The party which wins the next general election will be the party which presents to the electorate, in the clearest and most convincing way, a view of the role of the state in the society.
No one knows what the position of the Labour Party is on the role and size of the state. Keir Starmer was elected as leader in 2020 on a radical platform which suggested he felt that the state should have a big and important role in British society. However, Starmer abandoned his election program almost as soon as he was elected and so the matter is now unclear. This will not do. A process of mere inertia will likely mean that Labour will regain some of the 58 seats it lost in 2019. But it will not win back enough of those seats to become the largest party and have the right to form a government. For that to happen, the Labour Party needs to have a clear view of the role of the state in a British society and it needs to ensure that the electorate have a clear understanding of Labour’s view of that role and how it will pay for it.
Members of the Labour Party should be wary of making Johnson’s mishandling of the Owen Patterson business the main line on which to attack the Tories. Sections of the Tory press are also using the affair to attack Johnson. That should give Labour Party members pause for thought. In fact, the use of the Patterson affair to attack Johnson is not evidence of a sudden preoccupation of Tories with sleaze. It is rather, evidence of the deep fissure that is emerging in the Tory Party over the role of government expenditure in modern Britain and more fundamentally on the size and role of the state.
The Tory Party is currently deeply divided on this issue. Sunak favours a small state and a return to austerity. Johnson favours a state which will be large enough to allow him to implement the levelling up that is needed to win the next general election. It is unclear who will win this struggle but there is no doubt the struggle is underway. And the two most powerful members of the cabinet, the Prime Minister and the Chancellor, are on opposing sides.
Sunak and the Treasury have won some important battles in recent months. The £20 uplift in Universal Credit (UC) has been discontinued, the triple lock on pensions has been suspended, a change to the proposed social care reforms means that the wealthier will benefit most and an important section of the proposed new railway in the red wall seats has been abandoned.
It is unclear how strongly Johnson may have argued against these decisions. Did he believe they were not particularly important or did he feel he was not in a strong enough position to prevent them? Either way they are defeats for his levelling up agenda. If Johnson does not move against Sunak in the near future, his continued leadership of the Conservative Party will come increasingly into question.
All of this should be like manna from heaven for the Labour Party. In the 2019 General Election, Labour, at Starmer’s insistence, attempted to reverse the Brexit referendum result. And so, 53 ‘Leave’ voting Labour seats were lost to the Tories. Discontinuing the UC £20 pound uplift, revising the social care act so that it is mainly of benefit to those with wealth, cutting back on the railway building plans in the red wall seats, all these are a huge opportunity for Labour.
But the Labour Party may currently be too timid to boldly seize the opportunity. In the shadow cabinet there appears to be little appetite for reclaiming the role of the state in society. Which is strange given that the problems with which society is faced can only be dealt with by a strong and purposeful state.
Labour Party MPs do, of course, constantly refer to these problems. But when pressed for their policies on these matters they have little to say. Or, at least, little that they dare say. Take for instance climate change. In her conference speech, the shadow chancellor, Rachel Reeves, stated that Labour would spend £28 billion each year for the next 10 years on fighting climate change. In early November, while COP26 was in progress, Lisa Nandy was pressed on where this £28 billion would come from. Nandy replied that a main source would be a clamp down on tax evaders. Nandy’s response reflects Labour’s preoccupation with appearing fiscally responsible. The increased spending would be matched by increased tax revenues (but not by an increase in the tax rate since it’s all coming from tax evaders), so the national debt would not increase.
On the £20 Universal Credit cut, while Labour opposed the cut, it refused to commit to reversing it when elected.
When pressed on BBC2’s Newsnight on whether Labour would build the rail lines that the Tories had reneged on, Alison McGovern, Labour MP for Wirral South, could only say that Labour would give value for money. Her main point was that the Tories had broken their election pledge, not that Labour would commit to building the rail lines. It perhaps became obvious to Labour communications people that this sounded very weak, because the next day, Keir Starmer declared on the BBC Today program that Labour would build the railways.
He was not pressed how he would pay for the railways. Which is perhaps just as well since, in his address to the CBI on 22nd November, Starmer stated “Our public finances are in a fragile state” and that Labour would run a tight ship and be committed to ‘fiscal discipline’.
What can Starmer mean by saying that “Our public finances are in a fragile state”? Does he mean that there is a danger the country might default on its debt? One hopes that he would not be economically illiterate enough to entertain that idea. The markets certainly don’t have any such fears. The markets are just hoping that the Bank of England (BoE) will raise interest rates so that they can then acquire government bonds with a higher yield.
Does Starmer mean that if there was another pandemic that the government would be unable to respond because they had run out of money? Rishi Sunak acquired £400 billion to get through the Covid pandemic. He did not increase taxes. He simply instructed the Bank of England to mark up the accounts of those he wanted to pay. Since the expenditure had been approved by parliament the Bank of England had to do what it was told. It expanded its balance sheet and created the money for the government. There is an idea that the ‘independence’ of the Bank of England means that it could have refused to make these payments. The Bank of England has no such independence. Nor should it. It would be ridiculous if the Bank of England could reject spending decisions taken by the representatives of the people in Parliament.
Yet by talking about the public finances being in a ‘fragile state’ and about Labour’s commitment to keeping public debt under control, Starmer and his Shadow chancellor reveal an unacceptable lack of understanding of how a currency creating state works and play directly into Sunak’s austerity agenda.
Sunak’s move to austerity has given Labour a huge opportunity to win back those red walls seats. Starmer must seize it and not talk about fragile public finances and express worries about the size of the national debt. Otherwise Sunak will feel completely confident that he can bring back austerity and still retain many of those red wall seats.