“There will be a budget in October and it will be painful.” With his first major speech since entering Downing Street, British Prime Minister Sir Keir Starmer has inaugurated a tough political autumn on Tuesday, hinting that his government will carry out cuts and tax increases in the coming months. Starmer’s speech is based on two messages. First, that, as a result of the irresponsibility of the outgoing government, the country’s economic situation is “much worse” than feared during the election campaign. Second, that his government is committed to long-term economic growth and that, in the absence of short-term solutions, things will “get worse” before they get better.
The irresponsibility of the ToriesThe government’s fiscal constraints and the resulting fiscal constraints explain the interventions by Starmer and his Chancellor of the Exchequer, Rachel Reeves, in their first weeks in office. According to Reeves, their likely cuts are due to the fact that Rishi Sunak’s Conservative government has left a “fiscal black hole” of 22 billion pounds (about 26 billion euros). At the end of July, the Finance Minister seized on this hole to announce a cut in heating subsidies, which will go from having 11 million beneficiaries to being received by barely one million people. They have also served to justify an agreement with the unions that will lead to wage increases in the public sector: according to Reeves, prolonging strikes that began in 2022 would have been more damaging to the impoverished public coffers. Despite this, the government assures that it will not touch VAT or income tax, the two red lines it raised during the campaign.
There is no doubt that the economic difficulties that the country is going through are due, to a large extent, to the disastrous legacy of the Tories. The unbridled austerity led by David Cameron was compounded by the lost five years of Brexit, Boris Johnson’s poor handling of the pandemic and the fiscal disaster precipitated by Liz Truss. Fourteen years later, the United Kingdom is a poorer, more unequal country with worse public services than in 2010. However, the new Executive is also paying the price for its own lack of ambition.
In the months leading up to the election, Labour’s strategy was characterised by a paradox: while denouncing the legacy of the Toriesdeclaring that the country needed a “decade of national renewal”, Labour aligned itself with the economic policy of the outgoing government. Starmer adhered to the fiscal rules of the Conservatives, touting the importance of balancing the books and pledging not to go into debt, in the name of supposed responsibility. In a country where electoral manifestos are practically binding, this caution represents a major political constraint for the new Executive.
Starmer’s bet is twofold. In the short term, Labour hopes that voters will blame the outgoing government for the country’s bad situation, giving them greater room for manoeuvre and allowing them to carry out measures for which, in other circumstances, they would pay a high political price. In the medium and long term, the Executive hopes to revive the economy, increasing revenue thanks to economic growth and without having to touch the main taxes. The first bills announced by the Government – liberalisation of urban planning regulations, creation of a new public energy company or granting greater powers to local councils and regions – point in this direction.
However, it is difficult to believe that a fiscal policy based on such restrictive economic orthodoxy will solve the deep problems facing the country: a decimated public sector, a low level of economic productivity and an increasingly worn-out infrastructure. On the contrary, a more ambitious proposal will be needed, one that dares to confront two elephants in the room – the need to encourage immigration and to get closer to Europe – which successive governments have not dared to touch for years. The long-term success or failure of the Starmer era will depend on its ability to face these challenges.
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