Speaking to Tony Blair last week, Keir Starmer was emphatic about the single biggest failure of successive Conservative governments since 2010. “If we’d grown the economy as well as you grew it in the 13 years before that,” Starmer mewled to Blair, “we’d have tens of billions to spend on public services without altering tax at all.” If only the Conservatives were better capitalists – one might paraphrase – then we wouldn’t need social democracy.
That comment underscores what has now replaced the Labour leader’s ten pledges from 2020: an approach that, in time, will likely render his more recent ‘missions’ obsolete too. Keir Starmer is promising to deliver economic growth as the next prime minister. It is all he is asking to be judged by.
Such a narrowed-down platform would be more credible if Starmer was honest, or even informed, about the reasons for Britain’s weak economic performance since 2008. The mere idea that the levels of economic expansion seen before the global financial crisis were ever possible in its aftermath is unserious. But, as is customary with political reporting in this country, Starmer’s aside received little to no scrutiny.
So, to offer context that is absent elsewhere, here’s why it was impossible for growth after 2010 to be on a par with the previous 15 years. Firstly, there is the role of the housing boom during the Blair years. Between 1997 and 2007 the average home tripled in value – and doubled relative to wages. Buy-to-let mortgages increased thirty-fold. This growth was not sustainable, as we found out in 2008. Equity withdrawal and remortgaging also added a sense of economic buoyancy to the New Labour years which was an obvious one-off. It is asinine to think this was ever permanent, or indeed a template for the future.
Then there was a wider set of conditions which prevailed from the early 1990s through to 2008 – often labelled the “great moderation” by economists. A doubling of the global labour market meant inflation was historically low, as industrial production was outsourced to developing countries and industries such as financial services, telecommunications and real estate hit new highs. Fortunately for Blair, Britain specialised in precisely these areas when he came to power. The rapid rise, and subsequent fall, of the Royal Bank of Scotland offers one snapshot of how Britain rode the wave of a global bubble (at one point it was the world’s largest bank by assets). Another example is how, by 2005, Vodafone had a higher market capitalisation than chip manufacturer Intel.
Alongside the soaring heights of the ‘new economy’ came an extraordinary wave of deindustrialisation. For the thought-leaders of Blairism such a development was positively welcome – it was evidence of Britain moving up the “global value chain”. In 1997 the country produced more cars than China. Today the latter manufactures more vehicles than the US, Germany, Japan and South Korea combined. In short, and despite the obsessive nostalgia of British liberalism, the world has changed.
Accompanying the pseudo-technocracy of the Labour leader is a desire to signal how “honest” he is to both his own membership and, by extension, the electorate. Such honesty entails promises to be “tough”, particularly on emotive issues like the two-child cap on benefits. This is partly a response to economic conditions, but it also serves a political purpose in allowing Starmer to distance himself from the purportedly delusional politics of Jeremy Corbyn and the dismal failure of Liz Truss. Those on the soft left lamenting how Starmer doesn’t understand how bad the benefit cap is as a policy just don’t get it. The whole point of publicly identifying such a sacred cow is to upset people precisely like them.
And yet, in his own way, and despite his increasingly meagre ambitions, Starmer is even more dishonest than Liz Truss – and certainly more outlandish than the apparently thriftless Corbyn and John McDonnell.
Before detailing why, it’s important to explain how Labour has adopted an almost identical position on austerity to the Tories. While there is a putative difference between Jeremy Hunt and Rachel Reeves, with the latter saying she would borrow to spend on capital investment, Labour’s commitment to reducing the national debt as a percentage of GDP over a parliament (like the Tories) means any difference is negligible.
By extension, this means there is no real difference between the two main parties on the role of the state. Forget Bidenism redux, the strategy for whatever remains of British social democracy is to hope growth will magically return and that distributional conflicts will evaporate. Under conditions of low to no growth (which has now been normal in British politics for 15 years), we essentially have a one-party state which supports austerity and certainly doesn’t believe in Keynesianism. Any points of difference now consist in how Labour and the Tories would spend the proceeds of growth.
Emblematic here is Labour’s green prosperity fund. Initially, the party had committed to spending £28bn a year, every year, as part of a massive program of green investment. Now, however, the aim is to instead “ramp up” spending so it hits £28bn in the final year of Labour’s first term.
Remember that for Labour, just like the Tories, national debt needs to fall as a percentage of GDP after five years. In other words, resources available to the fund will have to come almost entirely from economic growth. And the basis of such growth that will fund a government programme which is, comparatively speaking, arguably bigger than Biden’s Inflation Reduction Act? Reforms to planning regulations. Does anyone seriously think that some new Barrett Estates on the green belt, however welcome, will generate £28bn in extra tax receipts by 2029? Even the most plucky Foxtons estate agent would struggle to sell that.
Already the bare minimum for Starmer as a remotely progressive PM look implausible – forget about a programme of social home construction or interventions to reduce child poverty, let alone massive state-led investment in green energy. Elsewhere Labour said they would support Northern Powerhouse Rail last year (Starmer initially opposed HS2, another U-turn). Yet by their fiscal logic, which Starmer merrily promoted while talking to Blair, this will only happen if (much) higher growth generates sufficient tax revenues. As with the green prosperity fund, that is close to impossible.
It is perfectly coherent to say that Britain can’t afford a program of modest redistribution (I obviously disagree). But the idea that the state will gain the kinds of revenues Starmer is implying through merely cutting red tape – that perennial sound bite of lightweight politicians – is as absurd as anything that ever passed the lips of Liz Truss.
It’s time the liberal media levelled with the public about that – because the Labour leader certainly won’t.