The end of this week, one in which we have had both the Chancellor‘s Spring Statement, and the second reading of the awful Employment Rights Bill in the Lords, offers a useful moment to take pause and look back over what economic plans Labour have managed to put into play so far; what economic effect their actions have had; and what we can expect to happen in the coming months and years.
Remember how we felt when Labour won last year’s election? Apprehensive, but relieved that at least the previous government, aimless and adrift after years of clueless economic policy, was gone. We suspected that the new Government could always turn out to be even worse, but we hoped for the best and that things might improve. Labour said that economic growth was their number one priority: the fact that they didn’t seem to have any kind of theory as to what actually drives economic growth was a worry, but perhaps they would muddle their way through to a better understanding.
Came the autumn Budget. The economy Labour had inherited wasn’t great. The economic consequences of Sunak were that growth was rapidly slowing to a halt, a result of steady tax increases and a failure to control government spend. Labour’s claim of a £22 billion black hole was a cheerful fantasy knocked out of nothing; regardless, years of too-large government, too-high taxes and ever-increasing regulation meant that economic growth toward the end of last year was bound to be slow-to-no; and so it proved.
Was Labour’s post-election Budget likely to turn this around? Reeves made a couple of respectable bows towards cutting cost, such as removing the winter fuel allowance for most: the ferocity of the attack against that move (by, among others, many commentators who really ought to be a little ashamed for joining in) certainly helped to discourage too many further moves in the direction of reducing the size of government (until recently it has become absolutely crucial to do so – hence, the much-desired attack on benefits). But in any event, at the time of the autumn Budget, over-generous wage settlements with public sector allies of the Government, along with a continued overall larger-state, higher-tax approach, ensured a doomed direction of travel. Before the election, recession looked likely. After the Budget, it was becoming pretty certain; and so is it transpiring.
The OBR’s 2025 forecast at the time of that Budget was obviously too optimistic; now it has had to cut that projection in half, from 2% to 1%. (The OBR has said it expects to cut its 2025 forecast further when it comes to assess the impact of the dire Employment Rights Bill – so even they, ideological allies of Labour, predict less than 1% GDP growth this year – which is to say, around 0% growth in GDP per capita.) Certainly, this first quarter of the year feels so far very much like recession.
So, the Budget clearly wasn’t going to work, as would have been understood by anybody who focused on what its impact would be on the supply side, with businesses burdened with more and more costs and the flood of entrepreneurs and high achievers leaving the country reaching epic proportions. Because the economy had worsened (as we were predicting it would), a Spring Statement – in fact a U-turn – became necessary. And all this takes us only halfway down the path of bad news; expect more tax increases in the coming autumn 2025 Budget.
Why are we stuck with such similar programmes – more government, more tax, more regulation – whatever the party? Certainly, the procession of formerly Conservative Bills, picked up by Labour, going through Parliament right now implies that neither party is in charge – for the conspiracy theorists, that there is a uniparty run by the civil service and others.
At one level, of course, this uniparty idea is silly – but it’s so depressing not to see, decade after decade, any influence from the supply-side in the mix. An example that leans to corroboration of the uniparty thesis is the story of the non-doms, exemplified by articles today that one of Britain’s richest residents, the 13-times billionaire Lakshmi Mittal, is leaving the UK and taking his wealth with him.
Labour’s decision to abolish non-dom status was merely the final stroke that ensured so many wealthy non-doms would absolutely have to leave the UK (the tax consequences would be far too calamitous for them otherwise). The original economically illiterate attack on them had come from George Osborne, with Philip Hammond, Rishi Sunak and Jeremy Hunt all bit-by-bit taking further steps to make it less and less comfortable for the world’s wealthy – and indeed, for the many more mundane non-doms who had merely come over from, say, Paris to work in the city – to settle in London. They have added much to our cosmopolitan culture, but above all they added a lot to investment and our tax revenues (whatever all those foolish chancellors claimed).
Anyway, the large proportion of the non-doms have gone now, and more will follow. No more tax revenues, farewell to all the valuable economic activity, from Mr. Mittal. (It’s not just the non-doms who are departing. Entrepreneurs, retirees wanting to sell their business without paying capital gains tax, emigrants to Australia or elsewhere because they don’t want to pay inheritance tax, high achievers in the City, hairdressers, beauticians, frustrated high-achievers in their late 20s – all are flooding off to Switzerland, Australia, Dubai, Milan, the States. Anywhere but here. The best and the brightest. Gone.)
So, what will be the economic consequences of Labour? Four years or more to go before the next election. Will the size of government be slashed? I wouldn’t gamble on it. Will taxes be reduced? It’s not in their DNA. And regulation? Much of the barrier to building houses in the UK is the enormous cost of being required to provide 50% of build in social (i.e. zero profit) housing. Is reducing that number a nettle the Chancellor is prepared to grasp? Will the Government dump the ludicrous Football Regulator bill; be prepared to abolish Diversity, Equity, Inclusion across the public sector, as has been done in the US? Will Ed Miliband be fired and the more egregious of the net zero regulations and costs be rolled back? Will we finally realise we can’t go on having the highest electricity costs in Europe, and cease the egregious renewables subsidies?
We can hope for all this, but I doubt that much of it will come to pass. Most likely, the current pattern of talking good stuff and doing bad stuff will continue. In which case, things can only get worse; and we are on our way, some time in the next few years, to Labour’s next IMF moment. Oh dear.
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