Illustration by Bill McConkey

Has Labour the courage to do what’s needed?

The party’s fiscal caution has frustrated activists. Starmer isn’t just running scared from the Tories, but the economic realities of Labour’s first term
February 26, 2024

Election year is living down to expectations. The Tories are flailing around in the hope of stumbling across a strategy. The Liberal Democrats have yet to remind anyone of their existence. Meanwhile, Labour’s primary contribution has been to drop its previous commitments on green investment.

This decision has been interpreted as part of a wider electoral strategy to give the Tories no targets whatsoever. This might be the aim, but it’s seriously over-cautious. Like a bullied child, Labour figures are so badly scarred by memories of 1992 and 2015 that they prefer running away to the risk of being punched again. But the current situation bears no relation to those elections.

John Major and David Cameron were more popular than Neil Kinnock and Ed Miliband, and more trusted on the economy. Rishi Sunak is plumbing depths of unfavourability lately reached only by Liz Truss. The Conservative brand is trashed. At this stage, Keir Starmer could spend the next eight months on a beach doing sudokus and he’d still win. 

But the rolling back of Labour’s environmental spending pledges is not just about the election. It’s also an early taste of what will be a much tougher battle for Starmer and Rachel Reeves: the 2025 spending review, when departments get their spending allocation for the bulk of the next parliament.

In the media, the general election is of course still the focus of attention, but in Whitehall departments a Labour win is now assumed, and senior civil servants have turned to thinking about their spending review bids. And every one of them has a good case for more money.

The NHS workforce plan—that Labour is signed up to—implicitly assumes a large increase for health. The Ministry of Defence needs to build the army back up and replenish stocks given to Ukraine. The Department for Education is supposed to be rolling out an expansion of free childcare, and is trying to deal with the imminent bankruptcy of multiple universities. Local government is on the verge of collapse. Record court backlogs and full prisons have choked up the criminal justice system. Benefits no longer provide enough to prevent families falling into destitution.

None of this is factored properly into current spending plans. Indeed, the Tory plans—which are an absurd fiction believed by no one, including the party itself—assume big cuts for many departments.

Labour has ruled out increasing most taxes and tied itself to “fiscal rules” that will limit borrowing too. They will no doubt finesse this with some targeted tax increases and careful tweaking of the rules. But the demand will still dwarf the available revenue. There will have to be brutal prioritisation. Many worthy causes will miss out, to great disgruntlement from Labour members and backbenchers.

This, along with electoral caution, is the reason that Miliband’s colleagues did not rush to defend the shadow energy secretary’s large pot of green investment money, and why Reeves was so keen to reduce the commitment. There is a strong case for the investment: we are nowhere close to doing enough to achieve net zero. But then, there is also a strong case for rebuilding run-down schools and hospitals, reducing child poverty and having a functioning army.

In this context, the decision makes sense—but it also highlights the bigger problem Labour will face. It’s all very well to go on about growth as a way out of the mess: few would dispute its importance. But the government’s super-tight spending plans already rely on an assumption that GDP growth will improve to 1.5 per cent a year, well above 2023 levels. And in any case the available levers, such as planning reform, will not produce quick results.

Unless the party gets very lucky with the economy, it will need to make some much bigger calls if we are to avoid another five years of decline. That could involve being bolder on tax or borrowing early on, and creating scope for investments that would release longer-term efficiencies, such as improving NHS IT systems. Or cutting some elements of state activity altogether, as opposed to this government’s approach of doing the same amount of stuff but worse. Something has to give.

This is how best to read Labour’s current refusal to offer any pledges that cost money. It’s partly about not giving the Tories a target. But it’s also about the leadership’s dawning realisation of the scale of the problem they are about to inherit and the limited range of palatable options they have available to deal with it. The big question is, given how scared they are of this hapless Tory government and its increasingly irrelevant media cheerleaders, will Labour have the courage to do what is necessary?