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17 August 2022

Keir Starmer’s energy strategy hints at Wilson-like cunning

Labour’s proposal to freeze families’ energy bills is the right policy at the right time.

By Philip Collins

The next prime minister, whether it is Liz Truss or Rishi Sunak, will have to do something that Harold Macmillan, Margaret Thatcher and John Major all did: win an election after the economy has gone wrong. For all its recent attempts to conjure new culture wars after the political success of Brexit, the Conservative Party is confronting an acute crisis of living standards, and it might be hard, this time, to find a way out.

Economic travails have almost always accounted for the downfall of Labour prime ministers, but Tories tend to withstand them. There was a short-lived and shallow recession after the Suez crisis in 1956, but the change of leadership from Anthony Eden to Macmillan and the long three years before a general election allowed the latter to beat Hugh Gaitskell in 1959. Margaret Thatcher presided over a recession from the first quarter of 1980 to the first quarter of 1981 and inflation hit 18 per cent, but Michael Foot’s Labour was in no position to capitalise. The recession of 1990, in conjunction with the poll tax, did help to end Thatcher’s premiership, but John Major was able to win in 1992 all the same.

But there is reason to think that Truss and Sunak have more in common with the likes of Stanley Baldwin, Alec Douglas-Home and Ted Heath – Tory prime ministers who were not immune to financial turmoil. The recession of 1921-22 contributed to Baldwin’s defeat in the general election of December 1923. The memory of unemployment and inflation in 1961 was in part why Douglas-Home lost the 1964 general election. Heath presided over the prototype energy crisis and blackouts in 1974, and lost to Harold Wilson later that year.

[See also: Labour has no reason to fear Rishi Sunak or Liz Truss]

This time, the new prime minister will walk straight into an economic storm with no clear escape route. Inflation on the full basket of goods is expected, says the Bank of England, to reach 13 per cent this year. But the acute crisis is in energy. The Institute for Fiscal Studies (IFS) says it expects energy prices to rise by an extraordinary 141 per cent in 2022-23. The scheduled change in the energy cap from £1,971 to around £3,600 in October will be calamitous for some families. And real average weekly earnings fell by 3 per cent in the three months to June, the biggest fall since 1977.

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Sunak, during his time as chancellor, was always dragged reluctantly to action. In his bones he does not want to be taxing corporate profits, and neither does Truss. Eventually Sunak was forced to do so, but the £37bn cost-of-living support package will not be enough. Both Sunak and Truss have said they do not want either to extend or increase the windfall tax on oil and gas companies, but doing nothing will be a tough call.

It will be tougher, too, because of Keir Starmer. Here, Baldwin, Douglas-Home and Heath offer another historical parallel. They all faced clever, ingenious Labour leaders: Ramsay Macdonald, in Baldwin’s case, and Wilson, who saw off Douglas-Home and Heath. Starmer’s recent performance ought to worry his Tory opponents. There are signs that the Labour leader is becoming Wilson-like, which is to say canny and precise.

Wilson had his flaws, but losing elections wasn’t one of them (he won four) and it is always worth asking, in the contemplation of any tricky moment of opposition, “What would Harold do?” Starmer rightly admires Wilson, who played the role of leader of the opposition as well as anyone in postwar British politics. Earlier this month we witnessed the Labour Party responding well to the issue of the day; this is an opposition that is clearly learning on the job.

Labour came through with a plan that allowed Starmer to say, with clarity, that under it no family would pay a penny more in energy costs this winter. This would cost £15bn, in addition to the cost of the support the government has already announced, and would be funded by backdating the windfall tax on oil and gas companies to January, raising £8bn. The government’s £400 energy rebate would be dropped, and the consequent effect on inflation of these measures would, according to Labour’s calculations, reduce annual debt interest payments by £7bn.

This was a model intervention by an opposition leader: precise, targeted on the critical issue of the day, and offering a cast-iron answer to the question, “What would you do?” Labour has developed a good critique of the Tory party – that it is incompetent, wanting nothing other than Brexit – but that analysis was not always accompanied by a plausible idea of what it would do differently. With Starmer’s energy announcement, it emphatically was.

This kind of intervention is what people mean when they demand that Labour should have more “policy”. The conventional wisdom of effective opposition is that ideas should not be revealed too soon. A magpie government might steal a good idea and the effects of policy announcements wear off quickly: any ideas revealed today sound tired by the time the election comes around. Besides, there is little popular or press appetite for the intricacies of policy.

Very few people are genuinely interested in the details of Labour’s plans for a local industrial strategy or quite how the party intends to regulate the Murdoch press. What they want is an answer to the question, “What would you do?” on the issue of the day, and that is what Starmer gave them.

[See also: How Gordon Brown wields power behind the scenes in Starmer’s Labour]

There is a legitimate concern about whether frantic state intervention is a sustainable energy policy. If prices do not come down, constant government support is going to be very expensive. Paul Johnson of the IFS showed that this support would be as costly as the furlough scheme if it were extended beyond the initially intended six months. Britain cannot go on funding furlough after furlough. Eventually, we have to stop the short-term fixes and deal with the problem.

Energy markets are complex and global, and the present crisis is exacerbated by the interruption of Russian supplies. A durable solution requires a more sophisticated response than a series of national windfall taxes. At some point, the raiding of corporate profits will start to affect investment decisions. The inflated profitability of oil and gas companies is not a given. Companies understandably feel aggrieved that, if the fluctuations of the marketplace depress profits, they have to withstand the fall, but any increase is subject to the needs of government.It’s not as though the energy market is an arena of rampant profitability: 28 suppliers have gone bust in the past two years.

That said, bad policy and good politics are often allies, and it is naive to think that good politics will lose the battle. It should be noted that Labour does have an extended set of intriguing energy and climate change policies, such as a home insulation scheme. These have received almost no attention and nobody thinks of them as the solution to the energy crisis, because households need hard cash now. Politics and policy, in other words, operate to different time-scales.

Over the postwar period there has been a reliable relationship between consumer confidence and the fortunes of the incumbent government. The two rise and fall with one another. That does not always presage a change of government, as we have seen. For that to happen you need to add the presence of a credible opposition, and, with his energy price plan, Starmer did what Harold would have done.  

[See also: When will we be able to talk about Brexit again?]

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This article appears in the 17 Aug 2022 issue of the New Statesman, Six Months that Changed the World