Labour drift won’t solve UK’s two-decade sluggishness

Good morning. There were an awful lot of analyses of Labour’s first year in office in the weekend’s papers (including mine). But the most significant thing behind Labour’s difficult first year lies in something that happened under the last Labour government, which we still haven’t recovered fully from: the global financial crisis. Some thoughts on that in today’s note.

Timidity won’t work

I haven’t talked about the most important chart in British politics for a while (my thanks again to Keith Fray for designing it). Fortunately, Martin Wolf’s column today focuses on the defining fact that it illustrates: our terrible economic growth since the global financial crisis.

It is safe to say that this chart is not going to look materially different in 2027, by which point the UK will have had two decades of rubbish economic growth.

This is, in my view, the biggest reason why Labour’s first year in office has seen Keir Starmer and Rachel Reeves’ popularity in the country collapse and their internal standing within the Labour party plummet alongside it. The lack of a proper plan and their conflicting promises on public services and on tax don’t help. But everything is downstream of our two decades of low growth.

As long-term readers will know, I believe a big part of why the Conservatives were able to be re-elected in 2015, 2017 and 2019 despite the UK’s poor growth rate is that ultra-low interest rates helped a lot of us to feel wealthier than we actually were.

In opposition, Labour had never developed an account of why the Conservatives’ growth record was so bad. That has contributed to Labour’s difficulties. As I wrote in my column this weekend, the party has a pretty incoherent theory of growth that is held together by essentially just one thing: it is a list of policy priorities that won’t give Labour voters the vapours.

Now it may be that the secret to increasing the UK growth rate runs through an uneasy combination of making it more expensive to hire people, making it harder to hire people from overseas, increasing infrastructure spending, a bunch of tax rises for the wealthy, and a relationship with the EU that gets the UK closer, but not so close that any Leave voter who has backed the Labour party now or in the past gets upset. Perhaps the UK will get lucky, where the path to stronger growth just happens to align with “doing things that aren’t difficult for the Labour party”.

But you know, I doubt it. As Martin says in his column, responses to our sluggish growth have, “by and large”, largely fallen into two categories: “charlatanism and timidity”:

The charlatans pretend that something simple — Brexit or huge unfunded tax cuts — will deliver. The timid have been relatively responsible. But they have been unwilling to admit the scale of the economic and political challenges they confront and then make hard choices.

My minor quibble here is that I don’t think either category really fairly describes David Cameron, who took office with a pledge to restore growth following the financial crisis. His government had a pretty radical plan and it did successfully manage to implement some pretty deep cuts to public services. The problem is that the plan did not work, our growth remained sluggish, and discontent at those cuts helped to take the UK out of the EU.

But that is besides the point. What matters is that in the present day, as Martin says:

Keir Starmer is not a charlatan. But he has not been prepared to take on the burden of leadership that current conditions require. I sympathise. But his timidity will not work.

Part of how Labour can turn things around after its difficult first year is by recognising that, and by shaping its new approach accordingly.

Now try this

I saw Jurassic World Rebirth: I enjoyed it more than Danny Leigh while not really disagreeing with anything in his enjoyably bad-tempered review. It was not as well put together a piece of smart schlock as Jurassic Park — and not as unfussily dumb as Jurassic World. (That said, I like that the biggest area of continuity between movies is that the dinosaurs are comfortably less expensive than a top-class Premier League footballer.)

Top stories today

• Reviving Blair-era policy | Ministers have announced a £500mn scheme to help disadvantaged children that apes New Labour’s “Sure Start” centres that were set up in the early 2000s. The government is seeking to get back on the front foot after a new poll of more than 10,000 people by think-tank More In Common showed that Reform would win 290 seats if there was an election immediately, making it the largest party in a hung parliament.

• ‘Great Trust’ | The Tony Blair Institute participated in a project to develop a postwar Gaza plan that envisaged kick-starting the enclave’s economy with a “Trump Riviera” and an “Elon Musk Smart Manufacturing Zone”.

• The fate of Send | Downing Street is facing another battle following last week’s retreat on welfare reforms, as MPs, campaigners and parents voice concern at its overhaul of special needs education for children in England, the Guardian reports. Some Labour MPs warned that issues in the schools white paper (set to be published this October) such as the future of Education, Health and Care Plans could eventually cause another rebellion, while others expressed concern ministers are not across the detail of the white paper’s proposed shake-up.

• Debate continues | Neil Kinnock has suggested Labour is “willing to explore” bringing in a new wealth tax, the Telegraph (paywalled) reports. The party’s former leader said a 2 per cent tax on assets worth more than £10mn could help raise about £10bn a year for the Treasury. It reports that five trade unions including Unison and Usdaw are behind the idea — though a No 10 spokesperson declined to endorse the policy.