Labour is assured of victory in the UK’s 4 July general election. The public desires revenge on a Conservative party that in 14 years of largely incompetent government has provided five failed prime ministers and, for many, declining living standards.
Even within sight of a landslide win, Labour behaves in a standard way. It tones down its first and second draft policy programmes. It wins acceptance from the City of London – and hopes it will not be punished by the usual Tory claim that it will blow a big hole in public finances.
Labour’s inoffensive manifesto on 13 June, like the no-risk policy on the European Union, confirms the cautious approach. Rachel Reeves, likely to become Britain’s first-ever female chancellor of the exchequer in Keir Starmer’s new government, has signalled Labour’s wish to improve the EU relationship.
Her ideas, such as aligning rules in the chemicals sector, do not go very far and show a perhaps intentional misunderstanding of the real position. As commentators have pointed out, whatever the progress is on rule alignment, UK trade with the EU will continue to be hamstrung by deep (and possibly growing) regulatory impediments unless Britain rejoins the single market and customs union – options the Labour party has ruled out.
Parallels with landslide election in May 1997
Labour will almost certainly gain a massive ‘play safe’ dividend. The big question is: how will the party spend it?
There are parallels with the landslide UK election in May 1997 which brought Tony Blair to power as prime minister. Labour did not expect such a large win. Immediately afterwards, Gordon Brown, the then-chancellor of the exchequer, made the Bank of England independent. Brown, in a roundabout way, confirmed the Conservative critique that Labour cannot be expected to control inflation.
Blair and Brown had already pacified the City. John Smith, the pre-Blair party leader before he died in 1994, started to court the money managers. But still New Labour played safe. By 1997, inflation had fallen thanks to manufacturing having migrated to Asia where cheap labour lowered goods prices. The economic position in 2024, however, is much more difficult. But Starmer and Reeves look likely to take stewardship of an economy which has benefitted from nearly two years of relative stability under Rishi Sunak, prime minister since October 2022.
Furthermore, interest rates are now about to fall as a result of inflation declining to 2%. An underlying economic improvement (from a sadly low level) intensifies the questions over Sunak’s quixotic decision to call an election in the summer rather than waiting for the autumn.
Waves of change in the UK and Europe
Starmer will benefit internationally from perception of UK change. And, as a result of French President Emmanuel Macron’s gamble on dissolving the National Assembly and calling early elections in France, there is another parallel to 1997 which could help the UK, at least in relative terms.
In a spectacularly ill-timed move in April 1997, French President Jacques Chirac called an early national assembly election. This led to five years of ‘cohabitation’ with his Socialist party rival Lionel Jospin, who became prime minister in June 1997 – a month after Blair swept to power. This was the third and longest of three uncomfortable periods under the Fifth Republic under which a president is forced to share power with a prime minister from the opposition.
We may be about to see the fourth – and probably most brutal – period of cohabitation. A prime minster from the far-right National Rally, likely to be leader Jordan Bardella, appears poised for office after the second round of the French elections on 7 July. Starmer may well derive some benefit from the view that, after the vicissitudes of the past decade, the UK’s domestic political scene will be relatively turbulence-free.
Calls for redistributive policies from Labour rank and file
In any case, the Starmer government will not find it hard to live with central bank independence. Andrew Bailey – who gets on well with Reeves (she worked under him at the Bank at the beginning of her career) – is likely to serve out his remaining four years as governor.
There will be calls for redistributive policies from party members and the back benches. This will be combined with grassroots protests against the watering down of Labour’s ‘green agenda’, corporate-friendly tampering with the workers’ rights programme and abandonment of plans for uniformly higher taxation.
After years of economic duress, the Starmer government will face domestic problems somewhat similar to those confronting Clement Attlee when he took over from Winston Churchill in 1945 at the end of the second world war. The National Health Service needs serious funding and reform. Trade unions require appeasement. Rail companies will be renationalised, Thames Water and other utilities restructured.
Taxes will have to be raised, one way or another. Aligning income and capital gains tax rates makes sense. Council tax must also be amended to reflect higher house prices.
Whatever the drawbacks of the previous Labour leadership under former leader Jeremy Corbyn, the ‘shadow budgets’ for 2017 and 2019 – drawn up under John McDonnell, previous shadow chancellor – contain some useful, properly costed proposals. For example, many egregious tax deductions should be removed.
By not taking risks when the ruling Conservatives were manifestly, in so many areas, doing the opposite, Labour now looks set for at least 10 years in power. One way of steading the party for sizable tasks ahead would be to appoint a powerful Commission to advise the chancellor on economic sustainability as well as political feasibility.
The Cabinet will still have to decide. But Gordon Brown, Ed Balls and Harriet Harman – former prime minister, education secretary and minister for women and equality – would be appropriate choices as commissioners. That would help Starmer and Reeves spend the ‘play safe’ dividend wisely and relatively conservatively. And it would ensure that, in 10 years, Labour and the country as a whole have something to show for it.
Meghnad Desai is Emeritus Professor of Economics at the London School of Economics and Political Science, Chair of the OMFIF Advisory Council, Crossbench Peer in the House of Lords and was Chairman of the Labour Party in 1986-92 and David Marsh is Chairman of OMFIF.
Image credit: UK Parliament
