UK government’s economic inheritance becomes a battle line

THERE are major political differences between the United Kingdom’s new Labour government elected on Jul 4 – ending 14 years of Conservative rule – and the Conservative-led one which entered office in May 2010, taking over from its Labour predecessor.

However, one commonality is that both have claimed a sub-par economic inheritance at the point of handover.

The new Labour Chancellor Rachel Reeves has claimed that she has the worst such inheritance in the post-war era. On Jul 29, she released a Treasury dossier showcasing a “£22 billion (S$38 billion) black hole” in this year’s Budget.

In this sense, there are striking parallels with the Conservative government elected around a decade-and-a-half before. Then prime minister David Cameron had campaigned under the slogan “Broken Britain”. His chancellor, George Osborne, asserted that “this government faces the worst economic inheritance in modern history... we have put the national interest first, we have made the tough choices” – similar rhetoric to Reeves in 2024.

From 2010, with the Cameron government pursuing a controversial austerity strategy, this economic issue framed the next half-decade of UK public life to the 2015 election. Ultimately, the Conservatives won a tight race with a narrow majority, before Cameron was turfed out of office following the June 2016 Brexit referendum.

Fast forward to 2024, and the new Labour government’s economic inheritance is likely to frame this current parliament, potentially becoming the key issue of the next election in 2028 or 2029.

What the new Cabinet hopes is that it can win the argument with the public, in the same way that the Conservatives did after May 2010.

Controlling the narrative

One big factor that helped the Conservatives frame the political debate after May 2010 was a weakened Labour Party.

Not only did Labour lose its majority in the House of Commons, its frontbench of shadow ministers immediately became weaker. Former prime minister Gordon Brown stood down immediately after losing the election and was replaced by the less commanding Harriet Harman, then deputy leader of the party.

Moreover, key Labour figures such as Ed Miliband, Ed Balls and David Miliband took part in a multi-month intra-party leadership contest. This inevitably moved their focus of debate to internal issues, allowing the Conservatives to control the public narrative on why austerity was needed after what it claimed was years of Labour’s profligacy under Brown.

In the second half of 2024, Labour hopes to replicate this feat: framing the argument on why its agenda to rejuvenate the economy, after years of sub-par growth, is the right next step for the nation.

Average annual growth rates have more than halved since the international financial crisis of 2007-08. Labour often highlights that if the UK’s gross domestic product per person had grown as rapidly in the 15 years after 2007 as it did in the 27 years after 1980, every person would now be over £10,000 better off in real terms, according to International Monetary Fund data. By raising this point, Labour is slamming the economic record of the Conservatives from 2010 to 2024 – just as the latter party starts a leadership contest that will climax on Nov 2, just before the US presidential election.

The six contenders are: former business and trade secretary and current Shadow Secretary of State for Housing, Communities and Local Government Kemi Badenoch, a right-winger who is currently the favourite to win; former home secretary James Cleverly, now shadow home secretary, whose politics are more centrist; former security minister and current Shadow Security Minister Tom Tugendhat, the most moderate candidate; former home secretary Priti Patel, a close ally of former prime minister Boris Johnson; former immigration minister Robert Jenrick, also after the right-wing vote; and Shadow Work and Pensions Secretary Mel Stride, one of former prime minister Rishi Sunak’s closest allies.

Four of these six hold senior shadow Cabinet roles, but their ability to focus on these portfolios will inevitably be compromised by their campaigns for party leadership.

In the months before November, Labour will therefore seek to fill the political space that the Conservatives – preoccupied with their leadership contest – have vacated.

Setting the agenda

One key element of Labour’s agenda, following the twin shocks of the pandemic and Ukraine war, is making the UK a clean energy superpower. This includes setting up the publicly owned Great British Energy, which will be paid for by a windfall tax on fossil fuel firms. This organisation, which will be headquartered in Scotland, has the goal of enhancing UK energy security. It will manage and operate clean power projects such as wind farms.

Another big economic announcement is a new National Wealth Fund to invest in industries of the future, under which the UK Infrastructure Bank and the British Business Bank will be aligned. This will bring together key institutions and “a compelling proposition for investors”, to mobilise billions more in private investment and generate a return for taxpayers, said the government.

Some £7.3 billion of additional funding will be allocated so that investments can start being made, focusing on priority sectors and catalysing private investment at an even greater scale.

Reforms will be made to the British Business Bank, so that it can mobilise institutional capital by harnessing its pipeline of investments and track record as the UK’s largest investor in venture capital.

Separately, building on Labour’s commitment to reintroduce mandatory house-building targets of 1.5 million new homes over five years, the King’s Speech – which sets out the new government’s priorities – included the Planning and Infrastructure Bill. This will reform the planning process, speeding it up to allow more homes and infrastructure to be built.

All these efforts will aid Labour’s goal of shaping the UK public debate over the economy. If growth recovers above the post-2007-08 crisis trendline, this will significantly bolster the party’s re-election prospects in 2028-29.

The writer is an associate at the London School of Economics