Budget shortfalls can be solved without major spending cuts, but Labour’s economic strategy is driven by electoral concerns

In 2010 the Tories came to power with the expressed intention to instigate austerity policies on the public finances. They immediately started to cut money for government departments, local councils and benefit claimants. They argued that it was necessary because of the global financial crash of 2008 and they blamed the Labour government during that period for spending too much and therefore hampering economic recovery. Despite these flimsy arguments, Labour failed to fight back, the public was convinced, and by the time of the election Labour was also committed to spending cuts. I have no doubt that the Tories, under David Cameron and his Chancellor George Osborne, would have carried out austerity regardless. As a strategy, though, blaming your opponent and using it to beat them for years, really worked.

Fast forward to 2024, and the brand new Labour government has chosen to play the same trick, this time after the election. Yesterday, the new Chancellor Rachel Reeves made a statement to the House of Commons on the state of the UK’s economy. She claimed that she had found a £20bn ‘black hole’ in finances that the previous government had kept hidden from the public during the election campaign. Now we need to be careful here, because whilst that could well be true, it’s taken Reeves, Labour, and therefore the rest of us in a very odd direction: towards a fresh round of austerity.

Reeves has chosen to cancel some infrastructure projects. She has also chosen to limit the number of pensioners getting help from the government for fuel payments through the winter. She cancelled a project on social care, an issue massively neglected by both main parties for decades because it costs money. We already know that Labour will not be scrapping the two child benefit cap, which restricts child tax credit and universal credit to the first two children in most households. We also know that they are listening to former Labour cabinet minister Alan Milburn, who is urging them to force disabled people into work. We can add to this Labour’s desire to remove failed asylum seekers speedily from the UK. While they’ve cancelled the Tories’ Rwanda plan, they are using the money for flights returning people to their country of origin. In amongst these negatives, there are sweeteners for the faithful, like above-inflation public sector pay increases.

Let’s be clear , what happened yesterday was astonishing. The use of an old Tory tactic was perhaps expected. But Reeves went beyond the tactic and used the austerity argument wholesale, to cement her party’s position on the economic right. Labour keeps telling us they are ‘country first’ and not ‘party first’, but this was precisely the latter. In the long term they hope to switch places with the Tories as the party of ‘sound money’ and portray them instead as the ones with a spending problem. In the short term, they are making all our lives harder.

It would have been possible to highlight this overspend and not head towards budget cuts. Blame the Tories for being bad managers by all means, but why make people suffer? They could have raised taxes for the very rich, for example, except they ruled that out in the manifesto and don’t want to look like massive fibbers just yet. There is also a strong argument for spending to grow the economy. It requires borrowing, but that is exactly what companies do when they expand. When governments borrow to instigate infrastructure projects it creates jobs, which in turn increases spending in local communities and provides money back to the treasury in taxation. The only thing Labour is borrowing right now is the Tory strategy they deployed in 2010, and they’re using it in hope of suppressing support for their opponents for a decade or more. And while a decade without the Tories is a nice thing indeed, Labour are now positioning themselves to the right of them economically.

I get quite sceptical when people say things like “politicians are all the same”. I feel puzzled when people argue that left and right don’t exist anymore. I get frustrated when people claim there isn’t much difference between the two main parties. It seems lazy and not based on real analysis. Today, though, these things are hard to argue against. Labour are out-Torying the Tories. Left and right have been replaced by ‘governing’. The actions of both parties in power have the same impact on the ground. The ruthless Starmer leadership has transformed into a ruthless Labour government that will take whatever actions it thinks are necessary to cement its position in power, including the tactics and policies of the Thatcherite party it has replaced.

~ Jon Bigger

Photo: World Economic Forum / Sandra Blasser CC BY-NC-SA 2.0