It is quite common to point out the errors and embarrassments suffered by Labour in its first year back in power. But what few realise is that their huge decline in popularity may not be something worth pointing out all; the assumptions typically made by those who do are basically those – assumptions based on an unwitting kind of optimism.
People make the basic assumption that the government can, if it is clever enough, repair the problems of the country – deficits, cooling job markets, productivity, inflation outstripping wages, or anything else. Or even more optimistically, that these problems can be solved if only my party called itself the government, and never mind that we have essentially a uniparty of Conservative and Labour (the only consistent difference being that Labour will direct more public money to public sector wages). Often, policies that could have only a marginal impact on macroeconomic problems are touted as the ‘solution’.
Take green energy, which Ambrose Evans-Pritchard consistently claims will boost productivity (by, among other things, reducing costs and increasing investment in capital, in which the UK lags behind the US). The UK lags in productivity because of many things – energy costs, social infrastructure, and the huge investment put into low-productivity areas like healthcare and retail (who thinks the NHS is a driver of productivity?) compared to the US’s enviable tech and high-tech manufacturing industries, things we and other European countries have consistently proved we cannot emulate. Can green energy change those, even when, as may or may not happen, green energy becomes cheaper than fossil fuels and thereby lowers business costs? What about the most under-discussed factors, those of culture and space? Economic activity in the UK is basically in England. With planning laws, even liberalised, as Labour and Tory both wish, it is practically impossible to to build enough data centres, enough airports, enough large-scale factories and warehouses, to grow the economy and raise productivity. In reality, Labour’s plans even are to build houses, not productive facilities. Finally, how can we ever replicate America’s industriousness and go-getter culture, even if we wished to? How much of the productivity gap can be explained by the American Dream? Will changes to policy in any one area match that effect? If you can’t change through specific policy, how could the government induce people to change their culture to be more like the cultures of productive societies?
So the problem is twofold: governments don’t have the practical power to change much, and even if they did, it would be politically impossible. Labour has attempted to cut winter fuel allowance for the best-off pensioners (by means-testing by reference to benefits) and has been forced to return the benefit to more than half of those who would have lost it. This is just one of the many political roadblocks to solving the problems of the economy in Britain; pensioners make up such a large proportion of the voting public that it is politically unfeasible to reduce spending on them (recall the triple lock). Let me be clear: there is no way out of this. The proportion of the population that will be over 65 will be 23.6% by 2035 – almost one in four. Spending on pensioners will rise due to the number of them, and because their voting power will only increase. Again, a blocked way out.
The government needs to bring many of the 10 million working-age adults who are unemployed into employment. How? It cannot make these people desire to work. There is no ministry of propaganda to change people’s feelings. It cannot leave many destitute by removing benefits. It cannot feasibly reduce the out-of-work benefits of those who don’t need such amounts to survive (such as people still living in their parents’ homes), because Labour backbenchers will baulk at anything smelling of Tory cuts. When such politically and technically tricky problems arise, isn’t it easier to balance the books by taxing millionaires, something both backbenchers and voters can get behind? But this is no way out either – we know the country needs to look as attractive to wealthy foreign investors as possible, especially when Labour is in power. There is no way out.
Balance the books generally? It is simple. More and more people will need pensions and medical treatment every year. More people become old every year and more immigrants are added to the population each year, forcing the government to find more revenue each year. The government cannot find enough to cover rising costs and will not be able to. It cannot raise income tax on ordinary people substantially – voters would not stand for it. It cannot raise taxes on the highest earners much more – the highest tax bracket is 45% with no allowance and various duties on business owners have risen yet again this year. Any more and Labour and Tory alike agree that revenues are as likely to go down as up, as the wealthy flee the country. It is a bind Labour cannot get out of. It is only exacerbated by the endless tension within the party between the left and the moderates.
Reduce prices for consumers? Do it by force and alienate the markets and capital; reduce taxes on business and subsidise energy to lower business costs (possibly the biggest cost setting Britain apart from other economies) and you will have a budgetary crisis. Do nothing and voters will continue to dislike you; Labour is fourth in the Find Out Now poll. An impossible bind.
In 2024 I would have said to Labour that I wouldn’t wish victory on them for their own sakes. The Tories had problems they could not solve and Labour convinced themselves, for some reason, that they could. They had no realistic plan for doing so; I don’t believe anyone did. One must recall the practical and political difficulties with solving any problem; Labour is too left-wing to solve any problems by a right-wing approach and too right-wing to solve any problems by a left-wing approach. The Tories are in a similar position, and have even worse infighting than Labour.
Beyond politics, the demographic problem will not go away. Economic headwinds from around the world are entirely out of the control of the government; who thinks they could have prevented the post-2022 inflation, for example? What can we do in the face of the US government? Trump can do what he likes with tariffs; the Reserve can do what it likes in monetary policy; what can the British government do? How can we control energy policy when most of our energy is imported? A globalised world is one in which a government cannot control its own economy. Can divided, never-too-popular Labour stand a chance?
Nobody who won the election could survive and be popular one or two years later. The problems facing the country can be crisis-managed; they cannot be solved by any means we have now. It may sound bleak, but if you go into politics expecting your party to solve the country’s problems, I’d advise you to expect disappointment.
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