Voters expect a prosperity our politicians cannot deliver

The writer is professor of government at King’s College London. His books include ‘Making the Weather: Six Politicians Who Changed Modern Britain’

Voters want governments to make them richer. Since the global recession of 2008, they have been unable to do so. That is why we have such political instability and unprecedented turnover at the top of the British government.

In the years following the financial crisis, incomes have been stagnant. Real wages were below the 2008 level in 212 out of 340 local authorities, according to an April 2024 analysis by the TUC. The Resolution Foundation think-tank has claimed that, had growth since 2008 matched growth before 2008, the average worker would have been around £11,000 a year better off.

The global recession has since been compounded by Covid, by the effects of the Ukraine war raising energy and food costs and now by the urgent need to transfer resources to defence in order to counter the threat posed by Vladimir Putin. In such conditions, even a government headed by the Archangel Gabriel could not have made us richer.

Despite signs of improvement to UK growth this year, the Iran war has put paid to hopes of quickly conquering stagnation. It is of course too early to quantify the consequences, but almost certainly energy costs will rise, the blocking of the Strait of Hormuz will increase prices in the shops, and higher interest rates consequent upon rising inflation will raise mortgage payments.

Democracy, as Geoffrey Howe, chancellor in the 1980s, used to say, is government by explanation. But successive governments have been in denial and have failed to level with the public. Already, in 2010, Douglas Alexander, a cabinet member in Gordon Brown’s government, was admitting that Brown had been wrong to run excessive budget deficits rather than cut public spending.

For many on the right, including two future Conservative prime ministers, Boris Johnson and Rishi Sunak, Brexit was the answer to making us richer. On the contrary, most economists believe that it has made us poorer and, by breaking up traditional electoral allegiances, it has polarised the country.

Six years after the Brexit referendum, Liz Truss followed what she imagined was the logic of Brexit: a Thatcherite prescription for the economy. Low taxation, reduced tariffs and subsidies and deregulation. But her unfunded tax cuts would never have been countenanced by Margaret Thatcher, who would not cut taxes until the budget was under control. The markets took fright, ending the brief, inglorious Truss premiership after just 44 days.

An incoming Sir Keir Starmer then claimed to have the answer — he could, he insisted shortly before the 2024 election, turn the economy round “very very quickly” by raising the growth rate. Growth, however, is a wish, not a policy; and, as Wes Streeting ruefully admitted to the disgraced Lord Mandelson, Starmer’s government had “no growth strategy at all”.

But Labour has increased public spending as if higher growth had already been achieved. Government borrowing, in consequence, is now £132bn a year — over twice as much as the country spends on defence.

Over 50 years ago, in 1974, Harold Wilson’s Labour government followed a similar strategy, borrowing to meet the crisis caused by the quadrupling of oil prices after the Middle East war, a policy Chancellor Denis Healey declared “sensible, in economic and human terms”. Britain and Italy were the only industrial countries to respond in this way. They were also the only major countries forced to seek a bailout from the IMF — Britain in 1976. Then, as now, the markets will not allow us to borrow indefinitely to maintain a standard of living that we have not earned.

The failure of successive governments creates an opening for the snake-oil salesmen — Nigel Farage and Zack Polanski. Reform UK states that it can reduce taxes while improving public services by cutting waste in government by £50bn, a claim which no reputable economist supports. The Greens propose a return to the methods of old — indeed prehistoric — Labour: taxing billionaires, large-scale nationalisation and further borrowing to pay for such goodies as a four-day week and ending tuition fees. Its skills policy is to end testing in primary schools. It’s hard to imagine a more rapid path to national bankruptcy.

A stagnant economy poses particular problems for a government of the left. Since Anthony Crosland’s book The Future of Socialism in 1956, Labour has believed that social democracy requires a growing economy for income and wealth to be painlessly redistributed. The key question for Labour’s leadership candidates is this: what is their plan for progressive government in a cold climate? Far from providing answers, none of the candidates has yet shown that they are even aware of the question.