In our punitive politics, the Labour party is almost always on probation. You can see it in Keir Starmer’s sometimes jumpy public manner, in the party’s dumping or scaling down of policies as a general election nears, and in its often cautious approach in power, even when it has a commanding majority.
Labour’s lingering insecurity and its related lack of credibility as a governing party in the eyes of others are clearest in how it handles, or is believed to handle, the public finances. State spending, investment, borrowing and deficits can seem dry topics. But they are also treacherous ones for the party which, since its founding, has been torn between seeking financial respectability – the terms of which are usually defined by establishment interests and Labour’s political enemies – and using government to create a more equal society.
The party’s painfully protracted shrinking of its plan to invest £28bn a year – less than 2.5% of total state spending – to create greener jobs, homes and energy reveals much about current politics. Starmer’s supposedly disciplined and focused party still has internal divisions. And, as in its narrow defeat in the Uxbridge and South Ruislip byelection last year, which also involved a necessary but contentious green policy, Labour still does not always manoeuvre or communicate well under pressure. Meanwhile, the Conservatives, who caricatured the £28bn plan as an unnecessary, tax-raising “spending spree”, are happy to pretend the climate crisis isn’t happening in order to stay in power.
The whole deeply depressing episode is also a recurrence of an old and fundamental problem for Labour – and, less obviously, for anyone in this country who wants more, desperately needed public spending, whether by Labour, the SNP or any other left-of-centre party. It’s not just the Tories and the rightwing press who believe that left-leaning governments are spendthrifts and run out of money. To varying degrees, many voters, business leaders, political historians, non-Tory journalists and even pessimistic leftwing activists, Labour politicians and strategists believe that, too. The narrative arc from free-spending optimism to indebted disillusionment is one of the most basic, but least-questioned stories Britain tells itself about progressive governments.
Thus Labour’s intermittent periods in office are often remembered not for their patchy but considerable achievements, but for their worst financial moments, such as the loan from the International Monetary Fund in 1976, and the then Treasury secretary Liam Byrne’s supposedly joking note in 2010, which said: “I’m afraid there is no money.” In fact, the fiscal performance of Conservative governments has often been worse. According to the political economist Richard Murphy, between 1946 and 2021, the Tories “always borrowed more than Labour, and always repaid less” of the national debt. Since 2022, the Tories’ financial record has been further damaged by the fantasy economics of Liz Truss. And Rishi Sunak is offering tax cuts funded by future spending reductions that, given the state of public services, are widely regarded as impossible.
Yet it is still Labour that has to endlessly prove its financial credentials. One reason for this is a vague but widespread assumption, fed by the rightwing media and conservative business bodies, that left-of-centre governments don’t understand – or don’t want to understand – money matters in general. Although the modern history of Europe and the US has plenty of economically successful left-of-centre leaders, from Franklin D Roosevelt in the 1930s to Willy Brandt in Germany in the 1970s to Tony Blair in the 2000s, a suspicion remains that Labour finds everyday economic tasks, such as getting the right balance between government revenue and expenditure, difficult and alien. Despite the last 14 Tory years of public debt mismanagement, dwindling prosperity and disastrously low growth, Labour’s poll lead over the Tories on the economy remains much smaller than its overall lead.
Ever since its first government 100 years ago, Labour’s solution to its fiscal credibility problem has usually been to impose strict, or strict-sounding, spending limits on itself. Sometimes, as under Blair and his self-consciously stern chancellor, Gordon Brown, this approach has made Labour’s profligate reputation recede for a while. Starmer and his shadow chancellor, Rachel Reeves, whose public spending pronouncements are becoming ever more Brown-like, evidently hope that their own, constantly invoked “fiscal rules” will similarly neutralise Tory attacks – and enable them to attack the Tories for financial recklessness instead.
Yet, as another of Starmer’s shadow ministers, Ed Miliband, knows to his cost, a politics of limits and austerity, as well as being socially or environmentally damaging, does not always work for Labour as a strategy. When Miliband was party leader, the then Tory chancellor, George Osborne, deliberately turned politics into a game of shrink the deficit, and Miliband was eventually persuaded by fiscally conservative colleagues to join in. As the journalist Matthew d’Ancona records in his history of the period, In It Together: The Inside Story of the Coalition Government, “Osborne … had missed his own [deficit reduction] targets and had been mocked for doing so. But he had defined the rules of the game, the terms of the debate.” Labour was then seen by leftwing voters as too pro-austerity, and by rightwing ones as not pro-austerity enough, because it had adopted the policy late. Labour’s poll lead evaporated, and its expected election victory with it.
Politics has changed a lot since 2015. The Tories are much more unpopular. Starmer has more authority, both inside Labour and as a public figure, than Miliband enjoyed as leader. Meanwhile, the British Social Attitudes survey shows that support for higher public spending has grown from a minority to a majority position. Perhaps for that reason, the Tory attacks on Labour’s £28bn plan, which are continuing despite its scaling back, haven’t affected Labour’s poll lead, so far. It remains much larger than Miliband possessed at the equivalent stage in the political cycle.
Labour may emerge from this mess without too much damage. But if it gets into government, it needs to act with more confidence: more like the most politically successful Conservative administrations, in fact. Rather than letting Sunak’s failures and flawed policies limit what Labour can do in office – effectively letting the Tories write not just their own budgets, but much of Labour’s as well – Starmer and Reeves could start talking differently about public spending: using the shift in how voters think about it, making new, more expansive financial rules and, if necessary, quietly bending them. All this would be quite a task. But otherwise, Labour’s probation period will never end.