Keir Starmer’s Fantasy Economics
“I don’t dream”
Keir Starmer in interview with the Guardian, June 22nd 2024
The people of the United Kingdom can expect a political earthquake this Thursday once the polls close. The Conservative Party, having misruled the country for fourteen years, are on the verge of a historic collapse with the Labour party set to win the biggest majority in the party’s history. Yet this reversal is not reflective of any sense of widespread enthusiasm for Labour under its leader Keir Starmer. Indeed, the party is quite likely to receive a smaller share of the vote than it did under Corbyn in 2017 and, depending on the turnout, could have fewer people voting for it than it did in its disastrous 2019 defeat.
This election then, quite obviously, is more about hatred for the Tories than love for Labour. But why are Labour not more popular? The most obvious answer to this question is that Keir Starmer’s Labour have not actually opposed much of the Tory agenda. Instead, they have embraced it. As one columnist put it, “the most telling feature is that the Labour party’s fundamental criticism of the Tories is their lack of competence, rather than their policies”. As such, the Labour manifesto for this election is modest to the extreme. Headline promises include hiring thousands of new teachers, cutting NHS waiting times by increasing health spending by a mere 1.1% in real terms, and investing a few billion in a new “green prosperity plan”. Their most ambitious promise — building 1.5 million homes in England over the term of the next parliament — is offered up with very little detail as to how this would be achieved. All in all, Labour plans to increase public spending by a mere 0.2% of GDP — meaning that of all the major parties, Labour is now the most fiscally conservative.
Depressingly, the delivery of Labour’s manifesto is predicated on the questionable assumption that a Labour government would be able to increase economic growth. Starmer has targeted a growth rate of 2.5%, a level that most economists hold to be unrealistic. Without this level of growth, Labour — instead of marginally increasing public spending — could find themselves having to cut it significantly. This is due to the fact that Starmer has committed to following fiscal rules brought in by the Tories that commit the UK government to certain spending and borrowing targets.
At the last budget, the Chancellor of the Exchequer, Jeremy Hunt set out plans for 2025 that would see some government departments face cuts similar to those introduced during the harsh austerity years that followed the 2007–08 financial crash. While Labour could easily avoid such an outcome by changing the fiscal rules once in power, they have committed not to and are thus left in a position where they need relatively strong economic growth — which economists view as unlikely — to avoid a return to austerity.
The main plan to create such growth appears to be turning to the private sector and hoping that they will fund the investments the UK requires. For example, as part of their green investment strategy Labour intends to set up GB Energy, marketed as a state energy company but which is in fact a finance company formed to act as a vehicle for private investment. The idea is that a Labour government will not need to invest heavily in green energy, but merely facilitate the private sector to do so on favourable terms. Labour are even looking at having the state “take on some of the risk of private investments in key projects”.
Critics see such schemes as nothing more than a continuation of long-established practices of corporate welfare in which the wealthy will be incentivised to own and operate critical infrastructure, with the government taking on all the risk. As one columnist put, Labour under Keir Starmer “believes in the sanctity of private capital, and thinks it will unleash growth through financial orthodoxy and deregulation — exactly the policy not only of the past 14 years, but the past 40”.
Perhaps trickle-down economics will belatedly and miraculously bear fruit at long last. More likely, however, is that without the public investment it requires the UK economy will continue to stagnate. In terms of actual government investment, the Institute for Public Policy Research (IPPR) tells us that “a Starmer-led government would cut public investment more than the 2010–24 Conservative administration”. Yes, you read that correctly. Public investment under Labour would fall by more than it did over the entirety of fourteen years of Tory austerity. Such an incredible act of self-sabotage means that the UK would be lucky to achieve the 1.5% growth rate that economists predict for the next two decades, never mind Starmer’s target of 2.5%.
Of course, public investment can only occur if the state can afford it and the new Labour government will be flat-out broke due its own self-imposed conservatism. Starmer’s Labour have already ruled out nearly all avenues of increased taxation with which they could fund spending increases. This is both unfortunate and unnecessary. The UK is the world’s sixth largest economy and the country is awash with money, much of it serving no productive purpose. Taxing a small portion of the wealth of the elite could raise multitudes of what is required to stimulate economic growth and improve the lives of the tens of millions who have not shared in the UK’s prosperity. As the political commentator Ash Sarkar notes, “A 1–2% wealth tax on assets over £10m would raise up to £22bn a year”, completely restoring health to the public finances while reducing toxic inequality at the same time. But no, Labour plans merely to tinker around the edges of the UK tax system and only spend a little more than half of what they raise in doing so. Starmer has stated “It is always tempting for a government to go for tax and spend — but I’m not going to pull those levers”. Such levers, it should be noted, are the primary means by which government actually carries out economic policy making.
The only other credible avenue by which the new government could achieve higher economic growth is to rebuild the tattered trading relationship with the EU. Brexit has predictably rendered significant harm upon the UK economy, by some calculations knocking 5 or 6% off the country’s GDP. It is difficult to envision how the UK could see the type of growth a Labour government would need without substantially undoing some of the economic damage of Brexit. Starmer has indeed promised to “get a better deal on trade relations with the EU” although he has categorically ruled out rejoining the trading bloc (despite spending his time serving under Corbyn loudly demanding that they do so). Unfortunately for Starmer, most EU member states are relatively pleased with the terms by which the UK completed Brexit, since it has left UK firms at a competitive disadvantage to their European counterparts. As such, EU diplomats are reported to be reluctant to engage in any serious renegotiation of the Brexit deal.
Even if a renegotiation does occur, the UK will need to make some big concessions to achieve a more favourable trading relationship, concessions that Starmer has already ruled out. He has promised that the UK will not seek to re-enter the single market or the customs union and has stated that “We will not be a rule-taker. The rules and laws of this country will be made in Parliament according to the national interest.” This stance alone likely rules out any meaningful agreement with the EU, since such a deal would almost certainly be predicated on the British accepting the jurisdiction of the European Court of Justice, a move requiring the type of political courage that Starmer has never displayed.
Another key sticking point with the EU is likely to be the free movement of people, with the EU unlikely to allow a return to the free movement of goods without corresponding moves regarding the free movement of people. But any concession here once more runs counter to promises Starmer has made to the electorate, in this case his pledge to cut the number of people coming to the UK. In addition to such a policy scuppering any likelihood of a meaningful Brexit renegotiation, it would also significantly harm the UK economy. According to the UK governments own figures, migrant workers in the UK make “a net contribution of £42.4 billion to the economy” meaning that not only does immigration contribute to economic growth but also helps bolster the public finances. With the population of the UK aging and its economy suffering from labour shortages, placing an arbitrary cap on net migration makes no economic sense, even if it appeals to the growing xenophobia of segments of the English population.
By cracking down on immigration, ruling out concessions to the EU, and by refusing to meaningfully increase government spending or public investment, Labour under Starmer looks set to continue the long-established Westminster tradition of national self-harm. Starmer has turned Labour into another Tory party in order to gain power, but now faces all the same problems that have done in the Conservatives. Most unforgivably for a Labour leader, Keir Starmer has deigned to tie himself to Tory fiscal rules that almost by design preclude any opportunity the government has of fostering economic growth or even of generally improving the lives of people. This commitment to arbitrary fiscal rules means that Labour must raise taxes or must cut spending, both of which Starmer has promised not to do. By saying they will grow the UK economy out of this predicament, Starmer’s Labour are essentially asking British citizens “to believe that economic alchemy is within their gift”.
That Labour can conjure up strong growth via nothing more than good vibes and giving a helping hand to their mates in the corporate sector is nothing more than fantasy economics. Perhaps Starmer is both a wild optimist and extremely stupid. More likely is that he is knowingly promising a dream that cannot come to fruition. All reasonable growth forecasts point to — surprise, surprise — the same economic outlook when the same policies are applied. This renders Labour’s promises not to cut spending or increase taxes worthless. Economists rightfully sceptical about Labour’s growth plans are consequently predicting that Labour will “need to find £20 billion ($25.3 billion) of revenue-raisers to deliver current spending plans”.
But given the embrace of Starmer by Britain’s capitalist class and his demonstrable political cowardice, we can expect that the only type of tax rises (i.e. on profits and the wages of the wealthy) that could realistically fix Britain’s public finances without damaging its economy will not be passed. Instead, voters are likely to be soon hearing Keir Starmer tell them that some hard choices will need to be made. Shortly thereafter we might expect Labour to pull an old trick; enter office and then declare that “having opened the books” the public finances are worse than expected and Labour’s tame manifesto promises are now no longer realistic. Starmer will blame the Tories and then grimly cut spending, never mind the fact that the “books” are fully open, and nobody is under any illusions regarding the perilous state of the UK finances.
Keir Starmer would then become yet another UK austerity Prime Minister, his fantasy economics rapidly transforming into a continuation of the Tory nightmare the UK has suffered under for nearly fifteen years.
Zack Breslin is an essayist and author of several books including Donald Trump: Deadbeat Tyrant and The Coming Storm
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