properly edited and waste a lot of reading time*. Mr Lambert’s article was not billed as a long read, but it should have been – there is a mass of verbiage, which you have to wade through before you come to his three policy proposals, and even these aren’t stated succinctly. These proposals are: to replace Council Tax with a 0.5% tax on property values (covering just domestic property, as far as I can see); applying National Insurance to property rental income; and raising the rate of Capital Gains Tax. These, he estimates would raise £28 billion a year (though the property tax reform would be revenue-neutral): not coincidentally the amount of Labour’s proposal for spending on the green energy transition, which they are now backtracking from. More sensibly he suggests that the extra revenue is used to reduce tax on work (income tax, or better still, National Insurance).

I will start by reflecting on the overview, which is summarised by this statement:

In order to spend money in government the party will need to raise it. There is a very good way to do that. It is to shift the tax burden away from labour and on to capital, away from work and on to wealth.
Harry Lambert, New Statesman 30 August 2023

There are two words of warning on this. The first is that the words “wealth” and “capital” are treated as synonyms (as are “labour” and “work” more justifiably). They can be, but when talking about economics they are different things. Capital refers to the assets tied up by businesses in order to be able to operate: premises, machinery, working capital and so on. By and large it isn’t a good idea to tax this directly, as it would reduce investment. Taxes on profits generated by the capital before it is distributed to owners – such as corporation tax – is another matter. This is in effect a tax on capital, but a very efficient one. It is one of the few things that the Prime Minister and Chancellor Rishi Sunak has insisted on raising, in contrast to his predecessor as Chancellor, George Osborne. Wealth, on the other hand, is owned by individuals for their disposal. The proposed property tax is a tax on wealth, not capital, unless it is applied to businesses too. That applies to Capital Gains Tax too (demonstrating that the word “capital” has yet another nuance when applied to taxes). Where the proposed extra tax on property rent sits is ambiguous.

The second word of caution comes from Modern Monetary Theory (MMT). This way of looking at things seems to be currently out of fashion, but I think that it captures many economic realties quite well. Supporters of MMT suggest that the main purpose of taxes is to manage demand in the economy, to prevent excess demand leading to inflation. It isn’t to manage the national debt, which can be paid off by creating money – if that is under national control, as it is in the UK. MMT was popular on the left once because it was suggested that the country could expand public spending without raising taxes, because inflation was dormant. Alas the excess spending across the Covid pandemic has led to inflation, showing that the inflation constraint is a real one, even if the national debt wasn’t – though to be fair that is also because the pandemic and other factors, such as the Ukraine war, constrained supply. The problem is that taxes on “work” (or spending, such as Value Added Tax) are much more effective at this demand management job than are taxes on wealth, as the wealthy spend a much lower proportion of their assets on consumption. So taxing more on wealth to tax less on incomes is in practice a much trickier exercise than it might first appear. Which is not to say that there aren’t good reasons to tax wealth, of course. It is good for managing the national debt (which is harder some supporters of MMT appear to think) , but much less so for funding increases in public spending.

But the main problem with Mr Lambert’s proposals is that they clearly haven’t been thought through. The country is surely sick of half-baked policies that turn out to be nightmares (Brexit, NHS reform – don’t even mention Liz Truss). The new property tax and the tax on rental income are radical changes which raise a lot of important questions of detail. Council Tax may be awful, but it contains a warning. There has not been a revaluation of the tax since it was introduced 30 years ago because of the political and logistical difficulties. How are property valuations to be determined and maintained? Then there are other questions: how would business assets be treated? Wouldn’t it be better to tax land values instead (there is a long history of advocacy of Land Value Tax)? And tax on rental income? What about properties owned by companies? And what would be the impact on rents and the availability of property to let? Mr Lambert can point to no major piece of research that tackles the details.

The fuzziness of such details would make the policies very easy to attack should Labour try to adopt them – and in fact they would take years to design and implement. The best way for the Labour leadership to take them forward is to propose them after they take power, as part of a comprehensive review of taxes to make the system fairer, and use the full resources of government to design them – and then put them to the country in the election after next. Meanwhile they wouldn’t need to even put the idea into their manifesto. Raising tax on capital gains is another matter – this has gone up and down periodically, and could be done relatively easily. And it would be not at all surprising if Labour did this in government. But there’s no need to highlight it now.

Which brings us to the high politics. Alas opinion polling on subjects like this that are not a matter of intense national debate are nearly useless. I can draw a parallel with electoral reform. In polls most people supported the idea: until a referendum in 2011 made it politically contested, when it was crushed. The political problems is as ever, is what people are now starting to once again call the petty bourgeoisie (or petit bourgeoisie if you prefer). These are self-employed people, or others who aren’t tied to major businesses or government agencies, who have the idea that they have made their own way in life with little help from government. They are electorally decisive but sceptical of big government and taxes of any sort. The political right are absolute masters of presenting taxes on the very wealthy as attacks on this group. This is why the Labour leadership are treading so carefully on tax. They think they are going far enough already by proposing changes to the taxation of private schools and non-domiciled taxpayers.

Harry Lambert’s ideas just aren’t ready to present to the electorate. That is the reason that the Labour leadership will ignore them – and wait until they have the resources of government to develop them.

*Readers might consider this cheeky as my own articles aren’t short by journalistic standards – but I don’t like things very short either!

Anti-Tory pacts – lessons from Wealden

Analysis: Matthew Green thinkingliberal.co.uk

Such is the paradox of the information age. Massive amounts of information from across the globe is at our fingertips, and we can now use AI tools to retrieve it with startling efficiency. But news reporting, especially local news reporting, has collapsed – so many, many interesting things are liable to escape our attention because they will never get into to the accessible database. There has been a wealth of reporting on last week’s local election results in England. But many interesting, and important, local stories remain unremarked. Such is the case in my local area, with the district council elections of Wealden in East Sussex – and arbitrary bureaucratic agglomeration of villages and small towns, whose main centres are Uckfield, Hailsham and Crowborough, each of roughly equal size.

The first point to make about this is that I wasn’t involved in these elections, in spite of being a party member. I haven’t talked to any of the actors since long before the campaign started. My reporting is based simply on the results published by the council. I hope to find out more later – but I’m not minded to harass exhausted newly-elected councillors who have important decisions to make about running the council. I’m a blogger, not a journalist.

It was the first British public election since 1979 in which I did not vote for the Liberal Democrats, or one its predecessor parties. That was because they did not field a candidate in my ward. There were only three candidates: a Conservative, a Green and an independent who did not put up much of a visible campaign. I voted for the Green candidate, Christina Coleman, who won with 64% of the vote against the Conservative incumbent councillor, Roy Galley, who had won in 2019 with 59% of the vote, against just a Green candidate. Ms Coleman increased the Green vote from 523 to 1,107, while Mr Galley’s vote sunk to 545 from 749. As I searched through the results, I found that this outcome was not untypical. The Conservatives contested wards opposed by typically only one other party. And they lost badly, sinking from 34 councillors (out of 45) to just 9, behind both the Lib Dems (13) and Greens (11). This was a shocking result in a part of the Blue Wall that is so blue that most people don’t regard it as politically competitive. This bespeaks serious trouble for the Conservatives. It is hard to exaggerate the degree of disgust with the party amongst most of my neighbours, whom I would describe mostly liberal conservatives. One Conservative inclined neighbour is even more unforgiving of the Liz Truss episode than I am.

But that is unremarkable. It has been picked up by the main media commentary. What is remarkable was the degree of cooperation amongst the Conservatives’ opponents, and how well this worked. To put a bit of substance behind this story I have analysed the detailed results in the table above. This is all my own work and it’s possible the odd error has crept in. First, some basics to help understand the figures. There are 41 wards, four of which elected two councillors, and the rest just one. One was uncontested – the Conservatives were elected unopposed. The Conservatives contested all the wards except one (where an independent stood, and lost, against a Green). In the analysis I have tried to exclude candidates without serious backing or a campaign. I judged these to be independents who did not manage to gain 100 votes, and minor parties (though in one ward there was a Reform UK candidate, and in a another a pair of Ukippers, all of whom received over 100 votes); I have left in all of the Labour candidates, although one failed to reach 100.

The Lib Dems put up 23 candidates, doubtless so that they could claim that they could theoretically win a majority on their own. But they were opposed by the Greens in only three cases, and Labour in one, with “serious” independents in four. Eleven of the Lib Dem candidates faced no other serious opponent than the Conservatives; they were all elected – but only two others were. The Greens put up only 14 candidates – nine of these faced only one serious opponent (well, 10 if you exclude a weakly supported Labour candidate) – all (ten) of these were elected, along with one other. Three Labour candidates out of 11 were given a clear run against Conservative candidates; none were elected. Two Labour candidates were elected in three-cornered battles with Conservatives and independents (including a split result in a two member ward) – their first councillors in the district. The independents are by their nature not a coherent party, so the analysis means less – but their 18 serious candidates were involved in only four straight fights – three against the Conservatives (which they all won) and the lost fight with a Green. There were 13 three or four cornered contests: the Conservatives won six of their councillors here. These six, the two straight fights with Labour and the one uncontested ward were all the councillors they won. They won no contest in a straight fight with Lib Dems, Green or Independents. In two case of the more complex contests, the Conservatives prevailed with under 40% of the vote. In only three cases Greens and Lib Dems ran candidates against each other – the Conservatives won in two of them (with under half the vote), with the Greens winning the third comfortably with the worst Lib Dem performance of the day.

So far as I know there were no formal pacts – if there had been, the picture would have been a bit tidier. But cooperation is evident, and, as a device for winning against Conservatives, it proved highly effective – but less effective where Labour were putting up the candidate. How far can we extend the conclusions to a general election? Local and national elections are different – but the main problem for the Tories in Wealden was their unpopularity at national level. Their Wealden administration is not particularly unpopular, though no especially popular either. This suggests to me that an electoral pact between the Greens and the Lib Dems could turn some seats in the Blue Wall unless the government can seriously scare voters about the prospect of a Labour-led government. Wealden borough closely corresponds to a parliamentary seat, also called Wealden, which is very safely for the Conservatives (the Lib Dems edging ahead of Labour into a distant second) – but this all changes when new parliamentary boundaries come in. Such a pact would follow one made in 2019, but could be much more effective if voters are less scared of Sir Keir Starmer as Labour leader than Jeremy Corbyn.

But it would be very hard to bring Labour into such a pact. Many former Conservative voters will vote for the Lib Dems or Greens (somewhat ironically since the Greens are closer to Corbyn’s Labour than Starmer’s), but draw the line at voting Labour. So there is much less in such a deal for Labour than the other parties, and it would be a major distraction from Labour’s main campaigning focus. Also Sir Keir is setting his face against electoral reform (which would be another distraction for him), which reduces the attraction of Labour to Lib Dems and Greens.

In the right circumstances electoral pacts work. Given the severe distortions imposed by the current electoral system I would have no qualms about my party entering into such a pact.

Dominic Raab and Diane Abbott shine light into some dark spaces

Politicians have to navigate two worlds: that of politically correct official policy and the respectable disagreements with it, and the world of their committed supporters where more extreme views are common currency. This happens in all parties. Liberal politicians have to restrain and suppress views on such topics as Brexit and immigration, for example. This does not stop politically incorrect views being widely disseminated in mainstream media, of course, but politicians must be very wary of publicly supporting any such views. Two episodes which broke over the weekend illustrate this.

The first was that of Dominic Raab, who resigned as deputy prime minister and Justice Secretary, after a report into accusations of inappropriate behaviour – bullying – in the management of civil servants, which upheld some of them. Mr Raab came out swinging: he suggested that the threshold set for bullying was set too low, and would make the task of ministers implementing their promises to electors impossible. He also suggested that some civil servants were undermining the government because they disagreed with its policies. These complaints were taken up by parts of the press, notably The Telegraph. It was soon being suggested that the complaints were orchestrated in order to remove a politically contentious but hard-working minister – and that others would receive the same treatment.

The prime minister has remained silent on the issue; opposition parties have piled in to condemn Mr Raab, with the Liberal Democrats even suggesting that he resign as an MP. On the face of it, Mr Raab’s arguments are hard to sustain. Most of the specific complaints made by civil servants (six out of eight) were not upheld – but there were two examples that the report’s author, employment lawyer Adam Tolley, viewed as too extreme. It would be easier to accept Mr Raab’s assertion if all the complaints had been upheld. The bar Mr Raab seems to want is high indeed – physical intimidation. Others point out that Mr Raab’s record of achievement in office is weak, compared to others with similar politics. I have spent many years in a professional management environment and have no sympathy with what Mr Raab is suggesting. There are good and bad ways of getting the people you work with to do what you want; Mr Raab clearly opted for the bad far too often. I am pretty obsessive about fonts and formatting (apparently one of the issues that Mr Raab complained about) – but as a manager I just had to let go, as the topic didn’t matter all that much in the end.

Still, Mr Raab is getting a sympathetic hearing in many places, and not just The Telegraph. But this is not politically mainstream. One survey suggests that most people claim to have experienced bullying by their superiors at work. I have worried that bullying behaviour by managers is so commonly portrayed in television and film dramas that people think it is how management is done – but this is doubtless trumped by direct personal experience, where people meet good management technique as well as bad. The FT’s Stephen Bush suggests that political careers tend not to provide such exposure to good management practice, though, and perhaps that is why politicians so often fall into Mr Raab’s trap. It is easier to see how the idea of the civil service undermining government policy has currency, though. The idea of a civil service “blob” is popular amongst conservatives; doubtless socialists who have made it as far as government office feel similarly. Passive-aggressive behaviours are common in all organisations, though, and the more radical your ideas are, the more of it you will get – as I know full well from direct experience. It is something competent managers develop techniques to manage, and less competent ones get paranoid about. But such conspiracy theories are the currency of activists and not the political mainstream.

Diane Abbott’s case is perhaps a bit more interesting. Ms Abbott is a long-standing Labour MP, elected in 1987, as the first black woman elected to parliament. While she can be a bit eccentric, she is clearly an intelligent person, and one who has suffered mountains of misogynistic and racial abuse. Her problems arose from a letter to The Observer newspaper, in response to this article by Tomiwa Owolade. It is worth getting the context of this episode right. Mr Owolade led off with this anecdote:

I was a sixth-form student and talking to a girl who told me with utter confidence that “white people can’t be victims of racism”. Racism is about power and privilege. White people have power and privilege. Black people and Asians don’t. This means that only the latter group can be victims of racism; racism is the exercise of power and privilege against people of colour.
Tomiwa Owolade, The Observer 15 April 2023

He describes how at first he accepted this point of view, but that he came to reject it: life is much more complicated than that (‘not black and white” as the title to the article has it). In evidence he discussed a recent survey of people’s experiences of racist abuse. This found that both Jews and Irish Travellers, people often defined by black people as “white”, were more likely to experience such abuse than black or Asian people. The survey even found that white Irish people suffered more racial abuse than black Africans or Asians. He also pondered the fact that in the survey most black and Asian people did not claim to have experienced racial abuse at all. Of course a survey such as this is not conclusive evidence by itself, and actual experience of abuse is only one explanation of the way people answer such questions: but it is clear that Jewish people, and especially Irish Travellers, experience a lot of abuse.

This was, apparently, too much for Ms Abbott, who clearly agreed with the girl in Mr Owolade’s anecdote, and defines Jews, Travellers and Irish as white. She has since withdrawn the letter (and apologised for its content which she described as an early draft sent by accident), and I haven’t found a version of the full text to link to. These are the sentences that have been most widely quoted:

It is true that many types of white people with points of difference, such as redheads, can experience this prejudice. But they are not all their lives subject to racism. In pre-civil rights America, Irish people, Jewish people and Travellers were not required to sit at the back of the bus. In apartheid South Africa, these groups were allowed to vote. And at the height of slavery, there were no white-seeming people manacled on the slave ships.

I hope I don’t need to point out that highly selective nature of Ms Abbott’s historical examples (Jews and Gypsies sent to death camps in Europe; British ruling classes shrugging off mass starvation during the Irish famine, and so on): her words clearly reflect common talking points amongst certain groups of political activists – and I do understand why black people in particular are reluctant to accept terms of reference set by a white-dominated establishment. But in the wider political context such ideas are incendiary – and much more politically incorrect that Mr Raab’s views on what constitutes bullying. The Labour Party is just emerging from a very damaging row about antisemitism – which the leadership of Jeremy Corbyn was accused of not doing enough to combat. Mr Corbyn’s line was different to this one though – he suggested that antisemitism was just another form of racism, and didn’t merit special treatment. But Ms Abbott’s letter suggests that antisemitism is on a par with prejudice against redheads. She was immediately suspended pending investigation. It is hard to understand how such an experienced politician allowed such a letter to go out under their name – and very hard to see how she can come back from it.

Alas a sensible debate on racism and antisemitism is impossible to have in the current political climate. Pretty much any view is going to create offence somewhere – and spark accusations of some form of racism or denial. Nuance is crushed as every scrap of evidence is mobilised to support one or other fixed view. It is clearly is a complicated issue, but no respectable politician can afford to challenge the conventional wisdom. I rarely discuss it on my blog, since the risk of my remarks being misinterpreted and misused is so high.

Still some writers, such as Mr Owolade (who writes for the New Statesman) do try to explore the nuance. Perhaps one day we can move on. At least with workplace bullying and the role of the civil service we can have a bit more of an open debate.

The moral high ground is not good politics

An earlier example of low political advertising from the 2016 referendum campaign (c) Vote Leave

Labour’s national campaign HQ must be beside themselves with glee. They put out an online advert claiming that the prime minister, Rishi Sunak, wants sex offenders to roam free rather than spend time in prison. This dominated the news agenda over the whole four-day bank holiday weekend, with the party leader, Sir Keir Starmer doubling down with an article in the Daily Mail on Monday. Many (probably most) of their party’s loyal supporters were unimpressed with this descent into gutter politics. The Guardian‘s Marina Hyde was vicious in her criticism. But that only served to stir the pot some more. This has all the hallmarks of an orchestrated campaign, and in its own terms it was an outstanding success.

I’m not repeating the ad here, as it has benefited enough from extra exposure by critics and neutrals. Instead I give an earlier example of this type of campaign advertising – this time from Vote Leave in the 2016 referendum campaign. Turkey was, and still is, a candidate country to join the European Union, so Vote Leave could claim some tangential factual accuracy. But there was no actual prospect of its application succeeding, and Britain could have vetoed its accession anyway (though, to be fair, the British government wasn’t inclined to, unlike the government of France and several others). But the ad played to fears of a new wave of immigrants under the EU’s freedom of movement rules – and olive-skinned Muslims at that. The Labour ad’s facts are just as tangential, and it is even more fundamentally untrue. But the Vote Leave ad was regarded as a big success, for all the furore (in fact partly because of it), and so the political professionals seek to emulate it. These professionals have Sir Keir’s ear and they are doubtless very pleased with themselves.

The aim of the ad isn’t to persuade people that Mr Sunak actually thinks that child sex offenders shouldn’t go to prison, or even to persuade people that Labour would be much different. It is to neutralise Conservative attempts to paint Labour as soft on crime. It draws attention to the government’s generally dismal record on public services, which certainly includes the police and the courts, to point out that Tory claims on law and order don’t add up to much. If readers cynically shrug and say “They’re all the same”, then the ad will have done its work. Complaints by liberal types only go to show that the Labour leadership is made of different stuff. Indeed to be complained about by Guardian readers is a badge of honour that the leadership of both main parties seek as free and welcome publicity. This is utterly depressing for people on the left of politics.

Some are suggesting that this tack by Labour might backfire, though. The New Statesman reports one Labour adviser as saying “…it won’t work because we won’t win from the gutter – our biggest problem is not failing to attack Rishi, it’s lacking a positive alternative vision – and because dredging up past records won’t end well for Keir. The Tories will go to town with his DPP record.” But that is to misunderstand the strategy. Labour is defending a very healthy poll lead; all it needs to do is prevent the Tories from changing people’s minds, and either staying at home or voting for Labour as the lesser evil. The party will doubtless throw in abundant positive stuff about green growth and so on later in the campaign. But for now they are more worried about Tory negative campaigning and feel that the best way of neutralising this is in negative campaigns of their own. The Tories are going to go to town on Sir Keir’s record as Director of Public Prosecutions anyway.

Another worry for some is that Labour ranks are divided about these tactics, right up to shadow cabinet level. Yvette Cooper, the Shadow Home Secretary, is being briefed against, and is keeping her head down. Instead Labour fielded Emily Thornberry, the shadow attorney general, for media interviews as she evidently wants Ms Cooper’s job. I’m not sure this matters too much if Sir Keir is clearly in charge. Ms Cooper will go quietly out of loyalty – a pity because she probably has more of the sort of administrative competence that Labour will need badly once in power.

And, of course, Labour have no convincing solution to Britain’s law and order crisis without promising more public spending, which they won’t do for fear of Tory attacks on tax rises. Ms Thornberry collapsed spectacularly when pressed on this by her BBC interviewer on the World at One radio programme on Monday; “We’re optimists,” was the best she could do. No marks to the BBC for tamely following Labour’s manipulation of the news agenda, but full marks for its challenging Ms Thornberry robustly. But Labour seem to have got away with it.

Taking the moral high ground is not a successful political strategy. Nothing attracts sneering political and media criticism more. The Lib Dem leader Nick Clegg tried it in the 2010 general election; it generated a brief spurt of popularity, but ultimately turned him into the most hated person in British politics. Jeremy Corbyn, Sir Keir’s predecessor as Labour leader also tried it. This brought him some success in the 2017 general election, against Theresa May, a slightly more scrupulous Conservative leader. But against the entirely unscrupulous Boris Johnson Mr Cornbyn fared hardly better than Mr Clegg. Sir Keir seems to have flirted with the high ground (as Ms Hyde pointed out in her Guardian article), but has wisely decided against it.

It is possible to overdo the negative. The Conservatives are widely thought to have done this with their attacks on Tony Blair in 1997, though these were particularly inept. But this seems hard to do. Britain’s electoral system makes this worse: it encourages a focus on small groups of swing voters, where persuading the other side’s supporters to stay at home is part of the game. Loyal supporters provide campaigners and foot soldiers, but are ignored otherwise. Labour’s grassroots are repeatedly being trodden underfoot by their leadership, and may be unwilling to put much effort into the political ground campaign. Doubtless Labour’s strategists feel they are dispensable – and that enough of them will seek the tribal reward for beating the Tories (and Lib Dems) to do what is needed.

Are we condemned to this sort of politics forever? The public may hate high-minded politicians even more than the regular low-life, but they don’t like politicians generally. If Labour flounders in government, this could generate a backlash against politics generally. If this could be channelled into political reform (with the country’s flirtation with populism evidently exhausted by the Brexit saga), and electoral reform in particular, this might lead somewhere. This did happen in New Zealand in the 1990s. But I wouldn’t bet on it.

Tax and immigration will be the key issues between Labour and the Conservatives

After Jeremy Corbyn, Boris Johnson and Liz Truss, and the post-2017 version of Theresa May, most Britons have been yearning for a time when their main party leaders were ordinary competent politicians. But now Sir Keir Starmer has taken over the Labour Party and Rishi Sunak the Tories, that day has come. Both men had less political experience than their leadership positions normally warrant, and accordingly had uncertain starts, but now both are now hitting their stride. It promises to be a fascinating, if unedifying, contest, at least for those who follow politics as a spectator sport without worrying too much for the consequences for the country.

Sir Keir matured first. Indeed earlier this year he decided that he had to hammer Mr Sunak’s apparent weakness as hard as he could. I was uncomfortable with this: it didn’t matter to Sir Keir whether the attacks were well grounded or not – he ruthlessly went for the man rather than the policy. It seems unpatriotic to keep undermining your country’s prime minister just for the hell of it. But that’s politics – Mr Sunak would not hesitate to do the same if the roles were reversed.

Mr Sunak has survived this, and it is Sir Kier who has lost momentum as a result. The turning point came with his renegotiation of the Northern Ireland Protocol that had been spoiling relations with the European Union. This was a thoroughly competent piece of statecraft that moved things along. Few doubted that this deal was the best that Britain could get – and opponents seemed to be the sort that did not really want resolution at all. Better still, Mr Sunak was successful in selling this to his own party. Only 22 MPs voted against it in parliament – with many formerly troublesome Eurosceptics lining up behind Mr Sunak. That both Mr Johnson and Ms Truss were amongst those 22 underlined just how little threat his predecessors now pose. The deal has not convinced the Democratic Unionist Party to rejoin the Stormont government – but most observers thought that nothing was going to pass that test that would not cause even bigger problems in the province. In UK terms the DUP is very isolated.

That’s a good start. Mr Sunak had earlier set out five priority areas for his administration: inflation, NHS waiting lists, growth, national debt and “small boats” – the influx of illegal migrants across the Channel. It was widely assumed that his specific pledges on these issues were designed to be easy to pass – but with the economy poised on an awkward knife-edge, this should not be assumed. He needs to do two things if he is to a reasonable chance of winning the next general election, widely assumed to be in the autumn of 2024. The first is to win back the Brexit-voting, conservative working class and lower middle class voters that flocked to the party in 2019 – many of these are telling pollsters that they will abstain or vote for a protest party such as Reform UK. To these he needs to show that he is true to the Brexit vision, and especially on immigration; these voters, who tend to be older and retired, may be not so sensitive to the economy, but they are sensitive to the NHS and crime. The second thing is to win back or win over Labour- and Liberal Democrats-inclined floating voters with a less conservative political outlook, who generally voted Remain, but who were put off by Labour under Mr Corbyn. For these voters a display of competence is critical.

Sir Keir Starmer starts ahead, with substantial poll leads, following the Johnson and Truss fiascos. He may also have had a stroke of luck in Scotland. Scottish seats used to be critical to Labour’s success, but the party was wiped out there by the SNP in 2015, and then they struggled against resurgent Conservatives. But now the SNP seems to be imploding after Nicola Sturgeon’s resignation as leader. To watchers from south of the border this episode has all the hallmarks of a bloodletting and collapse after a long period of imposed stability – all Britain’s main parties experience this from time to time. Things are always a bit different in Scotland. Pro-independence voters don’t have many convincing alternatives – Alba and the Greens each have issues of their own. But the case for independence will have taken a temporary knock, and Labour is prevailing over the Conservatives in the anti-independence camp, with a stronger appeal to independence-waverers. A resurgence by Labour there would be doubly good news for Sir Keir. It makes winning an overall majority in the UK much easier for him, and it reduces the risk of the SNP holding the balance of power in a hung parliament – which would be a nightmare outcome, and a prospect that might scare the voters too. But for all this lead, Sir Keir knows that a lot can go wrong, and that the electoral system is in many ways tilted against him.

A lot of how the battle will play out is obvious. Labour will attack the government for incompetence on just about any issue that comes up, regardless of how justified the complaint may be. The Conservatives try to divert the blame onto world events and cast doubts on Labour as being soft lefties. Most of this be just noise to voters and unlikely to change minds. Beyond this I think there are two issues where voters’ are more open, and which could cause a shift in balance between the parties: tax and immigration.

Tax-and-spend arguments are as close as we’ll get to a debate over economic strategy. We will not get any kind of sensible discussion of economics, of course – even though there is an interesting debate to be had between the parties. Labour’s approach tends to focus on macro-economic policy. The priorities for them are ensuring that aggregate demand is sufficient to ensure low unemployment and decent bargaining conditions for workers, and getting decent headline figures for investment. The Tories rather focus on microeconomics – the idea that prosperity must be based on the efficiency of businesses and public agencies and how hard we work – where the question of incentives and competition loom large. Instead of that, the Conservatives will accuse Labour of wanting to dramatically increase public spending, leading to higher taxes and a less productive economy. They remember fondly John Major’s success with the “Tax Bombshell” campaign in the last week or so of the 1992 general election, when fortunes suddenly turned in their favour. The problem for Labour is that almost all public services are crying out for more spending, and it is very hard not to criticise the government without suggesting a substantial increase. Which leads to the question how you pay for it. This question is dealt with as if a nation’s budget operated like a household one, which is far from how it actually works. But it is too hard to try to explain that extra public spending might simply lead to better use of the economy’s resources and higher wages, and not necessarily to higher taxes. This argument is in any case a lot shakier when inflation is taking hold, as it is now.

The obvious answer is for Labour to try and sell the idea of higher taxes in order to have more effective public services at a time when the ratio of working people is falling. The tax burden may be at a historical high as a proportion of national income, but it is still moderate by European standards. There is even polling evidence that this has majority support. But Labour still carry the scars from 1992 (and indeed 2019) when the Conservatives successfully scared many floating voters with the prospect of higher taxes. Instead they want to follow Tony Blair’s and Gordon Brown’s strategy of 1997 of promising to hold back taxes and spending – and then increase both after the second term, when people are more used to the idea of a Labour government. Meanwhile they will try to dream up a number of painless taxes on other people to pay for selected areas of higher spending – non-doms, oil companies and so on. Against this the Conservatives will try to promise that better public services can come without higher taxes; since many voters are under financial stress, they will not relish the prospect of higher taxs. The arguments of both parties are unconvincing, and it is hard to see which way the public mood will swing.

Neither party is convincing on immigration either. There is panic over the number of people trying to cross the Channel in small boats, and then claiming asylum. Actually this is a real enough problem: overall numbers may be modest by the standards of international refugee flows, but it is placing public resources under pressure, and and it is a bit of a slam-dunk for organised crime. Immigration is not a top issue for voters according to opinion polls in the way it has been in the past. But both parties know that with the chaotic situation in the Channel, it can be pushed up the agenda easily enough. Housing the refugees (and others) while their claims are processed is creating stresses right across the country. Mr Sunak knows that he needs to do two things. To motivate conservative working class voters (and a lot of conservative middle class ones come to that), he needs to promote a tough line that will be hard for Labour to follow. The second thing is that he needs to make a substantial dent in the numbers making the crossing – to demonstrate competence, and woo back more liberal floating voters, as well as convincing those conservative voter that he isn’t just grandstanding. The first of these things is going well enough. The Home Secretary makes a good hate figure for liberal types, who make all the noise that Mr Sunak needs to demonstrate his toughness. But few understand how he is going to achieve much in the way of actual results, though. The much vaunted scheme to deport migrants to Rwanda does not look remotely adequate to deal with the sort of flows that we are seeing, even after the government has bulldozed the legal objections.

The Tories can sense Labour weakness here. Sir Keir has one sensible idea – to make legal routes for refugees more accessible, and the processing quicker, and so reduce demand and the numbers having to be put up in temporary accommodation. This means increasing legal flows of refugees, which will annoy many – but it does tackle the disorderly aspect of the current situation, which is what is most dangerous. But it is a stretch to think that this will stop the flow of channel boats by itself. The incentives for people traffickers remain strong. The only thing that might work there is rapid return of the migrants to France or elsewhere in Europe. But why would the Europeans agree to that? Only a substantial change to legal routes for refugees might possibly unlock that. that would be too brave.

It is hard to discern public attitudes to immigration post Brexit. There are two competing visions. The first is the Japanese one: that any immigration disturbs the cultural identity of the country and undermines social cohesion – as well as placing stress on housing and public services. So numbers of immigrants should be kept low, and definitely reduced. Or there is the Canadian/Australian vision, which accepts the desirability of substantial flows of immigrants, including refugees (at least in the case of the Canadians) – but wants the flow to be orderly – and abhors the idea of queue-jumping by unregulated arrivals. The small boats are abhorrent to both – but there any agreement ends. Both visions seem to have substantial support, and it is hard to see which way the zeitgeist will go. Labour seem to be more clearly pitching for the Australian/Canadian position, which is popular amongst the immigrant communities themselves – while the Conservatives are trying to play both visions at once. And as with tax, it is hard to see which side will end up on top.

There is a third issue which has the potential to sway voters: the environment. This covers not just the mission to reduce carbon emissions, but also threats to the countryside through habitat loss and pollution (and especially sewage overflows). The government is under attack for competence, as well as its heart not really being in it. But Mr Sunak has left it out of his five key targets – so presumably his party’s polling shows that this is not a critical issue. Labour are making a lot of the idea of green growth – but this may be more to motivate their core supporters than to win points over the opposition.

It will be an interesting contest. My guess is that sir Keir will prevail decisively. Whenever I try to write “Sunak” my computer changes it to “sunk”; I think he is, such is the low regard his party is held in by the voters..

Sir Keir Starmer: the tortoise of British politics

Picture: Randy Browning, US Fish & Wildlife Service

Uncharismatic politicians are gaining the ascendency. In America Joe Biden bumbles away in public and looks his age, and yet his record of achievement in difficult political conditions is remarkable. In Germany, Chancellor Olaf Sholz is hardly more impressive in public, and yet his awkward three-way coalition government looks solid and is managing stresses that could hardly have been imagined when it was formed. Meanwhile in France the charismatic Emmanuel Macron is not out, but he is down. In Britain the Leader of the Opposition, the dull Sir Keir Starmer, is looking getting stronger by the day.

Sir Keir has caused a lot of frustration among Labour supporters, along with anybody that wants to see the back of the Conservative government. He seems unable to spell out a compelling vision of what Labour stands for; as a speaker he is uninspiring. But Labour’s poll ratings are sky-high, and his own public approval ratings are higher than they have ever been. These ratings may not be decisively better than those for the prime minister, Rishi Sunak, (though one recent put them on that path) but the steady upward trend is what is remarkable. Usually politicians start by sparking high hopes, and then gradually disappointing. Sir Keir is achieving the opposite.

Partly this reflects the chaos stalking the Conservative party, to which Sir Keir’s colourless Labour party presents and appealing contrast. Boris Johnson had bags of charisma, but no grip. Liz Truss lacked charisma but did communicate a clear vision effectively – but people found it detached from reality, and she could not control her parliamentary party. Mr Sunak presents a favourable contrast to these two, but he struggles to reassure voters about the state of his party, and doubts grow.

But Sir Keir’s performance has been more assured of late too. He remains extremely cautious about putting clear policy proposals out into the public domain. Instead he and his team have put out two much vaguer themes in early 2023. These build on the theme developed in 2022 of placing a high priority on environmental sustainability, and the goal of “green growth”. The first of these was developed by Sir Keir himself: when he made an attempt to hijack the Brexit slogan of “Take Back Control” to promote the idea of greater devolution to the nations and regions of the UK. This is cheeky, not least because Britain has little tradition of devolved power, so the slogan is suggesting people take back what they never had in the first place. That is forgivable because the idea is the right one: decisions need to be taken closer to the people affected by them, and people need to have a greater sense of involvement in them. Whether Labour proposals will actually deliver much that is worthwhile is open to doubt. The party has a tradition of being highly centralised, and Sir Keir has batted away more radical ideas like electoral reform. It is hard to think that he will go down the road of a local income tax, for example. I’m unconvinced that anybody in the Westminster ecosystem really “gets” what would be involved in the sort of reform that would make more than a minor difference. Still, the verbiage is better than nothing. It is more worrying, if unsurprising, that Labour spokespeople have not tried developing the theme since Sir Keir flew the kite in the New Year.

The second idea to be developed this year comes from the party’s health spokesman, Wes Streeting. The NHS needs radical reform, he says, not “sticking plaster solutions”. Unlike the “take back control” idea, this one has been regularly repeated by Labour since. The idea seems to be that a reformed NHS can deliver better results without requiring an “open cheque book”, as sir Keir put it. At one level this looks like muddle and nonsense. Currently the NHS is suffering an emergency as it fails to cope with demand, following a decade of under-investment; this demands urgent solutions and not reforms that will take much longer to deliver benefits. The NHS badly needs sticking plaster right now, and lots of it. And radical reform has been tried before, and the results have almost always disappointed – most recently with the coalition government’s attempt in the early 2010s. To make a real difference, some kind of open chequebook will be needed, alongside sensible reforms – including to social care. Meanwhile Mr Streeting is vague about what reforms he has in mind – beyond tearing up the contract for general practitioners (GPs) – which came as a surprise to GPs. Still, politically these words make more sense. Labour does need say something about the NHS, and not just throwing money at it. Perhaps it is the inverse to 2010. Then the Conservatives promised that there would be no radical (“top-down”) reforms to the NHS, and then promptly broke their promise by embarking on a huge reform programme. Labour are probably promising radical reform but planning to deliver sticking plaster with spin.

Tactically this is all very shrewd. My feeling is that Labour will manage to consolidate their advantage over the Conservatives, which still has a certain fragility – polls show few people making a switch between the parties, and many more former Conservatives abstaining or supporting the Reform party of radical Brexiteers. It is the race of the tortoise and the hare. The hare lacks the attention span to win.

But there is a dark side to Sir Keir’s progress. In his campaign to party members to win the leadership, he promised to stay true to the party’s broad policy agenda, developed under his predecessor, Jeremy Corbyn. He has broken this promise. according to Stephen Bush, of the Financial Times and formerly of the New Statesman, this isn’t because he was deliberately misleading. He just didn’t understand the implications of his words, and found that when the time came he was unable to keep his promise. What he said was driven by the political exigencies of the time, without having been properly thought through. This is surely true of his emerging policy agenda now. Britain’s many problems can’t be fixed except with additional public spending, and this must be done when adverse demographics, among other things, mean that there will be little economic growth. Meanwhile Britain runs a substantial current account deficit. To my rather conventional mind, this means that there will have to be higher taxes, and the sort of taxes that will crimp domestic demand – income tax, VAT and National Insurance. Whether or not this is so in theory, Ms Truss has surely shown that it is true in practice – the government needs a degree of confidence from financial markets, which like to see a degree of prudence in public finance. Sir Keir will not say this, but once in power he will surely be faced with the need to raise taxes.

Two other areas worry people about Sir Keir’s caution. One is relations with the European Union. He avoids talking about Brexit, and has set his face against rejoining the Single Market or customs union. With the electorate slowly but surely coming to view Brexit was a serious mistake, surely he has the opportunity to be bolder, while forcing the Tories to defend a sticky wicket? Actually in this case I think Sir Keir’s judgement is sound. Re-integration with the EU brings with it awkward choices, surrendering sovereignty while acquiring little influence. Besides, the EU itself will be sceptical. And though the public may be regretting Brexit, they show little appetite to reopen the debate.

The second issue is electoral reform. Labour members support this, but Sir Keir is ducking and weaving, and is committing to nothing. This is disappointing because it is hard to see the British political system changing for the better without it. British politics has got itself stuck in an awkward groove, which in effect disenfranchises most voters, contributing to a huge sense of frustration. Of course countries with other electoral systems suffer problems too – but Britain’s are deep. Sir Keir’s caution is understandable though. I suspect many Tories think that Labour adopting electoral reform would be a gift to them. It gives them a chance to change the subject from their own record, and to awake the innate conservatism of the British electorate, with all sorts of lurid stories as to what the implications of reform are. Still, I don’t think it would work for them. Maybe Labour can promise electoral reform at a local level, as part of their “take back control” agenda. That would be a worthwhile step.

None of which takes away from Sir Keir Starmer’s relentless rise. It is a striking political achievement that deserves wider recognition.

The British Left needs to moderate its obsession with austerity

I’m not reviewing this book, but title reveal the left’s attitude to austerity

As a Liberal Democrat I’m often described as being on the political left. One word shows that this is far from true: “austerity”. To people on the left, especially in Britain, this word brings up a visceral reaction. To them austerity is the quintessence of evil: the crushing of all attempts to promote the public good, perpetrated by a brutal government out to protect the interests of the rich. But to me austerity is a government policy that is often necessary – and is part of a healthy tension that keeps the state efficient. Still, I always like to understand the arguments of people I disagree with, and when I saw a link on my New Statesman email to an article by William Davies entitled Fascism’s liberal admirers, I thought I’d take look. The sub-title was Austerity is a fiction designed to uphold capitalism – and it has a dark history. The pretext (I would not call the article a review) for the was a book by Clara Mattei called The Capital Order – How economists invented austerity and paved the way to Fascism. The subheadings demonstrate what I mean about the left’s attitude.

Which is why I was expecting a lot of nonsense – and by and large that is where the article ended up. But along the way it constructed a narrative that was fr from nonsense. The book is about the rise of Fascism, and how the pre-Fascist government in Italy in the 1920s was being pressured by Britain (as a creditor nation) to adopt austerity policies. The British ruling establishment had taken on the austerity narrative after the First World War, and was delighted when the Fascists in Italy followed through with these policies after they took power. Ms Mattei’s and Mr Davies’s point is that this narrative came about as a reaction to a socialist narrative that the success of war economies showed that there was an alternative to market capitalism, with economies led by, and substantially owned by, the state. Revolution was in the air. The capitalists needed to stamp this thinking out, and they aggressively promoted pro-market policies and a rolling back of state intervention. It was not a narrative based on economic necessity, but one developed to protect vested interests. It is but a short step for Mr Davies to suggest that this is what has been happening in the 21st century, following the financial crash of 2008, and now – with the fall of the Liz Truss government. That, historically, support for austerity led capitalists to embrace Fascism shows how they will turn on democracy to protect their interests, and economics is just camouflage. The fight against austerity is the fight to preserve democracy.

There’s something in this. Pretty much all economic policy, whether capitalist, socialist or anything else, is a conspiracy of vested interests: people try to persuade the public at large that their ideas are for the public good, using any argument that they think might gain traction, spurious or otherwise. That is how large, complex societies get anything done. Truth is incidental. And, though I’m not an expert, I think that the British ruling establishment over-reacted to the prospect of more socialist ways of working in the 1920s, and their arguments in support of the package of policies that Mr Davies calls “austerity” do not stand the test of time (though economies in the 1920s swiftly moved to growth after austerity – and it was not until the depression of the 1930s that the narrative seriously came to be questioned). After all they did something quite different after the next war, and capitalism (and wider society too) has never flourished more. It is a stretch to say that the same applies to 21st century episodes of austerity in Britain and the Eurozone, but there is a case to answer. Many of the justifications put up by the supporters of austerity policies were nonsense. So if you want to believe that austerity is always and everywhere economic nonsense promoted by self-interest, you will always find plenty of evidence. That is the insight I gained by the article. Evidence, but not proof.

The resources required to make an economy work are always limited. The bottom line is that economic policy will always be limited by resources, and that the more efficiently those resources are used, the more successful an economy will be. There are times when it pays a government to spend money to do things that are useless. Keynes wrote of getting people to dig holes and fill them in again; Hitler ramped up spending on armaments. That is when the economy is running slack and needs pump-priming. The people digging holes or making tanks spend their wages buying other things, creating a virtuous circle of job creation. Austerity is a bad idea at such times. But when the economy is running at close to capacity, or overheating (as is the case in most developed economies in 2022) then that logic disappears. If anybody, anywhere is employed doing things that don’t enhance society, it is means that the economy is running less efficiently than it should. If the government is running inefficiently, then austerity policies can be justified to cut waste, and move people from doing useless things in the public sector to being more useful in the private one. That is the basic intellectual case for austerity. And it is why governments of all economic stripes, capitalist and otherwise, will often carry out austerity policies. For example, Cuba’s socialist government after Soviet subsidies were withdrawn in the 1990s.

It goes deeper. All human organisations have a tendency to become complacent, and settle into inefficient ways of working to minimise internal conflict. In private enterprise this tendency is tempered by the need to compete, and by downturns in the business cycle. I well remember this from my work days. Things would seem to be going well, and then there would be a crisis. Savings had to be made, usually, eventually, entailing job losses. Workers were disappointed and often angry; but the overall effect of this stop-start was a more healthy, efficient and focused organisation. Some good things might be lost in the process, but that was outweighed by the reduction in waste and follies curtailed. The public sector is generally insulated from such commercial pressures, and so has an even greater tendency to become inefficient. Bouts of austerity act as a check on this, and force managers to focus on what needs to be done – though they won’t thank you for it.

But the timing is often difficult to decide. It is not always easy to tell if an economy is running slack or close to capacity. There is an argument to be had about that in Britain in the 2010s. But the real problems happen over resources transferred between countries. Economies are often sustained by using resources provided by other countries. But this creates international obligations – as well as the temptation to profligacy. If people in one country supply resources to people in another one, they do so because they expect to be repaid in some shape or form, usually profitably. If it turns out that poor economic management (or any other problem) puts the repayment in jeopardy, then the creditor countries will often insist on austerity. This is not always the right thing to do, but the basic premise that the debtor country is consuming more resources than it is producing, and needs to adjust to something more sustainable. This can be a capitalist conspiracy, but it doesn’t have to be. The politics around it get messy with truth, as usual, a casualty; creditors accuse debtors of profligacy – debtors accuse creditors of gratuitous cruelty. Some governments practice austerity simply to prevent getting into this sort of situation – the socialist president of Mexico, Andrés Manuel López Obrador, is an exemplar of this.

All this is common sense. Austerity – and this is best understood as cuts to government spending, rather than raising taxes – can simply be about the management of finite resources in a changeable environment, and doesn’t have to be ideological. So why do the British left react so violently to the idea? I’m not sure how deep the history goes. The New Labour of Tony Blair and Gordon Brown of the mid-1990s embraced austerity, but they were hardly of the left – but the left seemed happy enough to keep in tow. I think the issue originated from the coalition government of 2010. In the five or so years before this, the state payroll, direct and indirect, had expanded considerably. Many parts of the state had become very inefficient. At the time I could see this in both education (I was a school governor) and health (I was following health affairs closely, as I was looking for a job there). In both areas I could see over-complicated management structures and performance grids, and lightweight policies implemented to placate some lobbyist or other. Capital funding was tied to a bidding process that required the use of consultants on both sides. The bidding process was a matter of verbiage – the trick being to find the right trigger phrases. I read my borough’s bid for primary school expansion (which was successful), and it seemed to carefully saying nothing at all – but it was the work of many senior people, with external advice. In the NHS, funding was driven by something called “World Class Commissioning” – a vastly over-engineered superstructure designed to provide employment to consultants and middle managers. I could go on. The writing was already on the wall before Labour lost the election of 2010, as the crash put government finances under strain, but the government had been slow to apply austerity. Not so the incoming Conservative-Lib Dem coalition. They put in place a vicious programme of spending cuts. Suddenly a whole class of public sector employee found their livelihood at risk – and worse, political leaders were suggesting that their endeavours had all been a waste of time. That triggered an angry backlash. And just as the right tends to be controlled by the interests of capitalists, the left tends to be controlled by the interests of state employees.

By and large the angry people were university graduates trained to look for abstract principles to make sense of events. So instead of just protesting against the concrete adverse effects of particular cuts, they spied an abstract idea to focus their anger on: austerity. Austerity was evil; the cuts were not necessary but ideological. Many economists criticised the cuts as excessive, causing a needless recession and economic wasted resources – and this was seized on as evidence of the evils of austerity. As this line of thinking developed in the usual echo-chambers of social media and friendly journals, it morphed into the idea that austerity is always and everywhere evil. Mr Davies’s article shows how entrenched that thinking remains.

And that is a problem. The left seeks to achieve political power, and to do so democratically they must persuade people that they can be trusted. But most people’s attitude to austerity is pragmatic: sometimes it is required. Most people probably have their own hobby horse of perceived government waste that austerity could be used to sort out – though there will be no general agreement on what these actually are. A class of politicians that cannot let the idea that austerity can ever be justified pass their lips are going to find it very hard to win that trust. And yet it is more than easy to campaign convincingly against specific cuts – at a time when so many public services are wilting under pressure, and the public safety net is obviously inadequate in many places. The politically sensible thing to do is to allow for austerity in theory, but oppose it in the here and now: or to follow the example of Gordon Brown who advocated austerity in the mid 1990s, but once in power and having established public trust, launched the expansion of the British state.

The left are part of the Labour Party, but do not control it. The Labour leadership understand well enough the politics of all this. Polls show that they are maintaining credibility on economic management. The left’s obsession with austerity in the abstract undermines their political influence. Which means the advocacy of any good ideas they have is weakened. In a world when many long-held beliefs are being challenged, the left should challenge this shibboleth.

What does a high-wage economy actually mean?

Labour shortages mean that the pay of refuse workers is advancing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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