Labour, a supply side explanation for the rise of populism, and the growing acceptability of xenophobic discourse in the UK

 

I never cease to be amazed at how bad Labour politicians are at politics. It may seem arrogant for an economist to say that, but it’s not just my view, but the view of so many of the political scientists or journalists that I follow. Take, for example, the recent fall in net migration numbers, from a high point of nearly a million under the Tories to just over 200,000 last summer. That is a huge fall, and what Labour should be saying first and foremost that it is a huge fall, and secondly warning that this kind of fall will certainly not be repeated and may not be sustained. Yet what did the Prime Minister say? “It’s a step in the right direction.”

The Home Secretary has also said she wants to go further. In what should have been a huge political boost for Labour, they have created a future hostage to fortune by implying that 200,000 is still too high, and that they would like numbers to fall even more. They might get lucky of course, but equally they might not, and governments have very little ability to control immigration numbers without damaging the economy. Some have already noted that the government's desire for lower numbers is inconsistent with the OBR projections in the Budget forecasts, and that lower immigration numbers than forecast would worsen the public finances. So the government has managed to snatch future defeat from the jaws of victory.

I am bored writing about and I’m sure you are bored reading about the specifics of why Labour’s approach to immigration and similar social or cultural issues is so wrong-headed and will cost Labour a lot of electoral support. In this post I want to go further, and suggest that Labour’s approach might be at least in part responsible for a more widespread shift in the Overton window that has allowed racist, xenophobic and socially divisive discourse to become increasingly acceptable.

To do this I need to talk about demand and supply theories of the rise in right wing populism. Here demand refers to voters and their preferences. There are many of these demand side theories, which can in turn be subdivided in cultural and economic. For example, on the cultural side rapid social liberalisation is likely to produce a backlash among socially conservative voters, who will in turn be attracted by populist politicians pushing culture war issues. On the economic side it is argued rapid globalisation without a strong regional policy can lead to sections of society being left behind, and they will be attracted by populists attacking the ruling elite.

In contrast, supply side explanations look at why politicians and other key figures on the right and centre might increasingly resort to populist rhetoric and policies, and how this may in turn encourage other far right parties or groups. This is a theme I have explored a number of times in my posts. In particular the idea I have discussed is that right wing politicians, still wedded to neoliberal policies, find that these policies and the inequality they create are increasingly out of favour with the electorate. As a result they shift their campaigning on to social issues, such as immigration, in an effort to win elections. To this can be added a similar move by wealthy media barons and very rich donors, concerned that a backlash against neoliberalism might threaten their own wealth and power.

In this I have obviously been influenced by the New Labour period, where the Conservatives increasingly used immigration as its weapon of choice in attacking the government. Something very similar happened in the United States, where culture war issues moved to the fore in the contest between Republicans and Democrats. It is true that in the US immigration as an issue was less prevalent at first, but arguably this was because race was at least a subtext in a number of policy areas.

How could supply side factors account for the rise in right wing populism? An argument might go as follows. There will always be a significant section of society that holds pretty socially conservative and even racist views. As a result, political parties will emerge that cater to those views. In principle, those parties could achieve significant levels of public support (20-30%, say).

Whether they do or not depends on the attitude of the mainstream political parties to strong socially conservative or racist views. If the mainstream shun those parties representing those views and associated policies (as they used to do in the UK), by in particular labelling them as racist and by supporting bi-partisan anti-racism policies, then political support for those parties will be held in check. An electoral set up that favours two dominant parties and which makes it hard for minority parties to get representation obviously helps in this.

Conversely that share can be magnified if the right wing mainstream party attempts to attract these same voters. This is not just because by doing so they emphasise those issues and make discussion of them respectable, but also because these issues are the populists’ bread and butter. The diagram below illustrates what I mean.

If the mainstream shuns policies and discussion that is potentially or obviously racist, that squeezes the Overton window of mainstream discourse so it excludes strong socially conservative views. If instead that barrier is removed, then the window can become enlarged in a socially conservative direction. If in addition the mainstream right wing parties focus on trying to attract socially conservative voters, that can shift the Overton window even further north.

Now I personally don’t believe for a moment that this supply side model is the complete story of the rise in right wing populism. Demand side factors are clearly important. For example times of economic hardship, including periods of austerity, help lead to dissatisfaction with mainstream parties and that helps populists. But I do think supply side explanations are important. The supply side model shows how the attitudes of the politicians of the mainstream parties, and their backers in the media and among the wealthy, can play a crucial role in either suppressing or amplifying support for right wing populists. In the UK, the Conservative party in terms of policy and rhetoric have done this to such an extent that to all intents and purposes they have become a right wing populist party.

Which brings me to the Labour party and its treatment of the issues that form the bedrock of right wing populist support, like immigration and asylum. It often appears as if Labour treat these issues as emerging only from demand side influences, and in particular from the natural racism and xenophobia of the electorate. Their idea is that if they just move to satisfy this demand, then they neutralise immigration or asylum as an issue. It is like a brand leader that is losing market share to an incumbent because the incumbent has tweaked the product in a way customers like. The obvious response is for the brand leader to add that tweak to their product, taking away the incumbent’s product’s unique appeal.

This analogy is a terrible one, because the preferences of socially conservative voters are not specified in this kind of detail. People who vote for Reform, or the AfD, do not have detailed preferences over, say, the process by which immigrants can become citizens. As a result, all that will happen if a mainstream, non-populist party makes the immigration or asylum process ‘tougher’, is that populist parties will shift the goal posts and demand something tougher still. This is how the supply side model of populism works. Of course right wing populist parties will do this, because the whole basis of their support is to be 'tougher' on immigration and asylum than the government. 

This is exactly what has happened in the UK. Populist rhetoric has moved away from talking about immigrants in general and towards the demonisation of particular ethnic or religious groups, and away from a concern about current immigration numbers towards demands for deportation of legal migrants. Associating immigrants and asylum seekers with crime is part of that pattern.

Of course populists do run a risk with such escalation, not so much in compromising their core support but in uniting social liberals against them. But that risk can disappear when Labour is also moving to a much more illiberal position. [1] Instead it represents an example of the Overton window shifting towards social conservatism that I discussed above, and it is what has happened in a big way in the UK over the last year or so.

Why in the last few years in the UK has it become acceptable to publish articles in the press that invoke replacement theory, and to routinely find politicians calling for the deportation of asylum seekers and migrants irrespective of their legal status, along with suggestions that Islam and other cultures are ‘not British’? There is little evidence supporting ‘demand side’ explanations: UK voters haven't suddenly become more xenophobic or racist. Instead we need to look at ‘supply side’ explanations that focus on the behaviour of mainstream politicians [2]. In particular, a Labour government adopting very socially conservative policies on immigration and asylum may have led to a response by right wing populists that has shifted the Overton window to include more xenophobic policies and discourse.

[1] If it was just the Conservative party adopting more extremely socially conservative positions, then Labour would benefit from social liberals being radicalised to prevent right wing populists (Reform or the Conservatives) winning. However because Labour has also adopted very socially conservative policies on asylum and immigration, many social liberals will turn to smaller political parties like the Liberal Democrats and Greens, which of course is likely to benefit right wing populists under a FPTP electoral system.

[2] There are other supply side explanations which are also undoubtedly important, the two most obvious being the influence of Trump, and Musk owning and influencing social media.

The Budget suggests the Chancellor is thinking too much about short term management and too little about long term legacy

 

My posts come out on a Tuesday and Budgets are on a Wednesday. Not great timing, which is why in the past I’ve often done special posts one or two days after the budget. But so much of last Wednesday’s budget had been pre-announced that it didn’t seem worth doing this last week. So the question is whether there is anything interesting to say a week later?

For the mainstream media the answer appears to be no. Rather than using time to take a longer view, some in the media seemed to have descended into trivial detail about process and come up with a question that just gets things completely wrong. As Stephen Bush says, the idea that the Chancellor can be accused of exaggerating the pessimism pre-budget is absurd. 

If only to bring discussion back to reality, some basic points need to be made. The first is that in macroeconomic terms spending has not changed by much. Here are two charts, showing OBR projections for current public spending and receipts (mostly taxes) both before and after the budget.

In 2029/30, total spending is up 0.3% of GDP. Compare this to the previous budget, where there were much larger increases in spending compared to previous (nonsensical) plans.

I had expected spending as a share of GDP to rise further, because of the OBR’s downgrade to expected productivity and therefore real GDP, but this was largely offset by additional forecast inflation, meaning expected nominal GDP hardly changed. The declining share of spending in GDP over time remains unrealistic: not only does health spending tend to increase as a share of GDP, and defence spending is committed to increase, there are also known pressures that will become critical over the next few years. This is the main reason why claims of exaggerating pessimism are silly.

The increase in taxes is larger, at 0.6% of GDP by 2029/30, the difference being the additional headroom created on the current deficit target (going from 0.3% to 0.6% of GDP). As the second chart shows, taxes only go up at the end of the period, reflecting the decision not to increase future tax allowances with inflation.

Because taxes went up rather than spending being cut, this can be described as a left wing budget, as some in the media have. [1] However the reason why, in macroeconomic terms, this doesn’t feel like a left wing government can also be seen in the charts. Spending as a share of GDP is pretty well where it was at the end of the last Conservative government. This government had reversed the additional austerity the last government had pencilled in, but once you allow for trends in health spending and debt interest the substantial reduction in the level of public service provision that we saw under fourteen years of Tory rule has not and will not be significantly reversed.

The budget was also left wing in terms of the detailed tax increases imposed. Tax rates on interest income were raised. We had a form of wealth tax, where wealth is in the form of housing. Tax and spending changes were progressive, as this chart shows

This, and in particular getting rid of the child cap on benefits, is all good. Ian Dunt is absolutely right when he writes:

“Rachel Reeves did numerous admirable things in the Budget. People should bear this in mind the next time they claim there is no difference between the Conservatives and Labour. There is. You are mad if you claim otherwise.”

But the reason that those on the left are not dancing in the streets is that some of these changes were hard won. There is little more than a year between Labour MPs losing the whip because they voted to end the child benefit cap and Starmer or Reeves saying they weren't going to apologise for actually doing so.

What is missing from this budget, and is also missing from this government, is any sense that it has a long term plan and is putting in place the resources to achieve it. Yes Labour has its missions (or maybe not), but the whole point about successful missions is that you put substantial resources in place to achieve them. This government is either in denial that it needs to do this, or is too scared to do so. [1]

Fourteen years of Conservative government achieved two major economic goals: it crippled our public services in order to cut tax, and it crippled our economy by first macroeconomic mismanagement (austerity)) and then by leaving the EU. One key goal of this Labour government should be to reverse both. But this government has deliberately chosen to carry on starving the public sector of resources because it was too scared to tell middle-earning voters that their taxes had been comparatively low for too long and needed to rise. It has deliberately chosen to keep in place the essentials of Brexit, a policy that ensures that the standard of living for most UK voters has and will continue to stagnate, because it is too scared to tell some voters that they made a big mistake.

Undoing fourteen years of damage of course takes time. There is nothing wrong with saying we need to raise headline taxes gradually, or that we need to improve trade with the EU one step at a time. But you need to set out the roadmap. You need to tell voters where you want to go and how you are gradually going to get there.

A good example of this lack of ambition is the new mansion tax. It represents an ad hoc adjustment to a council tax system that is in urgent need of reform. Even with the new tax in place, those in less expensive houses still pay a much larger proportion of the value of the house than those in mansions. As a first step in a gradual process of updating and reform of the council tax system the mansion tax might represent a useful short term step, but there seems no appetite from the government to undertake such a reform.

Instead this government still seems to be operating in opposition mode, where every move it makes has to be measured not in terms of what the country needs but in terms of how it will play with the media and voters. How else can you explain the nonsense of leaks and briefings before the budget. This is doubly annoying because they are not very good at managing public opinion in the short term. The polls show that, but Reeves herself has made a large number of political mistakes in a relatively short amount of time.

To take one example, raising the income tax rate would have been more sensible than not indexing allowances, and it could have been done earlier. It wasn’t done because of the tax pledge, but not indexing allowances raises taxes on working people. Saying the pledge was about tax rates not only doesn’t wash with most voters, but it has allowed the media to spin out the discussion of taxation. In truth, saying you had to break the pledge because of events sounds way better politically than saying that technically we didn’t break the pledge because the wording in one part of the manifesto mattered more than the wording elsewhere.

I really wish Reeves and Starmer would stop thinking about how their policies will play with focus groups and instead start thinking about their legacies. Within a year and a half of becoming Chancellor, Gordon Brown had radically reformed how macroeconomic management was done by making the Bank independent, had introduced a new and very different set of fiscal rules (that lasted for 10 years), and set out the criteria by which the UK would eventually decide not to adopt the Euro. There are a host of economic or political projects that a Chancellor wanting to actually make a significant long term difference could choose. The only thing that approaches such a project that I can think of with Reeves is stability, but Chancellors who offer stability when public services are in perennial crisis and living standards are stagnanting will not be fondly remembered.

[1] It is possible that there is a long term reform plan for reform, but we are not being told about it, because saying what the plan is would incur political costs. For example, maybe there is a long term plan to phase out ISA’s for savings that don’t go into buying stocks and shares. It is, after all, not clear why such savings are subsidised. But if that is true, is the political cost best incurred now or nearer the election. The obvious answer suggests there is no hidden long term plan for reform.

Expertise, Government, the Media and Covid

 

It is now generally (although not universally) accepted that those of us who campaigned vigorously against the government’s austerity policy from 2010 were right, and the media and the political near consensus at the time that austerity was the right thing to do was horribly wrong. In particular, during a period when interest rates were on the floor the government should have been pouring investment in our public services and infrastructure, and its determination to do the complete opposite is part of our current malaise. I remain proud of the work I did, in collaboration with others like Jonathan Portes in the UK and of course Paul Krugman, Brad DeLong and others in the US, to debunk the many false arguments made about why austerity was essential. I could do all that in part because I was an expert. Not only was I an economics professor at Oxford whose field was macroeconomics but one of my specialist areas was fiscal policy. Unfortunately our work had little impact on policy at the time.

The latest report from the Covid public inquiry makes it clear that there was a similar dislocation between expert opinion on the one hand and the govenment and the media on the other hand during the Covid pandemic in 2020 and 2021, before vaccines became widely available. Through luck the UK had January and February 2020 to observe what was happening first in China and then in Italy and put all the resources it could muster into preventing a similar disaster happening in the UK. If it had, there is a slim chance that a lockdown could have been avoided. But the government, largely under the influence of Boris Johnson, decided to do almost nothing. Nor do I remember any newspapers or broadcasters mounting a campaign for more preventative action. As I wrote at the very beginning of March 2020: “One lesson of coronavirus may be never put into power politicians that have a habit of ignoring experts.”

As the Inquiry rightly concludes, by March a lockdown was inevitable. The handful of academic experts saying otherwise were and are wrong, just as the handful of academic experts promoting austerity were wrong. History also tells us that lockdowns have always been the weapon of last resort in pandemics. As the inquiry notes, even after it was clear the virus had become embedded in the UK the government still delayed implementing a lockdown, and just acting a week earlier could have saved more than 20,000 lives.

Just as the expertise in the Treasury failed to stand up for basic macroeconomics against the political will of its masters during the austerity period, so medical experts in government encouraged government inertia by talking about herd immunity and inventing stories about possible lockdown fatigue. But these government experts cannot be blamed for the purely political failures in encouraging virus spread in the summer of 2020, and the delay in implementing additional lockdowns in the autumn and the turn of the year. [1]

While all this has and will be widely commented on in the sections of the media that are not propaganda outlets for their owners, I suspect much less will be said about the role of the media during the pandemic, not only in these failures to listen to expert advice but also in holding politicians to account for the consequences of their failures. There is a famous phrase ‘who guards the guardians’, but increasingly the idea that the media plays any guardian type role to hold our politicians accountable seems like a bad joke.

The deadly role played by our right wing propaganda press cannot be overemphasised. They helped give us a Prime Minister totally unsuited to the job in the first place. Losing money because of lockdowns, newspaper owners quickly decided that lockdowns were bad, and started promoting those who argued this way. These newspapers had a direct influence on Johnson (his ‘real boss’ he once said), and were a major contributor to his constant delays in implementing lockdowns. Remember that a delayed lockdown doesn’t just mean more deaths, it means the lockdown when it inevitably comes has to last longer, implying more disruption to the economy, schooling and everyday life.

This press has a huge impact on our broadcast media. But there are two other reasons the broadcaster media also failed to give enough weight to expert opinion and to hold politicians to account. The first is an obsession with balance. Balance can be and often is the enemy of transmitting expertise to the public (and therefore to politicians not in government). The idea that you should generally balance a consensus among experts with the opposing view just because some politicians or newspaper owners take that opposing view is part of the reason the media failed so badly during the pandemic. [2]

The second problem is the absurd decision to generally give political journalists rather than journalists who are subject experts the lead in commentating about the pandemic. Understanding the basic maths of pandemic spread and control is not difficult, and even for arts trained journalists, subject experts should and often did get experts to explain that maths to them. Political journalists rarely did, so for example we had the nonsense of continual talk of a trade-off between the economy and virus control when in everything but the very short term virus control helps the economy.

With some forms of expertise the media can defer to that knowledge. In physical sciences, for example, where things can be demonstrated to be true in controlled experiments. Because such experiments are possible, politicians tend not to try and contradict the science, so the scientific knowledge gets reported in an uncontested way. But areas where controlled experiment is much more difficult, such as much of economics, medicine and climate change, then there will be groups or politicians that do take contrary views, and there the broadcast media generally seems to fail to stick up for science. In the Brexit referendum, for example, equal time was given to the overwhelming academic consensus that Brexit would harm the economy and the nonsense spouted by a tiny minority of academics that disputed this. We now know the academic consensus was correct.

I think the implications of this are immense. In my last post I linked to a post by Chris Dillow who asked whether we had had a string of poor Prime Ministers by accident, or instead “why is our political culture characterised by such basic incompetence?” A large part of the answer lies in the media. The media shapes politics because it is the interface between politicians and the votes they need. Amartya Sen once observed that press freedom meant there were less famines, and I think it is also true that repeated government failure during a pandemic would not be possible without a compliant media. As I wrote in mid March 2020: “Lack of criticism encourages a certain laziness, but also gives politicians the courage to do things that those in democracies with more accountability would not do.”

There are so many examples of how this works. If political journalists are invariably going on about how a policy plays with the electorate, rather than whether the policy works, don’t be surprised if politicians begin to worry less about whether policies will actually work. If the media obsesses about balance rather than calling out lies, that encourages politicians to lie. If the media chases clicks rather than providing good information, you get a politics that appeals to emotion rather than reason. If the media is so preoccupied by today’s news that it rarely follows through on how yesterday’s stories played out, don’t expect the media to always hold politicians accountable for their past mistakes.

While Farage and Brexit are the obvious examples of that today, the pandemic provides just as stark an example. Boris Johnon’s actions and inactions led to at least tens of thousands of deaths, and yet it has taken a public inquiry years later for him to be held accountable for those failures. His party’s popularity actually improved through 2021. Yet he was held accountable when it was discovered he had allowed parties that broke lockdown rules at No.10. The difference was that the lives lost are a counterfactual assessment by experts, and the parties were real and could not be disputed. Even though these counterfactuals may be solidly based on consensus and well established, evidence backed science, because the media doesn’t value expertise, these counterfactuals are given little weight by the media. It is why the tens of thousands of lives lost seemed to matter much less to the media than the No.10 parties did.

Of course simply listing all the ways the media degrades politics and government today does not tell us that it is responsible for a deterioration in the quality of our politicians of the kind Chris Dillow suggested. To show that you would need to demonstrate that the media environment had got worse over the last few decades. That is beyond the scope of this post, and probably my expertise. But it remains the case that the Covid inquiry is a vivid illustration of not just political failure on a deadly scale, but of the failure of the media to inform the public and a failure to hold politicians that allowed tens of thousands to die unnecessarily to account.

[1] The mechanics of how the government processed expert advice needs to be rethought, particularly in an emergency context. A complex committee structure that then funnels into just one or two people who are left to distill that advice to politicians is a very civil service like hierarchical structure, but this often left experts in the dark about what the constraints they were working under were or why their advice was or wasn’t acted on, and allowed politician’s misunderstandings to go unchallenged.

[2] Have a look at this clip from Irish media from mid-March, showing the consequences of pursuing herd immunity in a very clear way. I don’t remember seeing anything remotely comparable anywhere in UK media.

Blue Labour’s Electoral Fallacies

 

The government’s latest proposed revamp of asylum laws reminds us that Labour have not abandoned their approach of using right wing populist policies and rhetoric to appeal to Reform voters. Let’s call this the Blue Labour electoral strategy. The introduction of some new safe routes is welcome, but how effective or limited these will be remains open. What has gone with this is a raft of proposals to make asylum seekers feel less welcome and generally make their lives even harder.

The reason for this is that Labour's key political advisers, led by Morgan McSweeney, steering the politics of the government (because we have a remarkably non-political Prime Minister) favour a Blue Labour ideology, which is socially conservative together with being leftish on economic issues. Ever since they were elected, I and almost everyone else I read has been despairing at Labour seemingly bending over backwards to ape reform on key social issues. Not just because we don’t like the rhetoric and policies, but because we think it is counterproductive in electoral terms. It will reduce the Labour vote and bolster right wing populism. As I suggested last week, ruling out rejoining the EU’s customs union or single market is part of the same approach.

The first Blue Labour electoral fallacy is that what worked in opposition will work in government. I have agreed that this strategy makes sense in opposition, because the voters that make up Labour’s social liberal base would still vote for them where it mattered as the priority was to get the Conservatives out. It therefore helped Labour in oppositon to say things that might not put off more socially conservative voters from either voting Labour, or at least not voting Conservative to keep Labour out.

But I have also consistently argued that this strategy doesn’t work when Labour achieves power. (In December 24 I called it the politics of stupid.) That has been obvious in the polls for some time. Most of those socially conservative voters will not be happy with the record of whatever government is in power on issues like immigration and asylum, pretty well irrespective of what happens to immigration or asylum numbers. As a result, even if they didn’t vote against Labour in 2024, they almost certainly will in 2029. The media will do their bit to ensure that happens. In contrast, social liberals who ignored what Labour said in opposition when voting Labour in 2024 would find it much more difficult to ignore actions when Labour is in government.

Yet Labour have continued to ape Reform and the Conservatives on issues like immigration, despite the polls. Apart from the apparent success of this policy in 2024, a second electoral fallacy that they use to justify their strategy is that voters in Labour’s key marginal constituencies are very different from those in Labour’s safe seats. The belief is that Labour 2024 voters in marginals are socially conservative, whereas Labour’s safe seats are where all Labour’s social liberals are.

This idea is encouraged by media reporting, with for example VoxPops in Labour’s so called ‘Red Wall’ often featuring elderly voters worrying about immigration. We are very used to reading pieces about the ‘typical voter’ in these kinds of seats, and how different they are supposed to be from other voters in cities like London, for example. So when it’s pointed out that polls show Labour at crisis levels after pursuing the McSweeney strategy for a year in government, and that they are losing far more voters to the Greens, Liberal Democrats or nationalists than to Reform and the Conservatives, we are told that it’s not voter shares that matter, but just the voters in the socially conservative Labour marginals. Like many myths, there is an element of truth in all this. But it is a truth that has been blown out of all proportion.

The evidence for this is brilliantly provided in a substack by Ben Ansell, Professor of Comparative Democratic Institutions at Nuffield College, Oxford. His key diagram is reproduced below. It plots voters by the party they support in the British Election Study data from May, 2025, using the usual colours. In addition it splits those voters up into those who are in Labour marginals, Labour super marginals and safe Labour seats. Where voters are placed on the diagram depends on their economic views (left versus right on the horizontal axis) and social views (conservative versus liberal) on the vertical axis. 

Voters are where we expect them to be. Green voters are very left and socially liberal, Labour and LibDem voters leftish and socially liberalish, Conservative voters very right wing and quite socially conservative, and Reform voters very socially conservative and in the middle on economic issues. Don’t know voters are on average bang in the centre on both axes.

Now if we look at how the Labour vote breaks down by seat type, then indeed in marginals Labour voters are slightly more right wing and socially conservative than in safe Labour seats. (If you cannot see this and cannot zoom in, see Ben’s post that does the zooming for you.) But the differences are small. Crucially, Labour voters in marginal seats are far more like other Labour voters than they are like Reform voters. This is what Ben Ansell calls Blue Labour’s ecological fallacy,

It’s a fallacy because the reality is that if a Labour government sounds and acts like a slightly milder version of a Reform government, this is going to put off nearly all Labour voters, whatever type of seat they are voting in. It will put off most Labour voters in Labour marginals. It may make sense for Labour to tack a little towards the centre on both social and economic issues to attract back don’t knows, but it does not make sense for Labour to position themselves just below Reform voters on this diagram, because they will be in danger of losing most of their votes in every constituency that voted Labour in 2024.

Placing your party just towards the centre compared to your rival party or parties makes sense when your rivals take very non-centrist positions and there are no other parties picking up votes in the large area that is left in voter preference space (e.g. you have a two party system), or when those voters whose preferences you are leaving behind are going to vote for you anyway because they hate your rivals so much. But we are no longer in a two party system. If Labour ignores the views of most of its 2024 voters, many will stop voting Labour. Talking about Labour marginals doesn’t change that basic fact.

A third Blue Labour electoral fallacy is that their strategy will work in the end, because social liberals would rather have a Blue Labour government than a Reform one. There are three fatal problems with this argument. First, all the evidence we have suggests that tactical voting, while widespread, is far from dominant. For every voter that will vote tactically there is another that will not. Second, this idea that social liberals will return to Labour when it matters completely ignores the dynamics of what will happen before any general election.

As I, and many more qualified like Rob Ford who is co-author of the The British General Election of 2024, have been pointing out is Labour’s current strategy will empower other parties that are socially liberal in council elections. That alone could be enough to remove the Prime Minister! But even if it doesn’t, it gives those socially liberal parties a claim that they, rather than Labour, are most likely to win various parliamentary seats. So when it comes to the general election, tactical voting will either not work because of competing claims, or result in Labour losing many seats in its real heartlands, which are the big cities of the UK. A third problem is that many social liberals might vote against Labour in the hope of getting a coalition government involving socially liberal parties.  

I put Labour’s attachment to this failed strategy and refusal to change down to Blue Labour ideology. But as the above illustrates it is a suicidal attachment to ideology because it ignores all the political facts. For one more example on asylum there is a ridiculous proposition that goes with the cruelty and inhumanity that Labour is showing. The proposition is that cruel policies are necessary to allow both control (of small boats) and to somehow make voters want to be tolerant and welcoming again. There is little evidence for the former, but the second shows an incredible political naivety about right wing populism.

As long as there are significant small boat crossings then right wing populists will make this an issue and the media will ensure it tops the news agenda. For that reason alone, immigration and asylum will stay as a major ‘voter concern’ whatever Labour home secretaries do or say. By constantly upping the cruelty and inhumanity, ironically Labour is helping to ensure asylum seekers and small boats remain headline news, and encourags voters to believe this is a major national concern. [1]

But there is another element to Labour’s refusal to abandon the Blue Labour strategy besides this ideology, and that is excessive caution in doing anything much to alter the current status quo. The status quo is what the last government left us with, coupled with a media that is either flying the flag for right wing populists or is desperate to appease them. So political appointments by the last government to bend institutions to their will, like the BBC or the EHRC, are still in place. Donald Trump, as part of his policy of suing (on ridiculous grounds) any media organisation that is not already deferential to him is now intending to sue the BBC, and yet the government does nothing about X and even refuses to diversify from this social media platform just in case that might offend someone. It looks like the Budget will follow similar lines of timidity.

As I have said before, we have a government of small change. Whatever you think about gradualism in general, at the moment it is the last thing most people want. They are desperate for big change, whether it is on living standards (see Brexit) or public services (see my analysis here). People may currently be too impatient, but I think it’s partly because they cannot see even the prospect of big changes from this government. If our current ministers think that what they are doing now will lead to big changes in a few years time then unfortunately I think they are also deluded. [2]

[1] Typically voters don't see these issues as a concern in their own local area

[2] All this indicates that we are in the unfortunate position of having a government that is largely incompetent both in policy and political terms, after suffering 14 years of incompetent policy. As this incompetence doesn’t just currently reside among Labour ministers in parliament but extends to the Conservative and Reform MPs, it raises the more general question explored by Chris Dillow of whether our political and media system has over the last few decades begun rewarding the incompetent and discouraging the competent.

Labour’s Brexit stance is as untenable as their tax pledge

 

In my last post about the prospect of Labour breaking its tax pledge, I did something I don’t often do, which is indulge in some ‘I told you so's. In doing this I was reminded that there was one other major criticism I had of Labour’s initial economic strategy besides their underestimation of how much taxes they would need to raise, and that was their position on Brexit. Labour’s basic position on Brexit is that it has ruled out not only rejoining the EU, but also joining its single market, or even its customs union.

It should be said that there are important discussions going on that will ease the cost of Brexit in specific ways that are important to particular areas of the economy. But these initiatives, even if the EU plays ball, will not amount to very much in terms of the aggregate economy. It remains the case that if Labour want to undo the economic damage caused by Brexit in a significant way, they need to either rejoin the EU’s customs union or its single market (or both).

Labour’s rhetoric towards the EU is also a lot more friendly than their predecessors. Rhetoric is important, particularly in countering the populism of the right. It remains the case that one of the most potent attack lines Labour and other political parties have against both Reform and the Conservatives is that these are the parties that brought us Brexit.

It is potent because most voters, including many Conservative and Reform supporters, think Brexit has failed the economy. A recent YouGov poll showed that only 11% of voters thought that Brexit had so far been more of a success, while 62% thought it had been more of a failure. Even among either Conservative or Reform voters, more thought it had so far been a failure than thought it had been a success. According to the same poll, the main reason for this verdict is an accurate belief that Brexit has damaged the economy.

Yet even in terms of rhetoric, Labour’s position is still not as strong as it could be. This is because Labour continue to talk in a vague way about the Brexit deal that the Conservatives did, rather than the basics of Brexit itself. Rachel Reeves recently talked about a “rushed and ill-conceived Brexit”. That is fine in attacking the Conservatives, but it allows Farage a simple get out clause, which is that it wasn’t his deal but Boris Johnson’s. Labour cannot respond by saying Farage also wanted to leave the EU’s customs union and single market and that is what has caused most of the economic damage, because Labour also appear committed to exactly that type of Brexit deal.

In policy terms, it is very hypocritical of Labour to say that it focused on growth, and at the same time ignore two policy changes that would have a really substantial positive effect to promote growth. Of course both Starmer and Reeves know this. The eventual 4% reduction in GDP assumed by the OBR is well known, but over two years ago I noted that work by John Springford implied that 4% was an underestimate. A new NBER working paper suggests the same, saying that productivity may already be 4% lower than it would have been without Brexit, and GDP 6-8% lower. This chart helps show why that might be the case (HT‪@davidheniguk.bsky.social). ‬

The reason Labour have ruled out rejoining the EU’s customs union and single market is not because they discount the economic benefits of doing so, but because they (and/or their political advisers) believe that to do either would be politically dangerous for Labour.

There are two reasons why it might be politically dangerous, and it is important to distinguish between the two. The first is that voters would not appreciate the government spending time and energy embarking on a major negotiation with the EU, and the internal debate that this would provoke, so soon after the years in which tBrexit appeared to paralyse UK politics. The second is that rejoining the EU’s customs union and single market, although perhaps popular with most voters, would still upset some of its own (2024) voters in key Labour constituencies (e.g. the red wall).

If the first reason was the most important, then Labour could be honest with voters and simply say that now is not the time. By saying sometime but not now, Labour could also be honest about the damage being outside the EU’s customs union and single market is doing. Many may not agree that the time is not right to make such a major step back towards being part of the EU, but at least the conversation would be about when, not if, and the costs of delay could be discussed more explicitly.

However I suspect the second reason is more important for Labour. This is just one part, albeit a very important part, of their conviction that they must on all accounts not upset socially conservative Labour voters. It goes hand in hand with adopting much of the right’s rhetoric, as well as adopting pointlessly cruel or harmful policies, on immigration. This, at least as much as the tax pledge, is this government’s original sin.

Should Labour see Brexit as part of their attitude to socially conservative voters, or is there something in addition which is special about Brexit? A good way to answer this question is to listen to Anand Menon’s recent masterly talk on the subject. But a key point must be that there has been a rise in right wing populism around the world, including Europe. This strongly suggests that Brexit was essentially a manifestation of this growing popularity, rather than a cause of it. Whether you view this rise as due to the economic consequences of neoliberalism or not, Brexit can be seen as just one of the many manifestations of the growing popularity of right wing populism.

As I and almost everyone else has said repeatedly over the last several months, Labour’s strategy (the McSweeney/Blue Labour strategy) of adopting populist right positions on socially conservative issues might have been sensible in opposition but it does not work for Labour in government. When in opposition, most social liberals would still vote Labour where it mattered because the primary goal was to defeat the Conservative government, and in most constituencies Labour were best placed to do that. Now that they are in government, Labour taking socially conservative positions worries social liberals much more, which is one reason why Welsh nationalists replaced Labour in a recent by-election and why the Greens are advancing in the polls.

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While this is the general reason why Labour’s current stance on Brexit is untenable, there are two specifics that relate to their Brexit pledge. The first is the size of the boost to growth that either joining the EU's customs union or single market would give. This is likely to be bigger than anything else this government could do to increase living standards. Once again, the fact that Labour are now in government rather than opposition is critical. To see the importance of incumbency on voter decisions, look at the swing from Trump in 2024 to the Democrats in recent elections, a swing that is all about the economy. A little of that swing may be due to Trump's tariffs, but fundamentally it is that the cost of living remains a problem, and voters blame whoever is in government for that.

The second specific reason Labour’s Brexit position is untenable is that, like the tax pledge, it was very likely to constrain Labour not just after the 2024 election, but in future elections as well. Using the last Labour government as an example, Labour were always likely to find it harder to get elected the longer they were in government. If this is the case, both the Brexit pledge and the tax pledge would in effect bind Labour until they got voted out of government, because the electoral arguments for making these commitments would only increase over time.

For both tax and Brexit this is an impossible position for Labour to put themselves into. With tax, because health costs trend up over time (as they have done in almost every country over the last few decades) and with a commitment to increase defense spending as a share of GDP, major taxes just have to rise at some point over the next decade [1], even if you ignore the arguments for increased public spending now.

Equally with Brexit simple demographics mean that the number of voters who are opposed to Brexit will only increase over time. As a result, Labour’s pledge not to fundamentally alter the terms of Brexit is not tenable over the next decade. Labour, and to be honest much of the country, are in desperate need of stronger economic growth right now, and so it would make sense [2] for Labour to follow the abandonment of their tax pledge with initiating discussions on how Great Britain could rejoin the EU’s customs union. [3]

[1] The best way of trying to reduce this upward trend is to spend more on preventative health, as the IPPR argues here. However that takes a lot of investment and is unlikely to yield quick benefits.

[2] Of course it making sense does not mean that it is what Labour will do. It is Labour's fiscal rule that is forcing it to (probably) break its tax pledge. With Brexit there is nothing similar to overcome a misguided strategy and force Labour's hand. 

[3] As I argued here, it makes sense in political terms to rejoin the EU’s customs union before its single market.

UK Productivity and the Budget

 

Most people reading this will know that one of the Chancellor’s big problems that she will have to tackle in the November Budget is a downgrade to expected productivity growth. You might have read that lower productivity growth implies lower overall growth, which means less growth in incomes and spending and therefore less growth in taxes. Because the Chancellor’s key fiscal rule states that expected future taxes have to match expected future current spending, that means taxes will have to be increased in the budget. [1]

So how might the Chancellor increase taxes? Before the previous budget I looked at various options to tax the more wealthy while sticking to the pledge not to raise the big three: income tax, employee NICs and VAT. In the last few weeks the Prime Minister has failed to insist that this pledge still stands, and this has led to a lot of speculation that the Chancellor may be forced to raise tax rates for at least one of these big three. Faced with not just a productivity downgrade, but the need for more headroom and ending the two-child limit, the Chancellor needs to find a lot of money.

There are some obvious things to say about this. First, it would have been better to do this earlier. I’m not going to resist the opportunity to say this isn’t just hindsight on my part. When, shortly after gaining power, the Chancellor discovered the state of public finances was even worse than she expected and ended (temporarily it turned out) the winter fuel allowance, I wrote

“I still fear that Labour are underestimating the extent of money they are going to need to spend to restore public services. Promises they made during the election also limit the amount of taxes they can raise. Yesterday was the ideal opportunity to say that those promises had been made on the basis of false information. It was now clear that cuts to national insurance contributions over the last year were unaffordable, and that they would be reversed by Labour. That opportunity has been missed.”

Further political opportunities arose after the election of Donald Trump and his subsequent obsession with tariffs. Before the previous budget I wrote

“The problem the Chancellor has is that an increase in taxes of the order of magnitude required to end austerity is very hard to achieve while keeping her commitment not to raise income taxes, employees NIC or VAT.”

After the last budget I wrote

“However, the political danger of moving gradually, in part because one hand is tied behind your back (no tax rises on working people), is that you disappoint those who are naturally impatient to see improvements in public services across the board. A political environment where voters know taxes are rising but where problems in public service provision (including child poverty) continue to fill the headlines is not a comfortable one for any government, because it raises issues of competence in voters’ minds (where is the money going?). Equally risky is continuing to try and flatter the marginal voter (or petrol user!) when you are in danger of losing your political base. I suspect, once the immediate and rather predictable political controversy is over, this budget will be seen as the minimum that could have been done, and that something bolder might have been less risky in the longer term.”

I hope these quotes make clear that, when it comes to breaking their tax pledge, the phrase ‘better late than never’ applies. It is far better to break the tax pledge now than in a budget nearer the election, both from a political and economic point of view. The politics are obvious, but the longer the Chancellor appears wedded to this tax pledge, the more it will be asked whether this overrides her commitment to meet the fiscal rule involving the current deficit.

Furthermore, a downgrading of UK productivity growth reflecting recent poor performance can reasonably be blamed on Labour’s inheritance. Some will argue that the OBR’s reassessment is long overdue, and if it had occurred under the previous government then its cuts to employee NICs may well have been untenable. While it is impossible to know exactly why recent UK productivity growth has been so bad, one plausible cause is Brexit, and it may well be that the OBR’s previous assumption of an eventual 4% hit to the level of productivity from Brexit may be too low.

If the Chancellor does break the tax pledge, then I hope it will involve a rise in income taxes rather than a rise in VAT or personal NICs. A rise in VAT seems unlikely, given a recent statement from the Chancellor about wanting to reduce cost of living pressures and allowing interest rates to fall further. As the Resolution Foundation notes, internationally the UK stands out for its low personal income taxes. Higher income taxes are preferable to higher employee NICs because they hit all incomes, not just earnings.

From a political point of view, one way to soften the damage caused by breaking their tax pledge is for the government to both increase and reduce some of the big three taxes. The government is considering exempting electricity bills from VAT altogether (currently taxed at 5%), and this could be combined with higher income taxes. [2] Of course the net effect would have to be to raise revenue, but nevertheless the Chancellor could argue that she wanted to cut energy bills, and the only way she could do that in the current situation was to break her previous pledge.

Another possibility, suggested by the Resolution Foundation, is to cut personal NICs and raise income tax. This could be done in a way to leave most workers no worse off, but it would raise revenue because income tax applies to all income (including pensions) while NICs only applies to earned income. It’s an option that is attractive to many economists, because having two different taxes on earned income with different allowances and exemptions is messy and therefore inefficient.

What also seems clear from a political point of view is that if the Chancellor is going to break her tax pledge, she should do so in a big rather than small way. Labour will be attacked for breaking its pledge whether it does so in a big or small way, or to use economic jargon, there is a large fixed cost element in breaking the pledge. What she wants to avoid at all costs is finding herself in the same situation in a year or two years time.

Of course it is possible that all the talk of breaking the tax pledge is just the government managing expectations, and that when the Budget is announced Reeves will tell us that she has managed to raise enough taxes without breaking Labour’s commitment on the big three. This might avoid some short term political costs, but at the significant risk of much higher costs later on. As the quotes above make clear, it would be repeating the mistake the Chancellor made last year.

[1] If the Chancellor focuses on tax increases rather than spending cuts, this will mean that the expected share of public spending in GDP will rise a little. As regular readers will know, I think that if we are to get back to levels of public sector provision that we saw under the last Labour government, then the share of spending in GDP needs to rise substantially. This gets us a little way towards that. If you like using the austerity word, it means a bit less austerity.

Now lower GDP but unchanged public spending need not make us better off. Crucial here is what happens to public sector productivity. Lower private sector productivity will mean, other things being equal, lower private sector real wage growth. If the downgrade to total productivity is confined to the private sector, and if public sector real wages follow private sector real wages, then existing public spending plans will have room to employ more public sector workers and therefore raise levels of public sector provision.

[2] A zero VAT rate for electricity bills is a classic example of a measure which is easy to understand (and therefore politically attractive) but is also problematic in economic terms. It obviously discourages fuel economy. It gives most help those with high electricity bills, and therefore fails to concentrate help on those that need it most.