Own goals seem to have cost the Tories, but Labour should beware 

There was an intriguing line in last week’s Labour Party manifesto. It came early in the piece, in just the second sentence. It described the General Election on 4 July as “a chance to stop the endless Conservative chaos that has directly harmed the finances of every family in Britain”. This is a Labour Party that has learned the lesson of the 2010 election where David Cameron and George Osborne successfully pinned the Global Financial Crisis on Labour’s economic mismanagement. Fourteen years on and the issues may be different, but the tactics are the same. And timeless. But how justified is the accusation, and what in the Labour Party manifesto suggested a credible alternative?

The first thing to say is the accusation of chaos will resonate with the electorate. The last fourteen years have seen a series of large economic shocks that have stretched the public finances and have led to sluggish growth in household incomes. When the outgoing Labour Chief Secretary to the Treasury, Liam Byrne, wrote his infamous letter in 2010 stating “I’m afraid there is no money” the UK’s public debt stood at £1.03 trillion. Today that figure stands at £2.69 trillion.

From the fallout from the Global Financial Crisis, to Brexit, the COVID-19 pandemic, the war in Ukraine, to Liz Truss’ Mini Budget – this is quite a litany of challenges to stable governance and healthy public finances. Whilst the “Securonomics” agenda proposed by Rachel Reeves has been accused in some quarters as lacking ambition, voters appear to be tacking towards something, indeed anything, that appears less chaotic.

But as with 2010, a 2024 economic scorecard should fairly assess how much of the harm to family finances is directly attributable to UK government policy. Much as Gordon Brown did not repeal US laws on subprime lending and foster the opaque financial securitisation that triggered a credit crunch, neither did recent Conservative Prime Ministers – including Rishi Sunak and Liz Truss – create the conditions for a 23% rise in consumer prices. Nor a 5% increase in mortgage interest rates.

Across Europe consumer prices have gone up by a similar magnitude to those in the UK – more than a fifth since the onset of the COVID-19 pandemic. Mortgage interest rates in the US are now hovering around 7%. A co-ordinated increase in food and energy prices – and interest rate increases to counter those spikes – are not the result of domestic policy failures. Governing parties largely got smashed at last week’s European Parliament elections, Joe Biden is scrambling for momentum ahead of his November date with the ballot box. The problem for any Conservative trying to defend the government’s economic record is that alongside these global shocks – triggering political punishment for all incumbents – are a couple of “Made in Britain” events that have also damaged the UK’s economic performance. These and are far harder to shake off. The first of these is the handling of Brexit. The second is the arrogance and ignorance that underpinned the Mini Budget.

Let’s take Brexit first. Whilst the economic damage has not been as headline grabbing as some of the pre-Referendum analysis predicted, Brexit has hit trade density, stifled business investment, and suppressed the value of UK assets. Furthermore, to offset the labour market shock from the end of EU Free Movement of Workers there was an easing of inward migration rules that have – initially at least – pushed down per capita GDP. Brexit was an event and a fallout that Conservatives must own. It was on their watch, their political project, their damage. When looking for idiosyncratic shocks not experienced by other major economies, Brexit is towards the top of the list. The only thing to note, in the interests of balance, is the Labour Party manifesto makes little attempt to suggest concrete alternatives. The document waits until page 117 until its only mention of Brexit. This is not a great portent for an incoming administration keen to address deep-seated economic issues riddled with knotty trade-offs.

The second of the self-inflicted wounds is the 2022 Mini Budget. Accusations have been made that the increase in UK mortgage rates over the last two years has been the result of the Mini Budget. Except for a small number of individuals forced to refinance their home loan over a few weeks in Autumn 2022, this is largely nonsense. There was a co-ordinated increase in borrowing rates around the world. No, the real failing of that period was the final episode of an institutional scorched earth policy. A series that began with Brexit – where Parliament and the UK judiciary came under attack – culminating in a Mini Budget which sidelined the Office for Budget Responsibility, the Bank of England, and the Treasury. Investors looked on and concluded that the UK government was uncomfortable with the checks and balances on executive control. It was not a good look. It also spoke to government ministers, who despite a dozen years in power, had failed to work out a golden ratio in UK politics. Good governance is 20 per cent about designing policy, and 80 per cent about how it is delivered. And I may be overstating the 20 per cent.

As I have noted in these pages before, much of what Liz Truss was proposing was a sensible counter to a supply side of the UK economy that has become sclerotic, slow, and inefficient. But the ignorance of our political class stems from too many of our MPs gaining their experience at Think Tanks, in the study of political economy, and as Special Advisers. Too few have delivered policy. Who advocating 350,000 new homes a year has built a house? Who advocating a Net Zero energy grid has secured planning permission for a grid connection? Who in Parliament has undertaken a digital transformation of a customer service business?

And this issue, ultimately, is what will determine whether an incoming Labour government will succeed or fail in turning around the UK’s economic fortunes. Will it surround itself with those who understand the barriers to efficient delivery of public services? Will the proposed “Mission Boards” be filled with vested political interests, or applied expertise?  Will devolution of powers truly strip out a layer of interference, or simply add in another? Too many self-inflicted wounds appear to have done for a Conservative government that has also been unlucky with economic events beyond its control. As the former Australian cricket captain, Richie Benaud, once dryly observed: “Captaincy is 90 per cent luck and 10 per cent skill. But don’t try it without that 10 per cent”.  That is advice Captain Starmer and Lieutenant Reeves should remember when events beyond their control inevitably hit.

Simon French

Managing Director, Head of Research