Which previous government will have the biggest influence on Starmer’s?
I wrote before about the similarities (and differences) between Starmer and his predecessor Tony Blair. There’s some debate in Labour circles over whether the current Labour leader and likely next Prime Minister will be influenced by the policies and style of New Labour. Or whether perhaps he is more aligned with the traditional social democratic values and aspirations associated with Jim Callaghan and Harold Wilson.
When you read the pronouncements of Starmer, however — and those of the perhaps somewhat unlikely star of his changed Labour Party, Rachel Reeves — it’s clear that another government is far more influential over their policy agenda. It’s one that only lasted seven weeks, but could well shape the direction of the UK for the next several years.
We’re talking, of course, about the Liz Truss administration. That bizarre political and economic experiment of 2022 looms large in the minds of Starmer and Reeves. And for good reason.
Here was a government that got pummelled by the markets for making uncosted pledges and eschewing the advice of the Office for Budget Responsibility. We were literally hours away from final-salary pension schemes going belly-up. British homeowners paid the price of the reckless ‘KamiKwasi’ Budget in significantly increased mortgage payments.
But what made the implosion all the more extraordinary was that this was a laissez-faire, free-market government. Liz Truss was certainly the most right-wing Prime Minister since Margaret Thatcher and, arguably, in modern British political history. Kwasi Kwarteng made his announcements with the aim of cutting taxes and fuelling growth — ideas that should have been music to the ears of markets and financial institutions.
Markets, however, are much less motivated by ideology than they are by numbers. And Kwarteng’s numbers made no sense.
Here’s a direct quote from Rachel Reeves:
“During my time as an economist at the Bank of England, I learnt a very simple lesson: your sums must always add up. Instability follows when that very basic truth is ignored.”
In those two sentences, she offers a devastating critique of the Tory wreckers who irresponsibly played with fire. And she simultaneously takes a swipe at the fashionable left-wing consensus that says you can simply print money with impunity.
Reeves looks at what happened to Kwarteng and says: not on my watch.
Speaking to business leaders at Rolls Royce this week, the Oxford and LSE alumna picked up on this theme:
“I will introduce a new fiscal lock, so that any government making significant and permanent changes to tax and spending will be subject to a forecast from the independent Office for Budget Responsibility. So that there is never a repeat of the mini budget.”
She’s taking the responsible course of action, but one she knows boxes her in considerably.
Taxes are at the highest level they’ve been since the 1950s. She realises that hiking income tax, national insurance or VAT are not going to be options, with many people still reeling from the impact of the cost-of-living crisis.
Public-sector net debt as a proportion of GDP is higher than at any point since the 1960s. She’s aware that room for manoeuvre on borrowing is limited too.
She pins her hopes on growth, but won’t pursue it through any reckless or dramatic strategy. It will be steady-as-she-goes. That’s because she knows that if the markets can destroy a free-wheeling, tax-cutting government of the radical right, they can make mincemeat of her too. She promises not to play ‘fast and loose’ with the nation’s finances.
So weirdly, Liz Truss may actually have a legacy. Her brief window of power and crazily incompetent mismanagement of the economy may influence us for some years to come.
I’m reminded of the five minutes of madness in which MPs lent ‘charity’ nominations to allow Jeremy Corbyn to appear on the Labour Party leadership ballot in 2015. Years of turmoil followed. Some might argue the Brexit vote and Boris Johnson’s large majority in 2019 were influenced by decisions taken in the blinking of an eye.
Or more serious still, the fateful decision of Ed Miliband to block military action in Syria, which knocked Cameron and Obama off course. A vacuum emerged which allowed IS to grow and Russia and Iran to step in. Perhaps the most momentous and consequential intervention by a Leader of the Opposition in history, although we didn’t know it at the time.
The political butterfly effect.
Maybe historians will look back on the first term of Starmer’s government and ask what shaped its outlook and approach. And they may be talking about someone who famously couldn’t outlast a lettuce.
