Breathe deep. The belt-tightening is about to begin. Ever since the election, Labour Cabinet ministers have been announcing that things in their departments are even worse than they thought. On Monday comes the big one: the Chancellor will reveal (shock) that the public finances are even worse than she imagined, to the tune of £20 billion. Cue more tax rises to be announced in the autumn, on top of a Tory tax burden that was already on course to hit its highest level since the 1940s.
This is, of course, exactly what Labour publicly promised during the election campaign that they wouldn’t do. No one, alas, should be too surprised about Labour’s hypocrisy, or their desire to ratchet up public spending. Far more extraordinary is that Reeves is now able to sell her agenda via a narrative of Tory irresponsibility and Labour fiscal rectitude. A Labour source briefed to the FT that the Conservatives ‘spent taxpayers’ money like there was no tomorrow,’ and that it ‘now falls to Labour to fix the foundations of our economy’.
Truly, when such lines can be delivered with a straight face, we are living in topsy-turvy times. By comparison, Britain’s Olympic athletes having to avoid substandard French food and fly in their own chef should scarcely raise an eyebrow.
At least for now, the Tories have lost their longstanding reputation as the party that, like them or not, knew how to keep the economy on track. As the Conservative leadership contest gets underway, candidates must take a moment to absorb the scale of political territory their party has conceded – and how hard they will have to work to win this ground back.
Of course, much of Labour’s messaging is pure political theatre, and even preposterous. When party officials repeat that they have inherited the worst economic circumstances since the Second World War, they deserve to be challenged. Growth is picking up, inflation has come down and unemployment is low. We are a long way from the 1970s, when Labour had to go cap in hand to the IMF.
And yet. With stagnant incomes and squeezed household budgets, the public is all too ready to buy into a dodgy narrative that gives them someone to blame for their empty wallets.
Such topsy-turvy politics may not last. Like the French can-can dancers who threatened to strike in the run-up to the Olympic opening ceremony, Labour are likely to return to their expected ways. Rachel Reeves will find it much harder to maintain a record for fiscal responsibility in office, especially if her willingness to spend taxpayers’ cash cuts against the economic growth she has promised to deliver. The flurry of policy announcements from Labour includes plenty of initiatives that seem likely to cause more problems than they solve.
But Conservatives cannot rely on Labour to trip up. As Graeme Orchard explained in CapX this week, Labour’s plans for mission-led government are attempting to embed a whole new state-driven approach to investment and growth. That model will constrain future governments as well, unless they are ready to confront the economic consensus now emerging.
As a result, whoever wins the Tory leadership will need to craft not only a positive, alternative vision centred on lower tax and and the power of markets, but also a plan to unpick Labour’s corporatist model. Most important of all, they will now need to combine all this with a convincing pitch to the public that the Conservatives are once more a party that can be trusted on the economy.
Until then, expect Reeves and Starmer to keep blaming everything they can on a grim Tory inheritance, even as they benefit from the things that Sunak and Hunt did right.
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