Changing of the guard

For once the pollsters got it right. Unlike in 2017 and 2019 when they predicted, respectively, a handsome and narrow Conservative victory, the 2024 election produced the landslide Labour win that was long expected. Back in 2021 it did not look likely that Keir Starmer would be leading a government in Downing Street, particularly after Labour lost one of their safest seats in a by-election. Not for the first time, I was proved wrong, but at least it offers a chance for a policy reset after years of fractious governance.

Labour’s position less secure than it looks

The 2024 result was a rejection of the Conservatives rather than a ringing endorsement of Labour. Indeed, while it won an overwhelming majority of seats, the roots of Labour’s win were not deep. A large parliamentary majority, which gave them two-thirds of the seats, was achieved with just one-third of the votes on a very low turnout slightly below 60%. It is not the lowest turnout of recent times – that occurred in 2001 when it dropped to 59.4% – but things are different today. In 2001, the electorate voted for an incumbent government and was expecting more of the same. In 2024, however, the electorate is voting for change and it matters whether they are simply voting against the previous government as a protest or in favour of the alternatives on offer.

Without wishing to strike a discordant note after one of the least popular governments of modern times has been banished into history, the narrow foundations of Labour’s win do matter. Although Labour appears to have a strong mandate, which many advocate as a reason to set out bold policy prescriptions, unpopular measures will simply encourage those who sat out the election last week to vote against them next time around. And there is no guarantee that Reform UK and the Conservatives will split the vote as they did on 4 July. Indeed, the combined vote of the Tories and Reform UK was larger than that of Labour.

This makes it all the more imperative that Starmer’s government gets the big things right quickly. Making voters lives better is the one thing that will raise the chances of a second term in office – a second term that will undoubtedly be required to properly fix many of things in the economy that require improvement. At least the new government is comprised of members that share the experiences of the people they represent. For example, only 4% of the cabinet was educated at a private school vs. 63% of the previous one. If accusations of being out of touch plagued the Conservatives, it is not an accusation we can so easily level at Labour.

What next for the Conservatives?

After a chastening defeat, which produced the worst result by the Conservatives since their foundation in 1834, and the worst by either of the two main parties since 1931 (when Labour won just 52 seats), a period of soul-searching is in order. Not only does the party need a new leader following the resignation of Rishi Sunak, it needs to decide what it stands for. The party has become increasingly out of touch since the Brexit referendum in 2016, burning through five prime ministers and spending more time pandering to right-wing MPs than listening to what voters want. It failed to improve public services – indeed their deterioration can be traced back to the austerity policy introduced by George Osborne in 2010; it failed to reach its immigration targets and it failed to make Brexit work.

At least the more reflective MPs recognised that fact as they trooped out of office yesterday (Sunak and Chancellor Jeremy Hunt among them). But is that shared by the 172,000 members of the Conservative Party, who will be responsible for choosing the next leader? The Tories made a mistake in tacking to the right after their defeat by Blair’s Labour Party in 1997 which kept them out of office for 13 years. Although circumstances are different today, the general view is that elections are won from the centre ground. A tie-up with Nigel Farage, as proposed by many excitable political commentators recently, would probably be a mistake. If Labour are smart (and they are), they will know that reducing NHS waiting lists and improving the quality of public services will draw the sting out of the immigration debate. The Tories would be well advised not to go too far down that path.

The fate of the smaller parties

The Liberal Democrats returned after three drubbings to record their best performance in terms of seats since 1923 (72). The Greens outperformed expectations to win four seats in parliament – a record for them – while Reform UK came from nowhere, grabbing the headlines with five seats and a 14.3% vote share. This was largely down to the charisma of Nigel Farage – love him or loathe him, he knows how to whip up the populist vote. Farage and his band of fellow travellers will be noisy and consume a lot of political oxygen in the months ahead. They are too small to be politically relevant but they will have an influence at the margin by influencing the debate in parts of the Tory party as it ponders its future.

The SNP had a bad day in Scotland, going from the dominant political force holding 48 of the country’s 59 seats in 2019 to just 9 of 57 today. This is the result of many domestic factors, including allegations of corruption at the top of the party, but the truth is that independence is no longer the burning issue it was a decade ago. This will at least make Starmer’s job a bit easier as he will no longer have to contend with demands for an independence referendum for the foreseeable future.

Stacked in-tray: What to do?

Aside from the high profile issues of tackling the NHS, and overcrowded prisons which Starmer mentioned in his first press conference yesterday, reform of the social care, welfare and benefit systems are areas where the government will have to act quickly. It has long been recognised that the rollout of the Universal Credit system has been plagued with difficulties, particularly as people migrate from legacy benefits to the new system. Access to welfare benefits is increasingly wrapped up in red tape as claimants are subject to conditionality requirements, while there are mounting problems in accessing disability benefits as regulatory changes are introduced. In 2019 I advocated reducing the taper rate on Universal Credit as a gesture of goodwill to those voters who lent their votes to the Tories (which in fairness the government introduced in 2022 but more can be done here), and reducing the time between claiming benefits and receiving payments. If the government wants to improve the lot of the poorest in society, there are low cost wins to be had.

Final thoughts

As parts of Europe swing to the right of the political spectrum, notably France which goes to the polls today, the European landscape will become more fractured. As a result the UK may stand out as a beacon of stability after a tumultuous few years. That does not mean that the UK should expect a huge wave of foreign investment immediately but it may at the margin become less unattractive vis-à-vis other EU markets. Building some bridges back to the EU will definitely help.

Undoubtedly, the new government will have to prioritise on policy and it says that one of its primary tasks is to boost growth. In truth, this will be hard to achieve – there are so many factors which impact on performance that are outside its control. Not having made many tangible economic promises, it will be difficult to underdeliver, but that is not enough – voters want a bit of stability, and a return of the feelgood factor. Don’t we all?

Eight years on

Eight years on from the Brexit referendum, the world looks a very different place. While in 2016 it was the UK which had to deal with an onslaught of rampant populism, it is now a feature of the political landscape across the industrialised world. The European Parliament elections made it clear that electorates across the EU are running out of patience with centrist governments which have failed to deliver on promises to make life better for long-suffering voters (chart above). Meanwhile on the other side of the Atlantic, Donald Trump has every chance of getting back into the White House as he feeds on the discontent of an America unsure of its place in the world.

As we head towards a UK general election that looks set to banish the Conservatives into the political wilderness, it is possible that the UK may be one of the few western democracies about to swing back towards the political centre. Yet it is notable that the policy which helped Boris Johnson win an overwhelming majority in 2019 has not even figured on the 2024 campaign trail. The Tory party cannot bring itself to admit that its signature policy has failed while the Labour Party is so fearful of alienating voters in Red Wall seats that it simply will not go near the issue of Brexit. But it is the Tories who will have to carry the can, since this is a policy with which they are closely associated, and spent so much political capital delivering the hard Brexit that many of us warned against that it has become an albatross around their neck. Moreover, it absorbed so much political bandwidth that the party was unable to deal effectively with the other tasks involved in governing. This included managing the pandemic and ensuring compliance with the basic standards required for governance in modern democracies which is one reason why they lag so far behind in the polls (chart below).

Look beyond the 2024 election

However, just because the electorate is about to hand the keys to Downing Street to a party of the centre-left does not mean that they are about to repudiate some of the more extreme versions of nationalist politics. If the performance of Reform UK in the polls is to be believed, quite the opposite. Recent history suggests that political turnarounds are very much in fashion. Back in 2021, not long after Labour had taken an election hammering and lost one of its safest seats in a by-election, it seemed that the centre-left was on the ropes. When the SPD unexpectedly won the German election in 2021, it was not long before sentiment turned against them, while Emmanuel Macron’s 2022 election triumph is a distant memory as the right-wing Rassemblement National is currently the most popular party ahead of the snap French parliamentary election. Life, as they say, comes at you fast. And just as Brexit was a cry of rage against the prevailing status quo in 2016, so we should interpret any (potential) Labour landslide as a rejection of years of Conservative government incompetence rather than a general buy-in of what Labour are offering.

If a week is a long time in politics, as former UK PM Harold Wilson once remarked, a couple of years is an aeon. Thus, to the extent that politics is a long game, we have to look beyond the upcoming election and think about what the future of politics will look like. Labour’s ability to deliver any form of economic improvement over the next five years will determine whether they stand a chance of winning a second term. Labour will have to manage expectations in such a way that they can deliver some progress and that they are not swept away in a tide of disappointment later in the decade. But if they do not deliver, what might the options look like in five years’ time? This in turn depends on how the Conservatives respond to what currently looks like being a very heavy defeat. Will they double down and move further towards the populist end of the spectrum? Or will they do what Labour did in the wake of their heavy defeat in 2019 and tack back towards the political centre?

It is currently difficult to envisage the latter option, partly because many of the more moderate members of the parliamentary party were purged by Boris Johnson in 2019. The alternative is thus a shift towards right-wing populism of the sort espoused by many prominent government ministers of recent years, and the non-negligible possibility of a tie-up with Nigel Farage’s Reform UK. It may sound far-fetched – a wild fantasy dreamed up the political commentariat – but as the rise of RN in France and the AfD in Germany illustrate, if the traditional parties cannot enthuse and inspire voters, they will look for alternatives.

The case for tax reform

It is thus evident that Labour will have to deliver something tangible in order to pacify the electorate and generating faster growth is a priority. In contrast to 1997, the economy's trend growth rate has slowed considerably (chart below) which is excerbating the fiscal constraints under which the government will be forced to operate. Labour's manifesto offers nothing particularly interesting in terms of economic thinking, with a very limited set of fiscal promises. Obviously, Labour does not want to give too many hostages to fortune but if I were the new Chancellor, one of the first things I would do is to announce a review of the tax system, building on the excellent and under-appreciated Mirrlees Review of 2011. One reason for doing this is that the government needs to quickly find some fiscal space. In much the same way as the Blair government announced reform of the monetary policy framework in 1997, a fiscal reform is overdue. It may not deliver a significant amount of revenue immediately but if a new government is serious about tax reform, it may be able to open the fiscal taps halfway through its first term on the basis that the returns will come through later.

What might tax reform look like? It certainly will not be a radical big-bang on day one. It is likely to take the form of a Royal Commission which will report after two years with a view to implementing changes in 4-5 years’ time. A more detailed look at possible measures is a subject for another day, but one idea whose time may have come is a land value tax which is a more economically efficient form of property tax than is currently in place today. There is also scope for reforms to the taxation of savings, carbon, wealth, corporates – you name it, and it can be done better. There is also a political dimension to this. Shifting even a tiny bit of the burden away from wage earners (i.e. voters) onto less heavily taxed areas of the economy would go some way towards making voters feel a bit better about things, without necessarily reducing the tax take.

Last word

But whatever the next government wants to do on the economic policy front would be made a lot easier if there were fewer trade frictions with the EU. Although Labour has promised that the UK will not rejoin the EU, it does want to “reset the relationship and seek to deepen ties with our European friends, neighbours and allies.” While it has ruled out rejoining the single market, it does want “to improve  the UK’s trade and investment relationship with the EU, by tearing down unnecessary barriers to trade.” Whatever one’s views on Brexit in 2016, and whether or not they have subsequently changed, the UK does need closer economic and political ties with the EU than we have had in recent years. Those politicians who promised a brave new post-Brexit economic world have been found out. It is time to hit the reset button.

The Labours of Keir Starmer

A few months ago I pondered on the fate of the centre left in Europe and suggested that it “will struggle to remain relevant unless there is a radical change of tack.” Last week’s strong showing by the SPD in the German election demonstrated the unerring (in)accuracy of my political predictions. Against that backdrop, the Labour Party in the UK held its annual conference last week, giving Keir Starmer his first opportunity as leader to speak to the party faithful in person. As with most political events these days it polarised opinion. Unfortunately for Starmer, the polarisation came from within his own party with a significant minority unable to forgive him for usurping the sainted Jeremy Corbyn who was always ever one last push away from delivering the socialist utopia that the British electorate has spent the last forty years rejecting.

It has indeed been a bleak couple of years for Labour. In December 2019 they suffered a historical election defeat, registering their lowest number of parliamentary seats since 1935. Following Corbyn’s resignation he was later suspended from the party on anti-Semitism grounds. Although he was subsequently readmitted, Corbyn remains suspended from the parliamentary party (he is not counted as a Labour MP, despite having won his seat in the 2019 election). This triggered an internecine conflict between the faction supporting Corbyn and the group of centrists backing Starmer who realise that he is Labour’s best chance of being re-elected to office. It has been an unedifying spectacle at a time when the UK has been convulsed by the pandemic and when the economic costs of Brexit are becoming more evident. This navel gazing has contributed to Starmer’s poor approval ratings, with only 20% believing him to be doing a good job compared with 59% who disapprove, whilst Labour trails by 5 points in the overall polls (chart).

Starmer inherited the leader’s mantle in April 2020 as the pandemic was taking hold, at which time the Tories had a poll lead in excess of 20 points. It is a well-worn political phenomenon that incumbents tend to enjoy a popularity surge during times of national emergency. But Labour did sufficiently well that by November 2020 it had reduced the Tories’ double digit poll lead to zero. Within six months, however, the Tories had widened their lead back out to 12 points. Obviously the vaccine bounce gave the government a boost but there was more to it than that. Starmer was open to the charge that Labour did not have clearly defined policies on a lot of issues and the internal splits within the party were playing badly with the electorate.

Holding office but wielding little authority

At one point, following the loss of a critical by-election,Starmer removed his deputy from the position of chair of the party only to have to appoint her to another high-profile position following unrest from the left-wing. During the conference, unions voted against a motion that would have committed the party to pushing for a change in the UK voting system towards proportional representation. This was widely seen as one of the few ways that Labour has a real shot at getting into government now that it can no longer rely on winning seats in Scotland.

All this has given rise to a perception of a leader who holds office but does not wield control. So it was that Starmer’s conference speech was widely recognised as vitally important if he was to generate any form of cut through with the wider public. In the event it was well received (although at 90 minutes, it was long by any standards). However it cannot gloss over the fact that a significant swathe of the Labour Party prefers slogans to election winning policies. The left-wing element which continues to follow the Corbynite policy stance so heavily rejected in 2019 has given no sign that it is prepared to make the necessary comprises required to defeat their political opponents. So long as this is the case, Labour will remain a party of opposition rather than government.

What can they do?

UK elections are usually lost by the incumbent rather than being won by a coherent opposition, and with three years until the next scheduled election it is too soon to write off Labour’s chances. However, it is clear that they need to offer a compelling vision for the future and for all the positive noises surrounding Starmer’s conference speech, there was little of any substance. Perhaps this is partly because in recent years the Conservatives have appropriated many of Labour’s policy ideas, but not before first denigrating them and then repackaging them as their own. In this context it is therefore understandable that Starmer does not want to give too much away. Moreover, the Conservatives, who for years sold the idea that Labour was the party of big government that would “bankrupt Britain”, have moved into Labour’s territory with their huge public support schemes and recently-announced tax rises. So what can Labour do to differentiate themselves in areas that will make a difference? I offer four simple prescriptions:

1. Repair relations with the EU by committing either to rejoining the EU Single Market or establishing a customs union (assuming, of course, that the EU is willing to open negotiations). In doing so, Labour would have to be quite clear that this does not mean rejoining the EU – that idea would be a sure-fire vote loser. Tactically, such a policy would open up some clear water between them and their political opponents and highlight that the form of hard Brexit adopted by the current government is making life more difficult for the UK. 
2. Fix the Universal Credit system. As I have outlined previously, there are two quick fixes that can be made: (a) reduce the waiting time between claiming state assistance and actually receiving any funds and (b) reducing the taper rate at which benefits are withdrawn when people transition back into work. Such a policy would be of most benefit to those at the lower end of the income scale – precisely those who Labour say they most want to help (I will come back to this in a future post). 
3. Commit to not raising the rate of corporation tax following the hikes implemented by the current government. This would go some way to allay fears that Labour will take measures that weaken the UK’s international competitiveness and, in Starmer’s words, will help reset “the relationship between the government and business.” 
4. Invest in the infrastructure necessary to meet the aim of transitioning towards electric cars. I have long been of the view that this needs to be done well ahead of the point at which the sale of vehicles powered by petrol or diesel is phased out. With the deadline for this having been brought forward from 2040 to 2030, we have only eight years left and arguably the network needs to be substantially completed within six.

Why this matters

You do not have to be a supporter of any particular party to realise that a credible opposition is required to keep the government on its toes. Without this moderating factor, governments become complacent and formulate policies to suit the interests of their supporters rather than the country as a whole. Keir Starmer may yet be the man who can drag Labour back to the centre of the political spectrum and make them a credible political force again. But if he is to be successful at the ballot box, his party members have to get behind him and start to sound like they want to govern rather than merely act as a protest movement.