Liz Truss’s ghost lives on. But she is haunting the Labour Party. In the ruin of the mini-Budget, Labour saw an opportunity to usurp the Conservatives as the party of fiscal responsibility. But at what cost?
The party ceded a lot. It lambasted her attempt to achieve growth through unfunded borrowing. This was the kamikaze Budget, the one that bankrupted the country. So eager was Labour to forget Liam Byrne’s 2010 letter to his Treasury chief secretary successor, which said there was “no money left”, it wielded Truss’s ideological pursuit of growth as a shield against accusations that it was profligate.
But Keir Starmer was the first politician to champion economic growth. In July last year, he argued, definitively and largely unnoticed, that growth would define Labour’s next manifesto. Borrowing to fund growth is central to Labour’s programme for government.
Through its condemnation of Truss’s approach to public finances, the party has constrained itself. In the 1997 election campaign, New Labour had to promise to stick with Tory spending plans to counter fears rooted in the 1970s that it would tank the economy. As Phil Tinline notes in his book The Death of Consensus, Blair said in March 1997: “I have staked my political reputation and credibility on making clear that there will be no return to the 1970s.” With similar fears in a post-Truss world, Starmer’s Labour has bought into the Sunakian way of viewing public finances.
[See also: What could go wrong for Keir Starmer?]
The core criticism of Truss at the time was not that borrowing to fund growth was wrong, but that tax cuts wouldn’t achieve the growth she promised. Borrowing to invest is another matter – a distinction Labour rarely makes.
Rachel Reeves says she wants to grow the economy and for the national debt to fall, while at the same time arguing the economy needs investment (read borrowing) to ditch the sclerotic growth of the past 13 years. That would work if Labour gave itself enough time to see a return on its investment, ie growth. Labour is coy about what its fiscal rules are, but Starmer has started saying, as he did in Leith recently, that debt will fall within the first parliament. That’s five years. The same time-frame that Jeremy Hunt chose. The paradox of Labour’s policy is that, in the short term, growth and falling debt are in opposition.
I hear you: a party’s messaging is distinct from its policy. We must determine how much of what they say is pure posturing before an election, a tactic to minimise exposure to Tory attacks, and how much will genuinely be followed through in office. But what if a party’s messaging before an election constrains what it can do in power?
I don’t want to sound too Gramscian, but a consensus must be built before change can occur. You have to win the ideological battle before you can win the policy war. My concern therefore is that Labour has constructed a fiscal straitjacket that prevents it from achieving its own aims.
It was alright for Blair and Brown because they inherited a booming economy. But Starmer does not have that luxury. Labour must change what is deemed politically acceptable to voters and the media to prevent a backlash once it is in government. As we saw with Truss, we mustn’t underestimate the impact that such a negative response can have. The alternative is to shadow a government that has presided over an historic degradation of living standards, the public realm and Britain’s social fabric. The alternative is a preservation of today.
This piece first appeared in the Morning Call newsletter; subscribe to it on Substack here.
[See also: Will Labour level up?]