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15 October 2022

Labour must prepare to be in power – but with no money

A Keir Starmer government will have to face an unholy economic mess bequeathed by the Tories.

By Philip Collins

It might be better to remain silent about this unspeakable government. The Conservative Party has been in power too long and it is now soiling its reputation. The Truss and Kwarteng fiasco could cost the party years of recovery time. Attention will now shift to the government in waiting. Labour enjoys a poll lead beyond its wildest imaginings, so large it is a little frightening because getting rid of the loathed Tories is one thing but the contemplation of office is quite another. 

The circumstances in which Labour will come to power, assuming it does, will be either bad or ugly. The bad scenario at least contains the prospect of economic recovery. Maybe the economic troubles will be close to over by the time of an election. Yet there is an uglier option in which inflation bites hard, mortgage defaults are extensive, and the recession is deep enough and long enough to make governing close to impossible. 

Labour has been lucky with its opponents. Keir Starmer’s tenure as leader of the opposition has coincided with the Conservative Party finally getting drunk and disorderly on the strong liquors of Brexit. Though we should not underestimate Starmer’s political skill in exploiting these woes – a leader who was not a viable prime minister would not have capitalised so well – he might yet be unlucky with his inheritance.

The traditional rhythm of British politics has been reversed. In the usual flow, Tory governments get ejected because, after a few years, their parsimony with public spending becomes unpopular. Labour then comes in to repair public services but, after a while, the spending gets a bit much and the Tories return, making a virtue of clearing up the mess. Now, Labour has to be the party with its head screwed on. It may fall to a Starmer government to cope with an unholy economic mess bequeathed to them by politicians who are not responsible enough for the offices they had the honour of holding.

This would be difficult for any government, but perhaps especially difficult for a Labour one. How does a social democratic party act when there is no money to spend? In the 14 years since the 2008 financial crash ended the spending programme of the Blair and Brown years, the Labour Party has failed to answer the question. It has failed, really, even to ask it. Labour might come into government without much in the way of serious thinking about how to be a party committed to equality when there is no money to disburse.

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[See also: Liz Truss already faces “a pile” of letters of no confidence]

The Blair years offer no guidance. Though Gordon Brown committed the Labour Party to the spending plans laid down by the Conservatives in office, the economic tide had turned. Tax revenues were soon buoyant as the great boom in financial services furnished public spending on social programmes. The New Labour bargain worked for a long time and a lot of good was thereby done. But until the fraught last couple of years, in which Gordon Brown struggled even to utter the word “cuts”, there was no shortage of cash.

Indeed, the standard political dividing line of the time was investment versus cuts. It all seems a very long time ago, but it is to even longer ago that Labour might have to turn for guidance. When Harold Wilson took power in October 1964 the new government was greeted with a current account deficit of £800m on the balance of payments. There was a wave of speculation in the markets on the assumption that a devaluation of the pound was inevitable. Wilson instead negotiated a vast rescue package, worth £3bn, from the central banks of what was then known as the Group of Ten. He did not succeed in avoiding currency devaluation – and yet it do not ruin him politically as had been expected. The prime minister managed to project enough of a sense of being in control that Labour won, with an enhanced majority, two years later.  

Going further back, the Attlee government inherited a fiscal mess and somehow managed to retrieve from it a programme, some of which has passed the test of time. Starmer often likes to put himself in the line of winners that passes from Attlee to Wilson to Blair, but it is the first two who might be the relevant examples. 

If Labour is ready for government the absence of more money does not have to be considered a disaster. The Office for Budget Responsibility expects public spending to be £1,087bn in 2022-23, which is still a lot to play with. So much public expenditure is poorly organised. Too much goes on the wealthy rather than the poor, too much goes on the elderly and too little on the young. Housing and social care should be major priorities. Good social democratic virtues can be served without committing a single extra penny. “We will work with what we have” is a good and comprehensible approach that still leaves plenty of room for action.

It is probable that Labour can come to office by simply stepping aside, not interrupting while the Tories are making such awful errors. The tough choices of government, though, will require guiding principles embodied in the political character of the leader, which still needs more filling out. The time for Labour to be thinking about these things is now. If Starmer can learn from his predecessors, it will still be possible to be a good government, even with an inheritance that is either bad or ugly.

[See also: Sam Tarry’s deselection has inflamed Labour’s factional divisions]  

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