The Poverty Of Labour’s Offer

Working Assumptions

Mr Sunak’s working assumption is that there will be a general election in the UK in the second half of this year. I’m sticking to the prediction I made on New Year’s Eve that it will take place on 10 October. And the working assumption of the commentariat is that Labour will win.

Mr Hunt’s 06 March Spring Budget did nothing to bolster the Tories’ standing in the opinion polls. If anything, they have retreated to around 24 percent, with Labour consistently around 20 percentage points ahead and the Reform Party hard on their heels, eating into traditional Tory support. The political analyst Matt Goodwin reckons that the Tories have lost more than half of the people who voted for them in 2019. The Red Wall is crumbling. Psephologist Professor Sir John Curtice puts Labour’s chance of winning at 99 percent. That means that in just over six months’ time Sir Starmer will be in Ten Downing Street with Rachel Reeves his next door neighbour in Number Eleven.

Commentators of all political hues will agree that the new Labour government will face tough challenges. British economic growth has been anaemic for a decade or more now; productivity is well below that of equivalent nations such as France and Germany; the national finances have been deteriorating; an army of people – five million or more – have taken themselves out of the jobs market and are content to live on benefits while not looking for work. Inflation is falling but is still above that prevailing in Europe and America. Most people feel worse off than five years ago. The tax burden is at its highest level since the 1940s. There is a widespread sense that the nation is getting poorer.

Moreover, despite record public expenditure, public services, most visibly the National Health Service, are creaking at the seams. People cannot get doctors’ appointments; hospital waiting lists are lengthening. This week a report by The King’s Fund and the Nuffield Trust found that only one in four voters think the NHS is working well. All this amounts to a grave indictment of fourteen years of Tory rule (five of those in coalition with the Liberal Democrats). But what would Labour do to turn things around?

Inflection Point?

Last week, shadow Chancellor Rachel Reeves gave us some much anticipated detail on her prospective economic programme. She delivered the prestigious Mais lecture on 19 March to an audience of academics and business leaders – an 8,000-word oration which was later disseminated to the faithful. Ms Reeves was an economist at the Bank of England and the speech was not short of technical jargon and fashionable management speak.

Ms Reeves promised “to fashion a new economic settlement”. Her arrival in office will mark an “inflection point” for the British economy. Labour will preside over “a decade of national renewal”. She will oversee “a new chapter in British economic history”. She will initiate “a New Deal for Working People”. Supposedly, she will usher in an era of securonomics – by which I think she means that people will enjoy greater job security – to be achieved by outlawing zero hours contracts, even though a lot of semi-skilled workers (delivery drivers and so forth) actually prefer them. But how this Brave New World would be achieved was still unclear by the time Ms Reeves sat down.

What is clear, however, is that Labour does not care for Britain’s highly flexible labour market which has entailed that we experience lower levels of unemployment than other countries in times of recession. Labour will repeal all the labour laws passed since 2010 – music to the ears, no doubt, of the Party’s union paymasters. Amongst other things, Labour will scrap the right of businesses to impose probationary periods on under-performing workers. Firms will have to provide sick pay and parental leave from day one. Employees will get a statutory right to work from home. Businesses will be penalised if they fire and re-hire. Alex Baldock, the CEO of Currys PLC (who is admittedly a donor to the Conservative Party) said that such measures would make employers more hesitant to take on new staff.

Although Labour has jettisoned its commitment to spend £28 billion a year on “green investment”, it is still doubling down on the headlong rush to net zero carbon emissions. Labour is still committed to decarbonising the national grid by 2030 (the Tories want to achieve this by 2035, as do the Europeans). Most engineers think this is impossible without gravely increasing the risk of power outages – which is why most countries are building new gas turbine power plants. And those of us who are concerned about national food security resent prime agricultural land being given over to arrays of solar panels.

Ms Reeves even wants the Bank of England to play a more prominent role in the battle against climate change. (It has enough difficulty getting monetary policy right – but now it seems it has a loftier mandate). Labour will require big business to adopt policies to ensure that global temperatures do not rise more than 1.5 Celsius above pre-industrial levels. No doubt we can all now breathe a huge sigh of relief that humanity will not boil.

Despite its poor track record at economic forecasting, Ms Reeves would like to enhance the powers of the Office for Budget Responsibility (OBR). Any significant future changes to tax and expenditure will have to be subjected to its scrutiny. So, the unelected OBR would acquire an effective imprimatur over fiscal policy. Under Labour, Treasury fiscal rules (such as, I suppose, the triple lock on state retirement pensions) could not be changed without the OBR’s say-so. In this way, economic policy would be outsourced to faceless bureaucrats – and the politicians can just mutter “They made me do it” when things go pear-shaped.

Ms Reeves uttered the word “growth” 58 times during the course of her lecture. Growth, she said, would be “broad-based, inclusive and resilient”. (Cue enthusiastic applause). A new enterprise and growth unit would be placed at the heart of the Treasury. A possibly more consequential measure will be to free up the planning restrictions which the construction lobby thinks are hampering house-building and infrastructure improvements. But the devil is always in the detail. Does this mean that Labour will scrap the green belts around London and other cities? We simply don’t know. Is it easy to blame the NIMBY Tories but there are many Labour-inclined voters who care about the countryside. Significantly, Ms Reeves did not repeat a pledge made last year to make Britain the fastest-growing economy in the G-7 by the end of the decade.

The shadow Chancellor had nothing to say about the reform of our benefits system, even though the glaring weakness in our national finances is that expenditure on welfare (plus that on pensions and the NHS) has been running ahead of GDP growth for quite some time. One might conclude that Labour will inherit the Tories spending plans without demur – just as Gordon Brown did in 1997. That is probably why one does not hear gripes from the Labour side (and from the SNP) anymore about “Tory austerity”. No doubt Labour austerity will be much more humane.

It is not hard to deride the Tories for their dismal record, with six Chancellors of the Exchequer since the Brexit referendum. But the seeds of decay of the prospective Starmer government have already been sown. Ms Reeves will not be able to accommodate all the demands for greater public spending from numerous elements with the Labour Party, not least in local government. (And numerous Labour-run councils will want to be bailed out of their imminent bankruptcy). Her own fiscal rules will prevent her from borrowing more than the Tories. And besides, Labour has learnt from the humiliating demise of the Truss government that governments cannot risk unnerving the bond markets.

Therefore, any future increases in expenditure will have to be financed from higher taxes – which will nominally be imposed on “the rich” (to the extent that any “rich” people choose to remain in the UK – many wealthy people of foreign heritage are leaving already). Expect Labour to reduce tax relief of private pension contributions to the basic rate – that is a tax hike that most people will not notice (just as Gordon Brown slapped taxes on pension fund dividend receipts with significant, yet little noticed, consequences). They may also choose to align the rates of capital gains tax with income tax – with dire consequences for business owners who wish to sell up.

Class Wars

Labour’s plan to impose Value Added Tax on the school fees charged by private schools will not raise much revenue, and even that generated will be absorbed by the cost of a flight of children from the private to the state education sector. This is just a gesture of vicious class war designed to please the ultra-left. It is a betrayal of the principle established when VAT was first introduced by Ted Heath’s government in 1971 as Britain prepared to join the EEC (as the EU then was) that VAT would never be applied to not-for-profit activities. If VAT is to be applied to school fees, why not to university fees or tutors’ fees? Why not to the sales made by charity shops or the donations received by churches and mosques? It is a slippery slope. The EU forbids the imposition of VAT on postage, medicines and salaries – but a future Labour government would have no such constraint.

I spoke this week with the headmaster of a small private school in south London who is deeply concerned about this policy. This measure would put the future of cherished institutions, the last still to teach the classics, modern languages music and to cultivate sporting prowess, in doubt. England’s cathedral schools sustain a tradition of choral music which has no equivalent anywhere else. Less wealthy parents will no longer be able to afford private school fees; wealthier parents will hardly notice. Bursaries offered by private schools to brilliant and athletically-gifted but less-well-off children will decline in number. The number of Olympians produced by private schools – such as the entire Team GB rowing team in the Tokyo Olympics – will plummet. The entire policy is one of levelling down. It will do nothing to raise educational attainments in the state sector.

But even this wilfully harmful policy will not satisfy the left. The reaction of the Corbynistas to Ms Reeves’s lecture was telling. The UNITE union denounced it as insufficiently socialist. Owen Jones, the left-wing Guardian columnist, flounced out of the party altogether. Jeremy Corbyn, who no longer takes the Labour whip in the House of Commons, is apparently set to contest his Islington North seat – where he enjoys wide local support – as an independent.

Home And Abroad

Britain will be turning left at precisely the moment that Europe and America are turning right. It is highly likely that anti-immigration so-called populist parties will make gains in June’s elections to the European parliament. And I would rate Donald Trump’s chances of winning back the presidency in November at somewhat more than 50 percent. In terms of foreign policy, Labour will have few overseas friends on which to rely. The Europeans have already indicated that they do not wish to re-open negotiations on the Brexit agreements finalised in 2020. And Mr Trump will likely treat Sir Keir Starmer with disdain. The deep divisions within the Labour ranks about its attitudes to Israel will only fester. And I cannot perceive that Labour has any policy at all on how to deter illegal immigration.

As the argument about defence expenditure intensifies, given the dangerous geopolitical environment, there is no sign that Labour will grasp the nettle and ramp up spending on our armed forces. Increasingly, we live in a world where influence is determined by the size of a country’s military. Unless our armed forces are adequately manned and equipped, Britain will continue to lose influence on the world stage.

Afterword

It is spring – if a chilly one, thus far. We are on the brighter side of the equinox. The daffodils have been and gone. The Oxford-Cambridge Boat Race is upon us (though even that has been overshadowed by revelations about how stinky the River Thames has become). Christians celebrate Easter this weekend – a festival that emerged from pagan rituals around renewal and rebirth (hence the prominence of eggs). Let us make the most of the lull before the storm.