The Labour Party have come to power on the back of some of the strangest election results in modern British history. Debate about what actually happened, and why, will rightly play out over the next few months. But there is no doubt that the situation is now surprisingly uncertain and open, despite the scale of Labour’s majority. This is not simply because the underlying order of things is yet to be ‘revealed’, but because new political capacities – on both the right and the left – are still in the process of formation, and are likely to alter the situation in ways that are currently hard to predict. It certainly seems there is now a possibility that a challenge will open up to the left of Labour’s. Equally, that energy could dissipate as quickly as it appeared. That is both the risk and opportunity of a situation marked by genuine uncertainty and contingency. I don’t pretend to know what types of agency, organisational forms and strategies the left should adopt now. Indeed, I’m not even sure there is yet a ‘left’ to which this article can meaningfully ‘speak’.
But there are some things we can have a sort of conditional knowledge of. We know a fair amount about the personalities in the new government. And, despite complaints about the shortage of concrete policy, we also know a good deal about what the Government wants to achieve and the ideological principles through which it conceives of its own project. We also know that the Government will encounter some serious challenges, while having a fairly good grasp of the domestic and global context in which they will be operating. Given the uncertainties suggested above, predictions about what happens next need to be highly conditional and attentive to a multitude of possible outcomes. But even here we can start to scope out the range of possible actions the Government might take, even if we can’t know exactly how political forces beyond the Government will respond.
The purpose of what follows is, then, to help orientate those who might make up a potential future left. As suggested above, I don’t want to advocate a big, overarching strategy from the comfort of my own desk. But working through the options available to the new government could help us work out better how to oppose it, confront its possible failures, and strengthen our own organisations in the face of its possible successes. I try to remain attentive throughout to the likelihood that the Government will end the next parliament with some balance of both success and failure. That likelihood naturally makes the task of new left-wing movements harder. Nonetheless, the success of pro-Palestine independents, Jeremy Corbyn’s campaign in Islington North, and the election of four new Green MPs suggests a psychological break has finally been made with Labourism. I focus here on the big economic challenges the Government faces, its ideological and practical policy approach, and how this sits within both domestic and global contexts. Assuming some degree of success on the part of the Government allows me to begin to sketch out the ways in which the left can usefully differentiate itself from Labour on questions of economic policy. If we can start to understand the terrain of possibilities now, we can hopefully begin to work out how we might intervene in that terrain as things progress. As many have already pointed out, the stakes here could not be higher.
Signalling Fiscal Credibility
What would it mean for the Government to govern well on its own terms? The first set of hurdles will be macroeconomic. The Reeves Treasury will need to run the gamut of institutions that confer credibility on governments’ spending plans. This is where the Truss government was immediately scuppered, and where Labour have most clearly staked their own claim to stability. Reeves’s own fiscal rules will commit the Government to balance current spending, while debt should be forecast to fall as a share of GDP by the end of a rolling five-year forecast period. An autumn Budget will, first and foremost, need to pass the scrutiny of the Office for Budget Responsibility (OBR). We can expect some revenue-raising measures, probably relatively small and targeted at wealthier households and businesses. Reeves has been quick to accuse the previous government of concealing the mismatch between spending commitments and revenue, which has given her a pretext to cut in some areas, and to signal future tax revenues.
Whether public spending commitments can be reconciled with government revenues will depend to some extent on circumstances beyond the Government’s control. These include, in particular, whether the inflation outlook continues to improve. This, in turn, depends on pay agreements, sterling’s performance on international markets, and any unforeseen external supply shocks. If everything looks rosy, the Bank of England will likely start cutting its policy rate by the autumn. This could lower government borrowing costs and amount to a kind of stability dividend: the OBR will suddenly discover that forecast government outgoings are lower than expected. The fiscal ‘blackhole’ shrinks. Whether this can entirely compensate for the forecast gaps in public spending commitments versus incoming revenue cannot yet be known. It is perhaps unlikely, given the scale of austerity implied by the Tories’ own pre-election tax cuts. Indeed, this was the reason for the pre-election talk of a surprise tax blitz by Reeves in her first few months of office. If the Reeves team have to, they may go further on tax rises than many expect. These will no doubt be justified on technocratic grounds. Tax rises without accompanying new spending commitments amount to an austerian, stabilising device. They suck demand out of the economy, further lower inflationary pressures, and signal both stability and credibility. However, some further pruning of spending cannot yet be ruled out. The delicate balance between Office for Budget Responsibility, the Bank Of England and the Treasury– centred on the big unknown of in-house forecasts about inflation, growth, tax revenues and spending – will determine the Government’s leeway.
The Investment Mantra
Assuming they can get through the first six months without the much-discussed ‘fiscal blackhole’ rearing its head, the Government’s next challenge will be how to revive investment. The latter has become something of a popular mantra amongst technocratic policy types. Indeed, the very term ‘investment’ has multiple valences and can mean very different things to different audiences. It is this very ambiguity which helps to unify various layers of the business and governing classes around a common project. Everyone agrees that investment is a good thing, and that it has been sorely lacking since at least 2016. But investment might be led by public funds and basically controlled by the state. Or it might frontload some public funds in order to spur investment by private capital, and gift control to the latter. Worse still is the mere incentivising of private investment by handing long-term ownership opportunities to the private sector. Setting aside the personal preferences of Reeves’s team, the fiscal situation – contingent on the circumstances described above – will dictate which strategy dominates. Hypothetically, let’s say that, 18 months in, Reeves and co. are the beneficiaries of a surprisingly stable macroeconomic outlook. In such fortunate circumstances, how might they choose to fund an expansion of on-shore wind? They might use some green bond issuance to raise money for a majority state share, while divvying out construction and operational contracts to the private sector on relatively generous terms. That, however, is the most positive outcome. Much harsher economic circumstances could see them trying to keep the costs off the public books, while attempting to coax a reticent private sector into fronting the money alone. On these variables – the vicissitudes of the economy, the appetites of private actors and the straitjacket of fiscal rules – will depend the fortunes of Britain’s green transition. Of course, both the Government and the holders of private cash will argue that there is no other way to fund the green transition, but as we will see below, there are alternatives that could be argued for.
The New Common Sense of Global Order
The contours of the Government’s programme will be shaped by these and many other contingencies. This does not mean that the top team’s own proclivities and preferences count for nothing. Across the Treasury and Foreign Office teams, a relatively coherent set of parameters has already been laid out. In line with the new common sense of the US-led global order, this doctrine unites economic and security policy. Economic sectors are now ‘strategic’. Investment is the key to ‘resilience’. De-risking without de-coupling from potentially deviant states and actors is the order of the day. Long-term planning should aim to make supply – particularly of energy – independent of geopolitical ructions. ‘Friend shoring’ should consciously plot networks of production and trade between allies. In this emerging project, it is unclear whether anyone besides the US is allowed to dictate the terms of protective tariffs or on which ‘enemy’ states these should be imposed. This leads to a rather simplistic political economy: there are hegemonic states, subordinate states, and aligned or non-aligned domestic producer interests. But it is also unclear whether the British economy can really be understood in these terms. At its limits, the boundary between state ‘interest’ and private ‘interest’ is blurred, while Britain’s economic model has long been premised on an erosion of the domestic, productive sector. What substantive industries would Reeves’s ‘secureonomics’ be seeking to secure? Perhaps weapons, maybe some combination of health and fintech spun out of the university sector. But in what sense can these be conceived in properly ‘national’ terms? At the sectoral level, the success of Reeves’s stated goals would require public forms of investment and control that would entail national controls that are presumably anathema to both multinationals and global investors. Rhetorical adherence to the doctrine of ‘modern supply-side economics’ might please the leading lights of the US-led global order, but its implementation in the British context probably means hurling limited amounts of public cash at global capital.
Such efforts might feasibly raise domestic growth by a few percentage points. But here the ambiguities of the investment mantra return. Investment should, in the dominant narrative, lead to some efflorescence of private dynamism and the recovery of productivity growth rates. That would allow real wages to finally lift off the floor that they have been stuck at since 2008. Through the magic of productivity growth, the legitimacy of capitalism should be restored. Such visions of sustained rises in productivity, real incomes, and thus living standards, are a sort of caricature of the long-dead post-war consensus. The precondition of that limited success was, however, extensive national ownership and control of highly productive economic sectors. Let’s assume, however, that the Government gets its stability dividend, incentivises some private investment, and begins, by the end of the Parliament, to see some growth in productivity rates. Proposals to introduce sectoral bargaining rights – through which workers might periodically claim back some of the gains from productivity growth – have been watered down. There is, therefore, no guarantee that the broad mass of workers will actually benefit from such an increase in productivity. Both at the top of the current Labour government and across the institutions of the US-led global order, no one is willing to state plainly that rising investment requires radically strengthened trade unions in order to translate into real wage gains.
What Constitutes Success?
Even if it is successful on its own terms, the Government has few means to substantially increase real incomes by the end of the next parliament. This, moreover, is not the principal measure on which they will be judged by an extremely sceptical and volatile electorate. That assessment will most likely rest on the extent to which the quality of public services – particularly healthcare – is improved. On this point, ‘secureonomics’ has vanishingly little to say. The deference of the Reeves-Lammy doctrine to the current obsessions of the US-led global order – the whizz-bang of investment, tech, supply chains, big strategy – relegates consideration of the humdrum world of public services to a footnote. But the latter is, quite rightly, people’s first priority. People with no training in economics readily understand a simple fact: you can’t go to work if you don’t have good health, means of looking after yourself, a decent place to sleep, a system of care for your loved ones. It is precisely the under-performance of all of these features of daily life that has driven the rise of the far right. The obvious way to reduce the salience of these views is to dramatically increase current spending on public services – that is, precisely the option that fiscal rules militate against. ‘More money for the NHS’, as the saying goes, relies on ‘growth’ first. But there is an obvious fallacy here. The steep rise in economic inactivity of recent years is a result of ill health. Even by the reductive and economistic terms of capitalist governance, the current approach is fatally flawed. One can readily outline an alternative: sharp increases in wages, an expansion of public spending on universally accessible services, price controls on essentials, coordination and control of investment at the national level – these would produce the robust demand upon which actual ‘innovation’ depends. But the Government has sacrificed this option in its quest for fiscal stability.
It is hard to avoid the conclusion that even success on its own terms will not grant the new government sustained support. There could, of course, be some unforeseen luck. Particularly if there is a recession and a prolonged period in which global deflationary tendencies dominate, the government will be able to cheaply borrow to raise aggregate demand. That way, the Labour government could relive the economy of 2012, but this time do it ‘right’. However, the world is more likely to face a combination of recurring negative supply shocks, bouts of inflation, higher interest rates, and sluggish investment, wage and employment growth. That is, the ‘stagflation’ that demand-side Keynesianism could not manage, and that supply-side neoliberalism was supposed to cure. Famously, the latter destroyed the bargaining power of organised labour and dampened consumer price inflation, but relied on the growth of asset prices – particularly house prices – to sustain consumer demand. As it desperately seeks to raise long-term investment, then, the Labour government might be tempted to bolster middle-class consumer spending in the short term by reverting to the pre-crisis norm of house price stimulus. Indeed, that seems to be the path of least resistance for a government unable or unwilling to raise either wages or social spending. Sustained revival of the housing market could offer them a narrow path through the next Parliament. Reeves has already suggested a cut in interest rates would benefit mortgage holders, while seeking to encourage an expansion of private sector housebuilding. To the extent that they think beyond the short term at all, this will be seen as buying them some breathing space to enact the structural, supply-side reform at the heart of ‘secureonomics’.
Crisis and Backlash?
The decisive question will be how the Government responds to these and other difficulties in delivering on its promises. But here the comparative evidence is not good. Both in Germany and in the US, governments of similar ideological hue – those of Scholz and Biden – stumbled amid high rates of inflation. The Labour leadership is marked by deference, conformism, and caution towards the institutions of the British state and of global order. Reeves – a former Bank of England economist – has rejected calls to end interest rate payments on a large stock of reserves, held by the commercial banking sector as a result of quantitative easing (QE). Such reserves play no real macroeconomic role: they exist merely as a byproduct of QE and are far in excess of the ‘natural’ demand of the banks for reserves. Britain is alone in remunerating these reserves in public money. Ending this remuneration would amount to a tax on banks, and would, in a pen stroke, free up tens of billions for the Treasury. Even the Financial Times has advocated for some alteration to the system. But Bank Governor Andrew Bailey doesn’t much like the proposal, and Reeves has dutifully followed suit. Such deference and conformism do not bode well for the new government. Starmer’s own tendency has been to make rhetorical shifts – on Covid-19 or on Gaza – only when the Conservatives or the US have signalled that it is ok to do so. He was a remarkably lethargic opposition leader, a fact which seems to have contributed to his low public standing. To an impatient electorate, this ideological predisposition towards deference may look more like indecision.
The public and political backlash could be extreme. One can pick from any number of global comparisons. The continued rise of the far right in response to an ailing and authoritarian centrism in France. The incoherence and budgetary stasis of the Scholz government in Germany, with an accompanying collapse in votes for the ruling coalition. The rapid descent of the Biden administration and the return of Trump – despite all the benefits of US hegemony. If Trump returns to power, implements further trade restrictions, and cuts domestic tax rates, then global market instability will follow. This will further undermine the new government’s stabilising posture. Even if they can avoid austerity-by-default, secure private capital investment, and plough some money into public services, global turbulence and their own conformist instincts still threaten to undermine them. Climate change, rising global conflict, and increased population flows will intensify political pressure from the right to ‘defend our borders’. The conformism and timidity of the Government towards the status quo may, then, feed directly into rising electoral prospects for the far right. The latter will continue to ‘say the unsayable’: close the borders, cut the taxes, sweep aside the ‘globalists’, ditch the fiscal rules and red tape, go for ‘growth’. Farage need only maintain minimal levels of ideological and organisational coherence in order to further scale up his peculiar brand of private political entrepreneurialism.
The Government may have one final option, which it will no doubt be reluctant to use: debt-financed spending on public goods. Particularly later on in the Parliament, lower borrowing costs would create obvious space for them to do this. But adopting the first strategy outlined above – using this borrowing in a way that secures public control of new investment and resulting assets – would push at the borders of prevailing elite common sense. Political conflict within the cabinet, the wider party and the wider political system will determine the balance here. But the ambiguities around the investment mantra mean there is a battle to be fought. Some minor progress and determination on the Government’s part could save them from electoral defeat – or, as looks likely with the Biden-Harris administration, it could not.
Implications for the Left
During the Corbyn years, policy advisers and strategists tended to frame economic policy around specific tax rises to fund specific spending pledges. This was intended as a riposte to the recurring question of how things would be paid for. Accompanying this, however, was a commitment to borrow for long-term investment. Corbynism had its own spin on the investment mantra, particularly around green transition. Indeed, the re-legitimisation of debt-financed public investment may be one of Corbynism’s most under-appreciated achievements. The Citizens’ Economic Council project has recently run a series of deliberative workshops with members of the public. In those sessions, participants were presented with some basic facts about the nature of government borrowing, and what this can fund. Their response was notable. One participant is quoted as having said, “[National debt] is not the demon I always thought it was.” In a context where the public is suffering a cost of living squeeze, and is wary of further tax rises, public debt offers a relatively non-conflictual means of paying for public priorities. Indeed, this is precisely why orthodox economics dislikes it: it appears to postpone difficult decisions until some point in the future, rather than divvying up scarce resources in the present. But public debt issuance to fund projects controlled by the public sector remains by far the most efficient means of tapping the idle hoards of private capital that advocates of investment so often dangle in front of cash-strapped governments. If carefully framed by a clear plan, such public borrowing could be both effective and popular.
It is worth noting in this regard that the Citizens’ Economic Council workshops took place after the Truss debacle, which had seemingly undermined the case for large increases in public spending without accompanying tax rises. Despite this, the participants seem to have raised few concerns about the possibility of borrowing to invest. In order to avoid a market ‘reaction’ of the kind that confronted Truss, a programme of increased public borrowing would need to be carefully planned and signalled. A re-designed mandate for the Bank of England to coordinate with the Treasury on maintaining stable market demand for new bond issuance would also help here – although that would indeed mark a radical departure from orthodoxy. An era of higher inflation, higher interest rates, and higher government borrowing costs does not necessarily foreclose the option of debt-financed public spending. But it makes the question of how the institutions of macroeconomic governance – particularly the Bank and the Treasury – coordinate to stabilise government debt markets all the more pressing. Even without explicit Bank support, bond issuance to fund specific long-term investment opportunities could still be executed – even in a context of higher borrowing costs than the post-2008 norm.
But if the analysis above is correct, the government will be highly reluctant to take the option of increased borrowing and may do so only late on in the parliament. This is where the issue can be mobilised by left-wing movements. Public investment sat at the heart of the Greens’ election manifesto, and it formed a central plank of Corbyn’s Green Industrial Revolution proposals. The work of the pressure group Green New Deal Rising links up ideas about an active and interventionist state with ideas about economic transformation and global justice. This trend on the left has been apparent for some time, but has been marginalised by the recovery of centrism and the rise of the far right. Placing demands for debt-financed public investment at the centre of the left’s challenge to Labour could help to build unity and coherence amongst movements. In a subsequent election with a revived Toryism or unified right, there will be powerful pressure on the left to fall in behind Labour. The extent to which the left can continue to build amongst its core constituencies will no doubt depend on the organisations it can now develop. I do not under-estimate that challenge. But key policy demands will form an important point of differentiation and a means of building different groups’ sense of participating in a shared project.
The new Labour government will face major challenges from its outset. Tensions will continue to mount throughout its tenure. Success on its own terms will require a lot of global luck. Even if it gets its way, it is by no means clear that this will meet the expectations of its electorate. Things are, then, unusually open and uncertain. There is space to build the challenge on the left. But the challenge will need to respond to a rapidly changing situation, and be ready to exploit the predictable and unpredictable failures of the Government. This will be difficult, but the left has a historic responsibility to do so.