An excess of caution? Keir Starmer and Rachel Reeves need to ground their politics in an animating moral vision, says Hutton. Images: Shutterstock/Alamy/Prospect

Labour’s chance

Keir Starmer and Rachel Reeves will inherit a country in economic crisis. The times call not for modest ambition, but for daring 
April 17, 2024

The shift in Britain’s political mood has been so sharp and sudden that both main parties are bewildered. Conservatives recall that it was only four years ago that Boris Johnson’s position as prime minister seemed unassailable: even two years ago they were level-pegging with their rival.

Can it really be true that they are hurtling towards electoral oblivion? Labour, for its part, is no less startled; under Jeremy Corbyn the party nearly split, and after the December 2019 general election—yet another electoral defeat and its worst since 1935—there seemed every chance that it had the same dismal future as the French socialists. It may now be criticised for its caution—but it is a caution framed by history. 

What transformed the political landscape was the twin seismic resignations of Johnson and Liz Truss within months in 2022, cutting through to the majority of voters who take little interest in the daily twists and turns of politics. Crucially, the resignations revealed truths about modern Conservativism impossible to shake off. 

The first was that the party had chosen, and then sustained as prime minister, a man who had no moral compass and whose sense of entitlement permitted him to lie shamelessly over breathtaking breaches of rules and ethical standards. They had put winning before fitness for office, betraying a deep political cynicism that has broken a bond of trust with the electorate. 

Secondly, their core beliefs and policies have led to a series of catastrophic blunders, culminating in and exemplified by Liz Truss’s 49 days in office. She talked libertarian nonsense and delivered financial mayhem, which mortgage holders felt immediately. Today’s Tory party is condemned as offering no solution to the country’s profound challenges, most of which it has caused itself.

In contrast, Keir Starmer presents as a decent man in firm control of a coherent political party, whose policies, however modest, speak to current ills while not upsetting any electoral apple carts. The bitter loss of the Hartlepool byelection in May 2021 was a turning point, along with just about holding Batley and Spen that July by little more than 300 votes. 

It put steeliness in Starmer’s determination never to be in that perilous position again. Labour would become a vote-winning machine as it was under Blair, and he appointed people with experience of those years, or who shared that vital imperative to win, to key positions. Everything—from the stripped-down policy mix to rooting out antisemitism and even withdrawing the whip from Corbyn—is consecrated to that end. 

Thus he has been in a position to capitalise on the country’s recoil from the suddenly detested Tories. Yet, for all the success in winning byelections by enormous swings and sustaining a substantial opinion poll lead, the open question is whether—in his and his advisers’ resolution to give the Tory party and its press as little to aim at as possible—Starmer’s party is overdoing its policy minimalism. 

For Britain’s challenges remain profound. Both Starmer and Rachel Reeves, his shadow chancellor, declare they have no illusions about the depth of the problems they will inherit. Their response consists of five broad-brush “missions”. 

The first is to raise the UK’s economic growth to the highest sustained level in the G7 by the end of Labour’s first term. Second, Britain is to become a “clean energy superpower” with zero-carbon electricity by 2030. Third, the NHS is to be rescued by reforming health and care services and reducing health inequality. Fourth, Britain will take back control over its streets to make them safer—notably reducing knife crime. And, lastly, every citizen is to enjoy more opportunity through improvements in childcare, schools, further education and lifelong learning. Whatever their emphasis on the pragmatic and non-ideological, if the five missions were achieved their impact would be transformative.

So far so good. But transformative and successful terms of effective government, which Britain so obviously now needs, require more: an animating vision and a moral foundation that can be applied in the particular circumstances of the time. This allows a political leader to go beyond the how and answer the why. Thus are cabinet, party and Whitehall machine bound together in a unity of purpose. 

Modern conservatism’s nadir: Liz Truss and Boris Johnson. Image: Shutterstock/Alamy/Prospect Modern conservatism’s nadir: Liz Truss and Boris Johnson

Attlee’s intellectual and moral vision was of socialism as fellowship, working towards the common good in an era of postwar reconstruction. Thatcher’s was to put individual choice at the centre of the moral, economic and social universe to replace the postwar settlement; and Blair’s, for all he would later fail to develop it, was of marrying a reformed yet still vigorous capitalism with fairness and social solidarity. The Tory party’s failure in the years since 2010 is that it has had no such animating vision that works for the times: thus the failures of austerity, Brexit and Truss. Now its moral vision is transmuting into populist right-wing phobias and hatreds. 

Starmer has a readymade vision to hand if he chooses to reach for it. He should take ownership of Blair’s philosophic legacy in his famous rewriting of Clause 4 of the Labour constitution—take it and make it live. Labour believes it is “by the strength of our common endeavour we achieve more than we achieve alone, so as to create for each of us the means to realise our true potential and for all of us a community in which power, wealth and opportunity are in the hands of the many not the few; where the rights we enjoy reflect the duties we owe and where we live together and freely, in a spirit of solidarity, tolerance and respect.” 

Most companies that grow to any size necessarily have some public initiative supporting them

As I argue in my new book, This Time No Mistakes: How to Remake Britain, an ethic of socialism, the core of a party of the left, lives on as the call for the many to control power, wealth and opportunity, and in the belief that it is common endeavour—the “We”—that allows us to achieve more than we achieve alone. But this must be married to an affirmation of individual rights and duties. In practical terms, this means offering both a social floor and individual opportunity—a ladder. 

If Starmer wants two or more successful terms in government, he should found his vision in a fusion of the “We”—an ethic of socialism—and the “I” of progressive liberalism. While the right plans to offer a ragbag of intolerant hatreds to recover its fortunes that at bottom do not appeal to the majority, Labour should offer a “We Society” that commits to invest in ourselves, allowing all of us to realise our ambitions and potential.

This would give the five missions an overarching moral and intellectual driver they currently lack, and also allow them to be populated with gritty policies more likely to bite, drawing a line over endless retreat before Tory attacks. Labour could balance proper caution with a stronger offensive. 

There is already some movement in this direction. Economic policy, the heart of any springboard for recovery, has been hamstrung for too long by the view that the government borrowing for public investment “crowds out” business investment, a proposition built on the tired economic (and moral) proposition that free market capitalism, in elevating the “I”, self-organises to deliver the best outcomes, while government intervention is coercive and generally fails. Such wrongheaded thinking lay behind both the debacles of monetarism in the 1980s and austerity in the 2010s.

Reeves has instead cast out in a more Keynesian direction; she looks to higher public investment, financed by borrowing, to crowd in business investment. It is better economics, grounded in evidence, but also an overt assertion of the “We”. 

Yet public borrowing for investment cannot be limitless, and in her March Mais lecture—a major annual event that has become a rite of passage for chancellors and their opposition counterparts—Reeves recast the current government’s fiscal rules, both to allow more public investment and to lay down constraints to accommodate its growth. Only day-to-day spending and tax revenues need balance over the economic cycle: borrowing for investment would be excluded. But the investment plans would have to be justified to the Office for Budget Responsibility and have to clearly strengthen the public sector’s overall balance sheet, with the value of the new asset exceeding its cost. At the end of every five-year rolling period, the national debt would need to be falling as a proportion of GDP compared to year four.

Labour may have abandoned its “green prosperity” pledge to invest £28bn a year in decarbonising the economy by the end of the parliament: Reeves has opened the way to reinstating it or an even more ambitious policy—and left the party less exposed to attack in the process. Such an approach is vitally needed: Britain suffers from an annual £100bn a year shortfall in public and private investment and this must change if the growth rate is to accelerate. 

In particular, it must fall to the state to lead the way in driving to net zero; raising meagre R&D spending; committing to levelling up; and making good the acute crises in public infrastructure, ranging from a desperate shortage of MRI scanners to dilapidated school buildings. 

But if private investment is to be crowded in at the required scale—three private pounds for every single public pound—then companies have to be driven by a great purpose; be confident about the future; believe that a resilient wider infrastructure will be there to support them and have access to the wherewithal to finance their investment ambitions.

Here Labour’s thinking is still in the foothills. The party is pointing in the right direction but too fearful about giving offence. What is needed is the reshaping of British capitalism so it is more productivist and conscious of its social responsibilities. Most companies that grow to any size necessarily have some public initiative supporting them: R&D spend, a licence to do business, a subsidy to relieve risk or a government procurement contract. They need, and know they need, the mantle of supportive government acting for the “we”.

Labour, drawing on a moral vision, needs to be more confident in framing a grand bargain with business. It will want companies, especially among the regulated utilities, to put public benefit before profit. It will want to see a critical mass of companies accept its ambitions to create fair workplaces with greatly improved employment rights from day one—a radical part of its programme from which it should not resile. And above all, it will want all the institutions that provide finance for investment—banks, insurance companies, pension funds, venture capitalists and private equity—to step up their engagement and support for British businesses, from start-ups to mature FTSE 350 companies. In return, business is entitled to a stable regulatory and taxation environment, as well as a much larger British Business Bank and UK Infrastructure Bank to provide finance for ambitious development plans. And as the economy grows, firms will find themselves operating in a stabler political environment. 

The good news is that the best in British business and finance are ready to partner in these ambitions. The desperate plight of the London stock market, suffering from a poverty of institutional investors for a complex skein of regulatory and tax reasons, as well as the fact too many companies are locked in low-growth sectors, sees British companies achieve valuations little more than half those of their counterparts in the US, and significantly lower than those in Europe. The stock market has fallen from ranking third in the world in 2000 to ninth today. Fifty companies that would have constituted the FTSE 100 have been sold abroad, while many of the $1bn high-growth “unicorns” Britain has created—in numbers greater than any other European economy—are now also foreign-owned. Companies are choosing, if they can, to list in New York—with even Shell mooting the possibility—and for the many that remain, their low London share price makes them defensive and risk-averse. There is a crisis of belief in the City of London’s future. 

Starmer should lead his party on a policy offensive, says Hutton Starmer should lead his party on a policy offensive, says Hutton

City and business leaders are openly canvassing major reforms: pooling Britain’s cottage industry pension funds to create megafunds capable of spreading risk; building up the Pension Protection Fund so that it can become a major investor in British companies; finding ways to support startups and scale-ups; looking to a large sovereign wealth fund to work in tandem with a new potential private-sector wealth fund to mobilise investment; boosting sums available to invest by raising the contribution to pension funds under auto-enrolment. Labour needs to foreground its support for all these initiatives—and expand on them. It could add a major overhaul of the way our banks lend to business. One barometer of its success, and of a healthy “We” society, will be a rising stock market. It should dare to say so—this will serve to convince that it is business-friendly. 

This must be counter-balanced by launching an honest conversation about tax. It is true that the overall yield from income tax, VAT and national insurance is approaching a postwar high, and that is why Labour has not opposed Jeremy Hunt’s recent reductions in employee National Insurance contributions. However, the burden on ordinary taxpayers arises in part because the yield from property, wealth and other assets has been pitched far too low. Over the last 40 years the stock of wealth has more than doubled, to seven times national income—with no proportional rise in the tax generated from it. This must change: in the name of fairness the rich should put their shoulder to the collective wheel. 

Indeed, the massive maldistribution of wealth is pulling the economy out of kilter and throwing up grievous imbalances of power. There is no need for a dedicated wealth tax; instead we must address the yields from inheritance tax, council and capital gains tax, which are far too low. Pension fund tax relief is far too generous for the better off. Equally, there is much destructive activity, especially on the environment, that is going untaxed. There must be a rebalancing for the health of the economy and society, not to mention the health of the government’s fiscal position. 

In her Mais lecture, Reeves recognised the scale of unmet social needs. She would launch “an urgent resource injection into our public services: to cut NHS waiting lists, tackle the crisis in dentistry, transform mental health services, recruit and retain teachers, and provide breakfast clubs in every school.” Amen to that: but the list of needs does not stop there. It includes the developing crises in local government, the criminal justice and prison system, and increasingly policing, defence and security, as well as the often-derisory income support provided by the welfare state.

Doubtless there is scope for productivity improvements, but the overwhelming cause of distress is lack of money. If Britain chooses to tax the wealthy a little more, it has the resources to finance its social repair—the “floor”—and the investment that will drive economic recovery: the “ladder”. Labour cannot tamely accept the Conservative public spending plans for 2025 and onward that it will inherit, implying another round of crippling austerity; nor can it accept the current prohibition on increasing the taxation of the wealthy. The arguments will need to be carefully framed, but they have firm foundations and economic justification. They will be better made within a grounded moral vision.

This vision bleeds into the necessary reform of so many elements in British society—from housing to the world of work. Britain faces a first-order housing crisis: one of rising homelessness but also spiralling unaffordability, with house prices at a 140-year high in relation to income. Labour’s answer is to commit to the building of 1.5m homes over the course of the parliament and to reorganise the planning system so the necessary permissions are forthcoming. Again there needs to be more follow through. Building homes is certainly one part of the response, but so is reshaping the system of council tax, still based on 1991 valuations and which under-taxes London and southeastern property that has exploded so much in value in relation to the rest of the country. No more council houses should be sold without a guarantee of replacement—one out, one in. 

Brexit—and the loss of up to £125bn of output every year—has added to our acute economic difficulties

All this requires an agile and responsive state: Labour has too little to say on how it will remodel the machinery of government to equip it to deliver its five missions and breathe new life into British democracy. If it genuinely aims to devolve power, that needs to be accompanied by giving local government greater power to spend, tax and borrow. At the same time, it will need to build the capacity of the centre of British government to foster more coordination across all its missions. There is so much more. If Britain enters the last half of the 21st century with an unreformed House of Lords and property taxation based on 1991 residential values, we will be a failed state for sure. A key litmus test of Labour’s appetite for reform will be if dares to tackle either, better still them both. 

Then there is the small matter of Britain’s relationship with the rest of the world, and the EU in particular. EU membership drove up British GDP by some 10 per cent above trend, according to estimates by the late distinguished economic historian Nick Crafts. Britain attracted inward investment and became intermeshed with continent-wide supply chains, while greater intensity of trade and competition lifted productivity. Politically, it had greater heft, and shaped EU regulation to benefit its producers. All that has gone, and the hopes that communist China and nationalist India would fill the gap have proved illusory. Immigration, instead of falling, has mushroomed. The loss of up to £125bn of output and the accompanying tax revenue every year has added to our acute economic difficulties. The totality of the failure is complete, made worse by the new geopolitical risk of an aggressive Russia and a US seeking retrenchment from overseas commitments.

Again, the Labour leadership can hardly fail to know this—indeed, Reeves acknowledged the economic costs of the government’s Brexit deal in her Mais lecture—but the party’s humbling at the 2019 general election cast a dark shadow. It has hopes that a defence and security pact with the EU in light of Ukraine could be the bridgehead for closer alignment in strategic sectors ranging from energy to cybersecurity. This, along with potential improvements to the trade deal with the EU when it comes up for review in 2025, could begin a process of rapprochement. Yet Labour shrinks from decisively arguing for the reassociation with the EU, even of a limited kind, that is so vital for our economic and security interests. It will be close to impossible to top the G7 league table for growth without single market and customs union membership, or a simulacrum that achieves the same thing. Again, if the current relationship becomes the permanent status quo, be sure that Britain will have locked itself in economic and political decline—marginalised in the corridors of European power, of little weight internationally and excluded from the trading bloc on its own continent. A government with the national interest at heart must dare to argue for these truths.

And yet. Rather than see the political glass as half-empty, I’d rather depict it as half-full. The virulence and dominance of the right-wing ecosystem disguises the extent to which it is out of touch with a public that detests it for what it has done. Nor have the British abandoned their instinctive tolerance, sense of fair play and embrace of fellowship. They understand the virtues of capitalism in generating choice, experimentation, creating wealth and the chance for individuals to have agency—but only to the degree it delivers the common good. This requires public intervention and action. They want to feel proud of their country and their democracy. Nor are they especially hostile to either Europe or foreigners, the trope of the populist right. Starmer and his team are on the right track, even if their ambition is modest and their caution considerable. To answer why they deserve support they need better to argue their animating philosophy. 

Starmer has strong values and a sense of what needs to be done. The times call not for defensive caution, but for daring. The hope is that the size of his potential victory, the very fact of his being in government and the demands that circumstance will generate will step by step impart the necessary confidence to do more. For the good of the UK, it is vital that they do. This time no mistakes.