If the polls maintain Labour’s current lead and if Labour wins the next election, the next government will likely be ahead of 1997 due to slowing economic growth, trade tensions, tight public services and weak public finances. will be forced into a much more difficult economic succession.
Unlike the relatively benign problems faced by Tony Blair and Gordon Brown when Labor came to power after a long Conservative government 26 years ago, former politicians, government officials and current pundits expects Sir Kier Starmer’s government to be unlucky in terms of economic performance and economics. public funds.
Experts say if Labor wins in 2024, former Prime Minister Ken Clark’s “iron lawThe idea of politics that conservative governments are there to clean up the mess left by Labor governments doesn’t apply.
“In the current climate, with high inflation, high debt and taxes already at record highs, the prospects look bleak for the new government’s ambition to spend more,” said Paul Johnson, director of the Independent Fiscal Institute.
Starmer Project
This is the third and final installment in a series that looks at the Labor leader’s plans for next year’s expected election and how he got there.
Part 1: surprisingly bold economic policy
part 2: Ruthless Remake of the Labor Party
None of these things are lost on Shadow Prime Minister Rachel Reeves. In an interview with the FT, she turned the tables on Mr Clark, saying that while the previous Labor government inherited a “reasonable” position, “this time what we are inheriting is much more confusing.” said.
“Liam [Byrne, then chief secretary to the Treasury] wrote a stupid note [in 2010] They said they didn’t have any more money left, but this government is much more in debt than Labor, so it’s even worse now,” she added.
Ed Boles, who joined the Treasury Department as economic adviser to President Brown in 1997, says that the only similarity, though different, is that the Conservative Party’s debates about the economy, regardless of their strengths, ” No one is listening,” he said. .
“After Black Wednesday and rising interest rates, it was impossible for the Conservatives to bounce back from the massive macroeconomic collapse that affected people’s lives,” he said in 1992 when the pound was removed from the European Exchange Rates Authority. Mentioned the tragic event of the secession.
“What happened last fall is perhaps similar in that further macro policy failures have left people insecure about their jobs and living standards and may be irreversible,” Boles said. added.
If this is true, it will help Labor win government, but it will not help the new government emulate what former Bank of England Governor Sir Mervyn King called a “great decade” since 1997. right.
economic growth
Since the global financial crisis of 2008-2009, the UK economy’s growth performance has deteriorated, even relative to historical averages and other advanced economies.
In the 60 years since World War II, the prime minister has had to contend with stop-go expansion, recession, inflation and reliance on the IMF, yet the size of the economy has grown steadily at an average annual rate of about 2.5%. continued.
But that stalled after 2008, with no signs of returning to healthy rates. In the five years to 1997, the economy grew an average of 2.8% per year, but is expected to grow by only 0.2% per year in the five years leading up to the 2024 elections. The Office of Budget Responsibility is relatively optimistic and expects performance to improve over the next few years before the economy stabilizes at a compound annual growth rate of 1.75%.
Many other forecasters, including the Bank of England, are more pessimistic.
Across the income distribution, large increases in living standards are being replaced by much more modest increases, as households bear the brunt of low productivity growth and the shocks of the pandemic and energy crisis. Income growth was modest despite additional government borrowing and state aid in 2021-22 to support households through the pandemic.
Families may hope that a Labor government will improve living standards. However, productivity growth is not as strong as it was before the global financial crisis, a sign that the world is moving into a more protectionist phase without significant gains from globalization (contrary to the 1997 experience). ), and Mr. Boles is pessimistic about the economic backdrop.
“Before 1997, we didn’t know that…but the world economy is moving into a favorable period of strong growth and globalization, which will undoubtedly affect the Labor governments of the 2000s. It’s been a boon,” he says. “Now that the world situation is becoming more volatile and unstable, I feel it is unlikely that we will repeat the same thing.”
Room for improvement in economic performance
Civil servants and Labor politicians who served in government from 1997 to 2010 said that the Blair and Brown governments also tried their luck with policy reforms aimed at improving the labor market, reducing unemployment and boosting business investment. Emphasize that you tried to grab it.
Whether these policies were successful in boosting growth has long been debated, but it is doubtful that the Labor and subsequent Conservative-led governments helped get people back to work and boost growth. there is little room for
Since 1997, the unemployment rate has fallen from 7.2 percent to 4 percent today for those aged 16 to 64, leaving less room for more people to participate in the economy. there is some scope for employment. People are now returning to the workforce from long-term illnesses.
Sir Nick McPherson, who was Chancellor of the Treasury from 2005 to 2016, said in the 1990s “there were so many people who could be sucked into the workforce”.
“This time we are experiencing a strange situation of massive labor shortages, but we do not have a strategy to supply labor according to the skills required.It will be a terrible workforce constraint.”
Another former Treasury official said ministers and officials needed to think seriously about “industrial policy”, saying Britain would increasingly have to compete with huge spending and subsidies from the US and other European countries. said there is.
“This is a big strategic issue and half of the Treasury Department hates the idea.” [of subsidies] Because it wastes a lot of money while the other half thinks it’s necessary,” said the former official.
public service
A Labor government focused on restoring growth will also have the more pressing problem of meeting voters’ growing demands for better public services.
This is similar to the situation in 1997, Boles said. Health services there are less well-funded than in other European countries, and Blair and Brown have set a tight spending plan for the next two years after 1997 by the previous major government. rice field. vowed to obey.
“I couldn’t have hip surgery in 18 months, and I didn’t have a school building for 18 years,” says Boles.
Some pressures on public services were stronger than they were 26 years ago, for example crime rates were significantly higher, most of which are much worse today.
The current NHS wait list is considerably larger than it was in 1997, when on the eve of the election Blair told voters “24 hours to save the NHS”. And Prime Minister Jeremy Hunt’s public spending plans for the years after the 2024 election are as grim as they were in 1997.
The pressure on civil servants will come, even as the workforce becomes more strained than in 1997. Major governments have cut salaries for public sector workers compared to the private sector, but IFS research shows that the relative position has been better in the latter period. 1990s. The Blair administration could also free up more money for many parts of the public sector by further reducing defense spending.
Currently, against the backdrop of the Ukrainian conflict, that option is less viable and the other advantages do not apply. With an aging population and baby boomers retiring, seniors are more dependent on the working population than they were in 1997, said Torsten Bell, CEO of the Resolution Foundation, and public services will continue without tax increases. The prospect of funding the company seems implausible.
“As in 1997, the NHS is underperforming and the pressure is on the NHS, but the big difference is that the population aged 65 and over is expected to grow. [years old] At the same time as the workforce is shrinking, the population is putting upward pressure on service costs,” Bell said.
finance
If Sturmer and Reeves weren’t worried enough about slowing growth in the UK economy, tougher global conditions, deteriorating demographics and tight public services, they’d be starting from a much less healthy position. will be
As of May 1997, public sector net debt had reached 37.6% of gross domestic product, and this debt level had reached 99.2% of GDP, 2.5 times as much as of April 2023, and taxes had been increased. nevertheless still increasing. It was raised to the highest level since World War II.
Many aspects of the public sector, such as education, health care, and transportation, are more modern than they were in 1997, but rising debt is not backed by rising public sector net worth.
New summary figures on public sector net worth from the Office for National Statistics show a deterioration from a surplus of £96bn in the spring of 1997 to a deficit of £611bn at the end of April 2023 as governments borrowed heavily during the global financial crisis. The COVID-19 pandemic and the recent energy crisis.
“There’s not a lot of room for action,” Mr. Reeves said, adding that governments can’t simply rely on better public services. “Liz Truss and Kwasi Kwarten have attempted to destroy the concept of deficit spending, so it’s very important to explain where that money comes from,” he said, referring to former prime ministers and prime ministers. bottom.
potential positive news
With such a difficult economic and financial backdrop for the new Labor government, most economists and former officials warn the outlook is grim, but it is not impossible and in the UK the situation has only improved in the past. It is emphasized that there were many cases of improvement. Because everyone despairs.
IFS’ Johnson said: [Labour] You may be lucky financially. Seven years after the Brexit vote, we have seen much of the first blow. Political turmoil seems to have subsided. Maybe, just maybe, maybe we’ll get back to decent growth. However, you can’t count on that. “
McPherson says that history isn’t all about doom and gloom for the next few years. “Economics often take a turn just when everything looks terrible, and I can see several reasons why the economy might regain its growth potential. It’s getting closer.”
“While I don’t see a clear investment boom about to happen, it’s important to keep the outlook and the UK is not doing worse than other countries,” he added.
by data visualization Keith Frey and Alan Smith
