Keir Starmer’s Labour party may well win the next election. Its leadership have begun to put together a story of where Britain is going wrong, and what Labour could do instead. But without commitments on spending, the party will fail in government.
Across the world, the economic outlook is bad, with the IMF forecasting widespread recession over the next year. Food prices are continuing to rise. There are the early signs of debt crises in the global south. Climate breakdown and geopolitical tensions are adding to the instability. If last year was bad, this year is set to be worse.
However, if the picture everywhere is grim, Britain is uniquely underperforming. Britain is the only G7 country not to have recovered to pre-pandemic levels of GDP. And this failed recovery comes after a decade in which productivity growth and real incomes stagnated.
Labour, if it wins the next election, is likely to inherit an economic situation worse than that faced by any government since 1945. The contrast with 1997, as Andy Beckett has suggested, is stark: while Blair inherited a growing economy and rising living standards for most, Starmer is likely to immediately face a recession, collapsing public services, high inflation and the rising costs of climate breakdown.
The major culprit in our decline was austerity. The social damage has been immense: if the NHS is on its knees today, for example, it is not only from its own underfunding, but cuts elsewhere in the system, notably to social care. Michael Marmot’s report on healthcare after the pandemic made grimly clear just how much damage austerity had done. Life expectancy, after more than a century of improvement, has now started to stagnate.
But the impacts stretch right across the economy. The former Bank of England chief economist Andy Haldane has warned that the worsening health of the British public has become an economic drag. About half a million people have dropped out of the labour force since the spring of 2019, largely in part due to Covid. NHS and public health failures feed into economic woes.
Both Starmer and the shadow chancellor, Rachel Reeves, have committed to opposing austerity. Reeves rightly told last year’s Labour conference that it “has left our country poorer, our public services at breaking point, and our public finances in tatters”. Starmer, in his new year speech, has expanded his critique of the Tory government to include what he labelled the “Westminster system” that “hoards power” in a few hands. He has spoken of the need for “national renewal”, driven by “missions” including rapid decarbonisation – a nod towards the influence of the economist Mariana Mazzucato. The planned creation of a publicly owned renewable generator, Great British Energy, to deliver rapid decarbonisation shows some willingness to break with the neoliberal past.
Starmer is right to broaden the critique. Failure on the scale of Britain’s is about more than just a single party. Austerity is a classic case: in defiance of good economic sense, a radical programme of spending cuts from 2010 onwards was supported by almost our entire political class. Treasury civil servants drew up the plans. The Institute for Fiscal Studies justified them to the public. Our media repeated the government’s idiotic slogans. Labour, with Ed Balls as shadow chancellor, fell into line. And the result has been a catastrophic economic and social failure.
To break with the legacy of failure, however, will require increased spending, and more. Gordon Brown, after 2000, increased spending on public services, but in the absence of institutional reform, and with New Labour actively encouraging a bloated financial services sector, his public spending rises did not survive a change of government.
Labour leaderships since 2010 have identified versions of the underlying institutional failures, both in the state machine and the wider economy. Ed Miliband had “producers v predators”. Jeremy Corbyn spoke of Britain’s “rigged economy”. Corbyn’s proposed economic programme backed up this rhetoric with important institutional changes, including sectoral collective bargaining and expanded worker ownership of companies.
But if Corbyn ended up, by 2019, heavily focused on dramatic spending increases at the expense of his broader programme, Starmer has the opposite problem: focusing on a few constitutional changes and a critique of the institutions but making very few spending commitments. From the NHS to our schools, every part of the public sector needs more cash. Whatever the shadow health secretary, Wes Streeting, might hint at, there is no magic wand in the private sector that can be waved. And in conditions of profound economic failure, no longer enjoying the luxury of ultra-low borrowing costs and with the exchange rate a potential concern, spending increases will have to be met by at least some tax rises.
The grave risk to Starmer’s programme is that its institutional critique and a few worthwhile ideas will be eviscerated in government if funding is not rapidly made available for improved public services. Peter Mandelson and Ed Balls have been among those trying to talk down spending increases. But this isn’t the 1990s. The public reaction to continued austerity, especially from a Labour government, is likely to be overwhelming: in protests, strikes – and at the polls. Even governments with a healthy majority can sometimes only last a single term, as the Tories appear to be about to demonstrate. “National renewal” cannot be achieved on the cheap.
James Meadway is director of the Progressive Economy Forum
