When Britain’s shortest-serving prime minister, Liz Truss, went on an American book tour this year, she stuck to the same mantra she has repeated since her downfall in 2022: that the market meltdown caused by her government’s unfunded tax-cut proposal was down to the machinations of a British “deep state” that rejected her transformative vision. As paranoid as this story sounds, Truss does get one thing right: British politicians today find themselves in an economic straitjacket because of a focus on short-term costs at the expense of long-term planning. 

Although it is fortunate that the dogmatic low-tax nostrums of Trussonomics were rejected, the market backlash it faced has given economic experimentation a bad name in Britain, dampening any inclination toward fiscal radicalism on the British left. Hence, as the Labour party prepares to govern after its landslide victory in the general election on July 4, its muted policy platform risks taking the country further along the path of weary decline. 

“The elephant in the room is that Britain is facing serious economic stagnation.”

The elephant in the room is that Britain is facing serious economic stagnation. Labour chancellor-in-waiting Rachel Reeves has adopted a cautious approach during an election in which both major parties have offered little to address Britain’s long-term structural challenges. The Institute for Fiscal Studies highlights a political “conspiracy of silence” about the choices facing the new government when it comes to tax increases, spending cuts, and debt.

The International Monetary Fund notes that the country’s GDP is around a quarter below the level suggested by the trend before the financial crisis of 2007-2008, while the decline in labor productivity growth has been notably worse than in similar  economies. Public services are crumbling in the aftermath of the post-2010 austerity policy error, when the government decided to slash spending rather than invest at rock-bottom interest rates. The tax burden sits close to the post-World War II peak, and there is no serious political discussion about how to address the burdens that will be placed on public services by a rapidly aging population. Meanwhile, debt interest payments and the welfare bill keep ticking higher. Given the current state of things, business as usual simply won’t cut it. 

In response, Reeves has proposed a policy of “securonomics.” She set out her vision for interventionist supply-side reform and an industrial policy backed up by a more active state in her Mais lecture, a speech shot through with the influence of Bidenomics. Securonomics, Reeves was quick to clarify, isn’t a return to the state “picking winners and propping up uncompetitive industries,” but a policy which recognises the importance of public investment and aims to support key industries through partnership with business to drive growth in a context of disrupted supply chains and the geopolitical threat from China. There is a post-neoliberal slant to Reeves’ critique of her party’s economic record, evident in her comment that Tony Blair’s New Labour failed to recognise that “globalization and new technologies could widen as well as diminish inequality, disempower people as much as liberate them, displace as well as create good work.” None of this is particularly radical in the global context, but it does stand in clear contrast to the Tories’ view of the current US administration’s policies as driving a “distortive global subsidy race.” 

However, the economic impact of “securonomics” looks less consequential than Reeves’s reformist rhetoric might suggest. In the wake of the Truss disaster, Reeves has signed on to an arbitrary Conservative fiscal rule on debt that will constrict her hand. As the IFS points out, Labour has no room “for any more spending than planned by the current government. And those plans do involve cuts both to investment spending and to spending on unprotected public services.” The party has promised relatively paltry funding for a National Wealth Fund to invest in ports, gigafactories, clean steel, carbon capture, and green hydrogen, as well as for the state-owned Great British Energy, which will finance wind and perhaps nuclear projects. While Reeves recognizes that dealing with Britain’s sclerotic planning system is key to driving growth and addressing a severe housing crisis that has exacerbated intergenerational inequality, it is unclear whether she has the guts to push through the needed reforms. 

Key pledges have already been dialled back. A green investment plan has been slashed to £5 billion ($6.4 billion) a year, down from £28 billion. A workers’-rights package—which would end zero-hours contracts and bosses’ power to fire and rehire, while introducing rights to parental leave, sick pay, and protection from unfair dismissal—will now go through consultation amid criticism from business. Meanwhile, Labour will maintain the pernicious two-child benefit cap, which renders parents ineligible for certain state support payments for a third child onward. Pledges to get tougher on water-industry bosses—England is the only country with a fully privatized water and sewage system—could amount to nothing more than a bluff, as Victorian infrastructure continues to be overwhelmed and sewage is pumped into rivers and the ocean. 

Higher taxes will be needed if Labour wants to avoid further cuts to public services, much less expand them. Reeves has pledged not to raise taxes on working people, although income taxes will rise automatically because tax-rate bands won’t be increased with inflation under the existing policy which Labour won’t touch.  Labour plans to close a private-equity tax loophole and remove a tax exemption for private schools. It also aims to raise more cash from tax avoidance, a policy easy to promise but difficult to deliver on. The revenue forecast from these measures is ultimately small change when set against the fiscal shortfall. 

One cause of this predicament is the influence of the publicly funded Office for Budget Responsibility, or OBR, which has been responsible for government economic and fiscal forecasts since its creation in 2010. As Truss correctly observed, the OBR has gathered power to become “a driver of fiscal policy.” While the agency has been a good thing for improving transparency over the public finances and holding the government to account for fiscal decisions, it can also stand in the way of sensible economic policies as well as terrible ones. As Kings College London’s Jonathan Portes argues, the OBR’s remit and approach “militates against any radical policy changes” and it can discount long-term social and economic benefits in its modelling. Failure to get the OBR on board leads to political disaster, as Truss discovered when a lack of OBR forecasts accompanying her government’s tax-cutting plan exacerbated market scepticism. 

Across the Atlantic, the lukewarm reception of Bidenomics could also dampen Reeves’s prospects for a transformative economic agenda. According to YouGov’s state of the US economy tracker, more than half of registered voters think the economy is getting worse. Working-class voters have a particularly negative view on the Biden administration’s economic performance, as painful inflation has overshadowed progress with labor and investment. Landmark policies such as the Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act haven’t resonated with voters, a key reason being the long-term impact of the policies. 

Moreover, behind Reeves looms the conformist Labour leader Keir Starmer, who eschews bold ideas and personifies the business-as-usual approach. Starmer hasn’t won this election because of enthusiasm for his policy platform, but because Labour is the alternative to 14 years of Tory incompetence and infighting. In this election, it was enough to achieve victory simply by not being a Conservative and not being the hard-left former Labour leader Jeremy Corbyn. 

If securonomics is downgraded into a Tory-lite fiscal policy, it seems likely that Labour will accede to demands from the left for more extreme social change. Starmer has already made clear that he is keen on importing identity politics from the United States, and supports a debate in Parliament on assisted suicide. Abortion decriminalization in England and Wales, a policy included in Labour’s 2019 manifesto though absent from the current one, could feasibly reappear on the agenda. Former Prime Minister Gordon Brown’s report on constitutional reform for Starmer contains proposals, such as codifying “constitutionally protected social rights” and replacing the House of Lords with an assembly which will be given “new but precisely drawn powers to safeguard the constitution,”that risk weakening Parliament further and worsening political fragmentation across Britain. 

Britain desperately needs real economic reform. The Truss experiment, which offered nothing on the key issues facing the nation, shows that a focus on cutting marginal tax rates isn’t the answer. Reeves has a battle on her hands to convince the nation that securonomics is more than tinkering around the edges as the British economy continues to stagnate. She should have the guts to drive forward planning reform and come clean on tax and investment. Otherwise, she risks being a busted flush of a chancellor. 

Christopher Akers is a senior reporter with the Investors Chronicle team at the Financial Times.

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