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.

How the reaction to a football ban showed how our politicians and media have become trapped in right wing Islamophobic narratives and detached from the majority of voters

 

In the weeks before the Maccabi Tel Aviv supporters ban was announced, Conservative party leader-in-waiting Robert Jenrick declared that "a lack of integration leads us into a very dark place as a country". He was commenting on leaked remarks he had made earlier about not seeing any white faces in the Handsworth area of Birmingham that was also the worst slum he had ever seen, and how this showed a failure to integrate immigrants. His remarks were defended by the actual leader of what was until very recently called the UK’s natural party of government.

The reality about Handsworth is very different, but nowadays reality doesn’t matter to our populist right. What matters is the competition to win the racist vote, and making racist statements is a good way of winning that competition. Handsworth in Birmingham is fair game because it is predominantly Muslim, and a key part of the right’s populist rhetoric is Islamophobic. This extends into foreign policy, so it is a factor behind support for Israel and denial of Israel’s Gaza genocide. This is all copied of course from Republicans in the US, and an increasingly islamophobic United States (including significant parts of the Democratic party), but it is probably an insult to both Reform and the Conservatives to suggest that they couldn’t have dreamt up this strategy all by themselves. Unfortunately Islamophobic views are held by around a fifth of the UK population according to Luke Tryl of More In Common (roughly double the number who hold antisemetic views), and both Reform and the Conservatives want to capture those votes.

When Aston Villa put out a statement at just after 5pm on 16th October confirming a police decision to ban Maccabi Tel Aviv fans from its Europa cup tie, by 10pm the leaders of the UK’s four main political parties had put out statements condemning the ban. In the minds of these political leaders and the mainstream media, this ban must have been put in place because of worries that Jewish Israeli fans would be attacked by British Muslims. “We will not tolerate antisemitism on our streets.” said the UK Prime Minister, calling it the wrong decision.

Now perhaps this very swift denunciation of the ban, and the assumption that the ban was made because of fears about attacks on rather than by Maccabi fans, was because politicians had the terrible antisemitic attack on a synagogue two weeks earlier in Manchester fresh in their memories. But such a rush to judgement on such a serious matter must also reflect the Islamophobic narratives described above that have become so pervasive among UK politicians and the UK media in recent years.

In contrast, those with any knowledge would remember recent violence in Amsterdam caused, at least in part, by a section of the Maccabi Tel Aviv fans who were looking for trouble, and that some of those fans had randomly attacked Muslims in that city. (There was also subsequent violence from Ajax fans.) Shortly after the UK ban was announced, a domestic game in Israel had to be postponed because of violence between Maccabi fans and those of another club. The police assessment that led to the ban concluded that Maccabi fans were likely to be the perpetrators of trouble. In other words the ban was issued primarily to protect UK citizens from violence coming from some overseas football fans with a history of violence.

The UK politicians who framed this ban as an example of antisemitism, and the UK media that followed this line, were therefore just wrong. Now that will not bother the populist right, because the populist right is not that interested in facts. That, unfortunately, includes the leadership of the Conservative party, which at the moment is trying to show that Enoch Powell was too much of a moderate on immigration. But it really should matter to Keir Starmer and Labour ministers (and to Ed. Davey). It should matter to Lisa Nandy when she said in the House that this kind of ban was unprecedented when it isn’t.

For a start, ministers cannot claim on the one hand that public safety is an absolute priority at sporting events and then suggest that maybe in some circumstances other factors are more important. The police statement said that following a thorough assessment “we have classified the upcoming Aston Villa vs Maccabi Tel-Aviv fixture as high risk.” and “While the Safety Certificate is issued by Birmingham City Council, West Midlands Police supports the decision to prohibit away supporters from attending.” Their statement also explicitly referred to the problems in Amsterdam. At the very least, this should have given the Prime Minister and his advisors pause for thought that maybe they needed to be a bit more thorough before concluding that the police and council had made the wrong decision. They might have looked up reports of what happened in Amsterdam, for example.

But the Prime Minister’s reaction was far worse than just claiming the police and local council had got it wrong. It framed the decision as involving antisemitism. This is problematic for two reasons. First, it presumed that all Maccabi supporters were the victims in this case, and that the only aggression would be from locals. As I have noted, just a few minutes on the internet would have shown that to be false.

More seriously, let’s take the government’s presumption and see what it implies. Just suppose the safety threat arose from demonstrations against Israeli actions in Gaza. The Prime Minister’s statement implies such demonstrations reflect antisemitism, rather than an understandable dislike of genocide and a view that the UK should not maintain sporting contacts with countries whose government’s are involved in genocide. You may disagree with calling Israel’s actions in Palestine genocide, or you may think that such things should not interfere with sport, but saying that such beliefs reflect antisemitism is equivalent to saying that those demonstrating during sporting events involving South Africa when it was an apartheid state reflected prejudice against white people. We should also note that all Russian clubs have been banned by Fifa and Uefa following the invasion of Ukraine.

Of course, labelling any criticisms of the actions of the Israeli government as reflecting antisemitism is a standard tactic of the current Israeli government and the political right in the United States. Unfortunately this shows, yet again, that Labour has become so embedded in the right wing misinformation machine that they have become an integral part of it. Needless to say, Badenoch’s reaction was much worse, talking about Jewish people not being allowed to watch football.

However the media also has very serious questions to answer. Why wasn’t the history of violence among some Maccabi fans not introduced immediately into any reporting or discussion in the media? Why did the media allow the uninformed opinion of the main political parties to obscure facts which any news organisation worth its salt should have known? In particular, why did Sky News initially suggest that the decision to ban Maccabi fans was only in order to protect those fans, and later had to apologise for their error? Not to mention their interview with a ‘Jewish’ Aston Villa fan.

The answer may be that our media and politicians are increasingly about perpetuating right wing opinion rather than reporting facts. This is not the media following majority public opinion, but rather the media attempting to change public opinion. Despite all the one-sided reporting of the Maccabi ban, 42% of voters polled by YouGov thought the police had made the right decision, with only 28% thinking it was the wrong decision. The media/political complex in the UK is extremely self-referential, and given that right wing propaganda outlets are a key part of that complex it can easily lose touch with what the majority of the public think and believe.

As for the government, the episode adds weight to my argument that Starmer’s conference speech was not the major change of course some had suggested. Starmer’s statements about the banning of Maccabi fans is perfectly in line with his awful speech on immigration that sought to use almost every piece of misinformation peddled by the right. Whoever advised him to label the ban wrong and describe it as an example of antisemitism should consider their position, and if they don’t then Starmer should consider it for them. I am sure Starmer is serious about wanting to stop the advance of Reform, but to do that he needs to start confronting rather than copying right wing populist narratives.

What the call for fiscal headroom reveals

 

Everyone, including the IFS, is agreed that the Chancellor should in the budget create more fiscal headroom than she did previously. Rather than match forecasts for taxes to expected current spending (plus or minus ten billion, say), she should aim for forecast taxes to be significantly more above expected current spending, to allow for headroom against unforeseen negative shocks. This seems very reasonable, doesn’t it? Well consider some analogies.

I have the thermostat set at 20 degrees centigrade, because I find that a comfortable temperature. But sometimes if there is a cold wind outside the temperature inside can dip below that before the boiler and the radiators can respond to put it back up to 20. I feel cold as a result. So I should set the thermostat to 22 degrees, to provide headroom in case a cold wind blows.

Hopefully you can see the fallacy in that strategy. Or take the Bank of England’s inflation target of 2%. Now, as we have seen, shocks to inflation like wars can happen that will take inflation well above that target. We cannot have that, can we. So the Bank should in practice aim for zero inflation, to provide headroom so that it doesn’t get caught out with above target inflation following inflationary shocks.

Now fortunately those who designed the UK’s inflation targeting regime were sensible enough to emphasise that the 2% target was not short for ‘2% or less’, and that inflation falling short of 2% was just as bad as inflation exceeding the target. So allowing headroom for the 2% target would make no sense. So why does it seem to make sense in achieving a fiscal rule but not an inflation target?

Why does everyone seem to be calling for greater fiscal headroom in the budget? I think it is because the taxes=current spending fiscal rule is not seen as a symmetrical target. If shocks turn out to be positive for the public finances so borrowing is less than expected that is not seen as a problem, but if negative shocks occur such that current spending exceeds taxes then that is seen as a problem that the government has to fix immediately. That is why we had the nonsense of welfare cuts in the Spring.

The analogy that comes straight from the term ‘headroom’ is making sure you design doors such that hardly any people hit their head on when they walk through them. If you make your door too small many people will hit their head, which is bad. If you make your doors too tall then there is no equivalent injury suffered. The costs and benefits are not remotely symmetric.

The financial analogy might be a bank current account. I keep a positive balance in my account because I cannot predict precisely every payment going in and out of the account, and I don’t want the balance to go below zero and incur overdraft charges. But is a bank account an appropriate analogy for a government? Who is going to slap an overdraft charge on the government?

One answer might be the markets, in the form of higher interest rates on government debt. But that should already be in the forecast. Borrowing moderately in excess of the fiscal rules might lead to a small increase in interest rates on government debt, not because of supply and demand for government debt but because it would signal higher aggregate demand and therefore higher interest rates set by the Bank of England. On the other hand higher borrowing caused by weaker aggregate demand (leading to lower tax receipts|) could have the opposite effect, leading to lower interest rates on government debt. All this is quite different from overdraft charges.

In my view fiscal rules should be like the inflation target. They are and should be symmetrical: it is just as bad to miss the rule by borrowing too little as it is by borrowing too much. If you borrow too little you are taxing people too much or not giving people enough public services, or the economy is in a downturn. Those are all bad things that should be rectified. If this is the case, then you don’t need any headroom at all, just as the Bank of England doesn’t allow headroom for its inflation target.

But this is not how the media and the current government see things, and for that we probably have the reaction to Liz Truss's fiscal event partly to thank. In the Spring the government did not take the “grown up” decision (to quote Charlie Bean, ex LSE, Bank of England and OBR) to allow the OBR’s forecast to show the fiscal rule not holding with a promise to fix it in November. Instead it decided it had to act immediately, cutting welfare spending to meet the rule. Presumably it thought being ‘grown up’ and not doing this would cause the markets to panic, or more likely the media would generate lots of bad publicity.

Given this view held by the Chancellor, then it does make sense to create lots of headroom against borrowing more than the fiscal rule allows. But that in turn inevitably means that fiscal policy is going to be tighter than the fiscal rule implies it should be. If in practice you always plan for forecast taxes to be £20 billion or more above expected current spending, then given forecasting errors can go both ways the government is enacting a tighter policy than the fiscal rule on paper suggests. Furthermore in practice how much tighter will depend on the whim of the Chancellor at the time in setting the amount of headroom, which in turn will depend on the circumstances they find themselves in.

Now I admit neither of these problems (moderately tighter policy on an inconsistent basis) is that great in the overall scheme of things, but I think someone should at least recognise these issues. If you think government debt should fall faster than is implied by the golden rule, then it is better to get that rule to target a small surplus than mess around with headroom. But the headroom issue is a symptom of a bigger and more serious problem. 

As a result of a combination of mediamacro’s reading of the Truss debacle, and the constant stories in the press about bond vigilantes and impending doom from the imagined actions of these imaginary people, we are returning to a world where policymakers see deficits and debt as always a problem, rather than as something that allows better fiscal policy making. 

The government’s debt and deficits are meant to go up as well as down, because they allow smoother taxes and spending and can also allow both to support the economy when needed. Government borrowing is therefore a very useful tool, and not some problem that needs to be eliminated as much as possible. If, in contrast, the media and governments start seeing government borrowing as a problem rather than a useful tool, then this can interfere with good fiscal policy making. At its very worst, it can lead governments to start trying to reduce deficits during economic downturns or recessions, as it did from 2010 onwards. As I have noted elsewhere, that is a possibility that is more likely to happen as a result of recent change to fiscal rules.

Exaggerated claims about market reactions to debt and deficits infantilize fiscal policy, and that infantilisation can be very dangerous.  Talking about the UK as part of some impending advanced economy debt crisis is almost as silly as talk about a possible IMF bailout. Such talk is only magnified by a right wing press desperate to replace the memory of a recent crisis that was the result of a fiscal event they lavished ecstatic praise upon. The main reason we have a fiscal problem in the US is not because politicians are being irresponsible about debt but because a populist dictator is denying economic reality at every turn. One pretty foolproof way of encouraging right wing populism in the UK is to pretend the market requires public spending cuts when public spending levels are already weak. 

Populism and Economic Prosperity

 

Mainstream political parties normally claim that populist parties, if they ever got to power, would damage the economy. We have clear evidence that they are right, and right in a big way. A paper in the American Economic Review (one of the top economics journals) published nearly two years ago, looked at the macroeconomic consequences of populist regimes coming to power. The results can be summed up in the chart below (from this working paper version)

The black line is the average difference between GDP under a populist government compared to a counterfactual GDP without the populist government. If the populist government was in power for 15 years, GDP would be over 10% lower as a result of that government. I have used the analysis for right wing populists: for a similar chart for all populists see the paper, or this useful summary by Joel Suss in the FT.

There are obviously countless issues in any analysis of this type, like how a populist government is defined, how you do the counterfactual, how you ensure you are not getting reverse causality (i.e. bad economic times encourage the election of populists etc) and so on. For those interested in those issues the paper is very readable.

The UK is part of this data set, because it rightly labels the Johnson government as populist. We know that the Johnson government reduced UK GDP because of Brexit, by a total of 4% according to the OBR. But the UK’s response to the pandemic was also pretty bad in large part because of the Johnson government. So our own national experience is consistent with the chart above.

Besides GDP, the paper also finds that debt to GDP increases under a populist government, and there is weaker evidence that inflation also increases. The reasons why GDP falls under a populist government are only touched on in the paper, but they are pretty obvious. First, populist governments tend to restrict overseas trade: Brexit, and Trump’s tariffs, are clear examples. Putting barriers up that make overseas trade more difficult reduces GDP. The paper provides average effects for the impact of populism on trade, but it is more useful to look at the specific measures imposed by a particular populist government.

A second reason populist governments reduce GDP is that they make their countries less open to people from overseas, as well as goods from overseas. Populist governments tend to weaken an independent judicial system, and that among other things weakens the confidence of business to invest. Our current vintage of right wing populists appear very hostile to academia, and academia is where innovation starts, and where the expertise to implement innovation often comes from. Populists tend to devalue expertise, which allows them to make unrealistic promises on tax and spending, creating budgetary problems. I could go on with specifics, but more generally, societies where one part is ‘othered’ or declared the enemy within tend to work less well than those that are more unified. Societies where the governing elite is mainly concerned with making money at other people's expense work less well than societies where innovation is the key to becoming wealthy. [1]

One obvious question is why, if the macroeconomic impact of populist governments is so bad, they don’t get voted out of power quite quickly. Unfortunately they generally don’t. The paper estimates that on average populist governments tend to stay in power longer than other governments. There are two reasons for this depressing result. First, populists rig the democratic system to make their re-election more likely, either directly through gerrymandering for example or by restrictions on press freedom. Second, the social and economic reasons for the rise in populism tend to be persistent.

The topic of our time is why today we are seeing such a rise in right wing populism, populism that all too easily morphs into forms of fascism. It is of course important to understand why some groups of people are more receptive to populist messages than others. But in understanding why now is different from previous post-war decades, I don’t think that is where we should focus. In the UK, for example, the BNP has always had support, and racism used to be much more prevalent. What has changed over the last few decades is the attitude of the political and media elites.

When I started this blog, it was the early period of UK austerity and I was obsessed with how a UK government could disregard basic macroeconomics (don’t cut spending in a demand deficient recession where interest rates have hit their floor), but also why that policy was popular despite its disregard for what every first year economics student is taught. I talked a bit about the transmission mechanism between academic knowledge and policy, and how that mechanism can break down or be disrupted. Periods where expertise was ignored or contested could still then be considered undesirable departures from an accepted norm.

Of course since then we have had Brexit, which was another case where this breakdown occurred with devastating consequences for the UK economy. Unfortunately today political parties ignoring academic expertise has become routine. In the US we now have an administration that actively contests expertise not just in economics, but in climate science and medicine. I and many others have written extensively on how the media, owned by self-interested members of the plutocracy or run by their lackies, can not just ignore academic expertise but through propaganda counteract any influence it might have. [2]

For those who still doubt the critical role the media can play in all this just look at what has happened and is happening in the US. The biggest social media company bought up by someone who thinks Farage isn’t right wing enough for the UK, and who has changed that company so that it promotes the far right. US media that isn’t already owned by plutocrats who support Trump is being bought up by them. A media that once could be described as manufacturing consent is being turned into a propaganda machine for the Republicans and Trump. You can see the same processes starting in the UK. As Professor Emily Bell puts it in this fascinating discussion, “the patterns are almost exactly the same” in the UK and US.

The information and knowledge that populism severely damages the economy is there and is in the public domain, but the media increasingly acts to hide that from the public or distort that information so that much of the public never gets to understand it. Reality tends to win out in the end because it’s hard to disguise what is happening to people’s incomes, which is why Brexit is now much less popular than it was, but societies are increasingly losing their ability to avoid these pitfalls in advance. The reason this is happening is because a significant number of the ridiculously rich have decided their interests are served by promoting populism, and by investing in the means to promote populism.

[1] More speculatively, as right wing populists often appeal to a rose coloured view of the past as something to return to, it is not surprising that they enact policies that take society backwards. There also seems to be an aversion against current sacrifice for future gain.

[2] It is sometimes claimed that those voting for populists don’t care about negative economic effects. I think this may be true for a minority, but is not true for most. Those who voted for Brexit were significantly more optimistic about the economy because they believed the lies about ‘project fear’ and more money for the NHS.

The uphill struggle to stop Reform

 

Making political predictions is foolish, but I can only see two political parties that can stop a Reform government in the UK: Labour and Reform themselves. The mistake I made writing a similar post five years ago was to neglect the possibility of populist parties and leaders imploding, as Johnson’s Conservatives did. But we cannot assume that will happen to Reform.

One reason is that Reform and Farage are treated with kid gloves by the mainstream broadcast media. Corruption that might sink other politicians is often ignored for Reform politicians because too many think that is how a populist opposition would be expected to behave, so is it really news? But probably more important is that the broadcast media often takes its lead from the far right press, which is largely pro-Reform.

Could a revival in Conservative party fortunes damage Reform? Undoubtedly yes, but that looks increasingly unlikely to happen. Their policy of trying to ape Reform on Immigration, the ECHR or climate change just loses them votes to other more socially liberal parties, in particular the LibDems. Unless Reform implodes, few Reform voters are likely to be attracted back to the Conservatives because everyone remembers what a mess the Tories made while in power.

One way the Conservatives may become increasingly irrelevant is if more Conservative MPs defect to Reform. There is a danger here, in that Reform begins to look like the old Conservative government under a new name. But Farage is such a prominent figure that risk may be small, compared to the gains to Reform in capturing yet more Conservative voters.

Could an insurgent left stop Reform? While we could get to a French situation where centre parties are squeezed and the main battle is between the left and far right, in the UK it is much more difficult seeing that as any more than one route to Reform taking power. For the left to defeat Reform the Labour vote would have to completely collapse (far more than it has at present), and the remaining parties (LibDems, Greens, Welsh and Scottish Nationalists and maybe a new left party) would have to divide up the winnable seats between them, withdrawing from the others. Both conditions seem pretty unlikely on their own, and together even more unlikely, although not completely impossible.

For those who think a period of Reform in power would not be too bad, and might lay the groundwork for something much better afterwards, I ask you to just look at what is happening in the US. While Farage himself may try to distance himself from Trump before an election, it is pretty clear listening to someone like Tice that Reform are just copying the Republican party. [1]

It is the combination of a hard right populist media and Trump in the US that makes the threat of a Reform government so real, and that makes that prospect so terrifying. As we are currently seeing in the US, the transition to a fascism in which the leader is a virtual dictator, independent media is steadily eliminated, elections are rigged, minorities and any people that resist can be terrorised by a police force that goes around wearing masks and which has almost no accountability, and in which a judicial system is routinely overruled by a captured supreme court, can be frighteningly quick. While Reform may never capture more than 30+% of the vote in the UK, they can still capture power because of our bizarre first past the post system.

This is why it is worth looking at what happened at the Labour party conference, and see where that puts us in terms of Labour either helping or stopping Reform. For political journalists there have been two ways of spinning that conference: signs of hope or evidence of deep weakness. Both are true, because Labour are starting from such a poor position in electoral terms.

The first positive sign was to attack Reform on immigration on grounds other than the nebulous charges of impracticality or seriousness. If you wanted to put a really positive spin on what happened you could argue that because Labour had moved towards Reform’s rhetoric on immigration and asylum, this helped encourage Reform to go further by scrapping Indefinite Leave to Remain (ILR). The idea of ILR is popular, so Farage’s policy does allow Labour to draw a clear dividing line between the two parties on this issue without worrying that it is giving them votes. But that spin is far too generous to Labour.

While it’s good that Labour have at last found something to make their immigration and asylum policy distinct from Reform and the Conservatives, overall their stance remains much too illiberal for many. Even with ILR, Labour’s position still leaves a lot to be desired. Every time they bring in some tweak on immigration or asylum that introduces another cruelty that migrants must face, they give credibility to the illusion the populist right has created that these issues are of utmost national importance. [2] To quote Chris Grey

“Yet Labour politicians still don’t seem to grasp that by constantly accepting that there are ‘legitimate concerns’ about “uncontrolled immigration” and “open borders” (when the reality is that immigration is not, and has never been, ‘uncontrolled’ any more than borders have been ‘open’) in general, or, in this case, about existing ILR rules (which, as the polls linked to earlier show, are supported by the overwhelming majority), they cede ground to Farage and invite his inevitable denunciation of their reforms as inadequate.”

In addition the new Home Secretary seems happy to take ever more authoritarian positions on other matters like policing. It is hard to imagine that any liberal voter will take the combination of Labour’s position on ILR and their attempt to ban repeat marches and think that makes them more likely to vote Labour.

Chris Grey also welcomes that Starmer is finally linking the problem of small boats to Brexit, and Brexit to Farage, calling them Farage boats. But for that to work it needs every Labour politician to use the phrase at every opportunity, and take those opportunities to explain why Brexit is a major probable cause of the increase in small boats. I see no signs of that happening yet.

More generally, Starmer’s speech illustrates another problem Labour have, and that is a hopeless communications strategy. For example, calling Reform’s policy racist may be accurate, but is it good politics? The Daily Mail took no time to distort what Starmer had said. This distortion might not matter if Labour had a good communications team that could fight back against this kind of misinformation, but at present they don’t.

Labour should take a leaf out of the right wing playbook, which is to find the most extreme examples on the right and demand that Farage and Jenrich disassociate themselves from them. To quote from Ian Dunt in a very good discussion

“Right now, for instance, several mainstream right-wing commentators are claiming that black people cannot be English. Matthew Goodwin has said it. Isabel Oakshott has said it. This is absolute poison, obviously, but it is also contrary to public opinion. It is unpopular. I would like to see a Labour communication strategy which punches that bruise. Make it the chief issue, focus remorselessly on it. Force everyone on the right to either disassociate themselves from it or be branded a racist for holding it.”

This suggests to me that Labour still have two basic impediments to improving their electoral position that have yet to be removed. The first is to develop a far better communications strategy. It is hard to combat the power of the right wing press and right wing social media, particularly when the BBC shows every sign of being captured by that media. However the one institution that could present a counterweight to that power is a Labour government. Yet the government seems remarkably reluctant to take any steps to combat this media. It still just uses X rather than alternative social media, for example.

The second is to stop thinking Labour has to fight Reform by stealing its clothes, and instead start thinking about preserving its core vote, which is not some bygone working class but is the socially liberal middle class. Pursuing a Blue Labour strategy might work against a fatally unpopular Conservative government, but it does not work when in government. The last year proves that. The longer that party factionalism and ideology blind those running Labour to this basic truth the bigger the crash will be when electoral disaster forces change upon them, and the greater the possibility becomes of a Trump like government in the UK.

[1] Tice even talked about the link between Tylenol and autism on UK TV, even though Tylenol is called Paracetamol in the UK.

{2] Voters might think immigration is very important nationally, but few think it is important in their own area. Which means its perceived importance depends on what voters hear in the media, and we know the media is full of myths that are miles from the truth. In the UK immigration is the ultimate vibe issue.