The British economy is working. This is the conclusion that Rishi Sunak and Jeremy Hunt want voters to draw from the month of May. GDP grew by 0.6 per cent in the first quarter of 2024, the highest level for two years. Inflation has fallen from a peak of 11.1 per cent back towards the Bank of England’s target rate of 2 per cent. And interest rates – currently 5.25 per cent – may soon be cut for the first time since March 2020.
If this record appears impressive it is only because expectations are so low. Britain’s wider economic performance since 2019 remains dismal. GDP is just 1.7 per cent above its pre-pandemic level, the lowest growth of any G7 country other than Germany. Average real wages are still no higher than they were before the 2008 financial crisis.
Not all of this can be blamed on the government. Economic shocks such as the pandemic and the war in Ukraine fuelled inflation and depressed growth. But the Conservatives have made avoidable errors. Liz Truss’s mini-Budget in September 2022 triggered financial chaos and led investors to impose a “moron premium” on British debt.
After this debacle, Mr Sunak and Mr Hunt have brought greater stability, but have offered nothing resembling a new growth model for the UK. Rather than prioritising investment, they have spent more than £20bn on politically motivated tax cuts. As such, Britain will repeat the cycle of previous years: short-term spikes in growth masking long-term stagnation.
Labour vows to end this wearying pattern. As well as promising greater stability than the Conservatives – who have had five prime ministers since 2010 – the party has pledged to remove persistent obstacles to growth. The UK’s anachronistic planning laws, which successive Tory governments have proved too weak to reform, would be overhauled to stimulate housebuilding.
“Nowhere is the economic influence of vested interests more pernicious than in our planning system,” declared Rachel Reeves, the shadow chancellor, in her speech in the City of London on 7 May. “It has become a graveyard of economic ambition and a byword for political timidity.”
A Labour government with a comfortable parliamentary majority would have a window of opportunity for reform. As Andrew Marr notes on page 18, it would also invest more. By distinguishing between current and capital spending, the party’s fiscal rules would reduce the incentive for ministers to cut infrastructure investment. Ms Reeves would take account of public-sector assets rather than only liabilities, “showing how the health of the public balance sheet is bolstered by good investment decisions”. Though the Conservatives boast of a plan for growth, public investment is on the verge of falling from 2.5 per cent of GDP to just 1.7 per cent in 2028-29 – a recipe for stagnation.
The final pillar of Labour’s growth programme is a radical shift in workers’ rights. The party’s “New Deal for Working People” would abolish exploitative zero-hour contracts, end “fire and rehire”, expand collective bargaining and grant workers basic rights such as sick pay, parental leave and protection against unfair dismissal from the first day of employment.
By giving workers greater security, Ms Reeves aims to boost growth and living standards. As she noted in her recent Mais Lecture, “Workers who move jobs typically see their pay rise by 4 percentage points more than those who do not.” But in Britain’s insecure labour market, the share of workers switching jobs each quarter fell by 25 per cent between 2000 and 2019.
Ever since the financial crash exposed its fragility, Britain has failed to reinvent its growth model. The country’s woes are far from unique in the West, but they are different in degree. A baleful combination of low growth and high inequality means the average household is far poorer than its counterparts in France, Germany, Canada and Australia. The Polish prime minister Donald Tusk recently boasted that – based on World Bank data – his countrymen would be richer than Britons by 2029.
Through successive political projects – “global Britain”, “levelling up”, “Trussonomics” – the same problems have endured: dismal productivity, dilapidated infrastructure and regional imbalances. Will Ms Reeves’ “securonomics” prove any different? The answer could well determine Britain’s economic fate.
[See also: The Labour vibe shift]
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This article appears in the 22 May 2024 issue of the New Statesman, Spring Special 2024