‘Things can only get better” was a Labour party slogan before the 1997 general election. The reason why Rishi Sunak has surprised the nation, and what my old colleague Alan Watkins used to call the “chattering classes”, by calling for a snap election is that Sunak and his chancellor, Jeremy Hunt, have apparently decided that things can only get worse.
With low inflation figures – at last – and the possibility of a cut in interest rates, the two of them have been talking the economy up as though there were no tomorrow.
Unfortunately for them, and indeed for the rest of us, unless the thrust of economic policy changes, there is an unhappy tomorrow, as the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have reminded us. Under current fiscal rules, the prospect is of more savage cuts in spending on essential services, or serious increases in taxes. (On a lighter note, I can’t resist reporting that the racehorse Fiscal Rules has not been doing too well in Ireland recently.)
Yet this is a time when you have only to look out of the window to see that the nation’s infrastructure is in pretty poor shape, and that the grim signs of poverty are not far away. I need hardly mention the funds needed to reduce the pressure on the NHS and make our rivers and water supply safe from the neglect perpetrated by the privatised water companies. As Lord Kinnock ruefully observed in a recent press interview, the British “invented clean water” in the 19th century.
Kinnock thinks Labour will win, but warns against complacency. After all, for much of the approach to the 1992 election, Labour under his leadership were ahead in the polls – with odds of 6-1 on, on the day before the election – yet they lost.
The Conservatives, and their captive press, made much of “Labour’s tax bombshell” in that campaign. In fact, the increases promised by the shadow chancellor, John Smith, were an honest attempt to demonstrate fiscal responsibility by demonstrating that some worthy increases in public spending would be paid for.
That Tory success with the “tax bombshell” has scarred Labour’s approach to elections ever since.
The general economic picture now ought to be a gift to Labour. They can campaign about 14 wasted Tory years – five years of austerity under the Conservative-Liberal Democrat coalition of 2010-15 and nine under the foolhardy Brexit referendum and its consequences.
The fact is that Starmer was right about Brexit and Boris Johnson and his partners in this historic political disaster were wrong. Now, in his mistaken desire to appease those Labour voters who were misled by pro-Brexit propaganda – thereby disappointing, even alienating, his natural supporters – Starmer has ruled out returning to the customs union and the single market; but he believes the answer to a prospective Labour government’s problems lies in “growth”. We have reached the reductio ad absurdum where, when asked on the BBC “would membership of the single market boost economic growth?”, Starmer replied “no”. As even the Conservative peer and Times columnist Daniel Finkelstein commented, “[it] isn’t true and he doesn’t believe it either”.
My old friend Lord Heseltine has warned that this is going to be a most dishonest election campaign, with both major parties “trying to avoid the key issue underlying our economic malaise – Brexit”.
Starmer has a big opportunity here. He will know that decisions made right at the beginning of a new parliament matter hugely. Harold Wilson is one of his heroes. Wilson’s mistake was to rule out a necessary devaluation of the pound when he was elected in 1964. This error blighted his premiership, leading to forced deflationary measures and the ultimate humiliation of a market-induced devaluation in 1967.
If Starmer wins, he would have the opportunity to announce the beginning of an approach to a return to the customs union and single market, which, along with a more sensible long-term approach to fiscal rules, would give him a fair chance of boosting the now-deflated animal spirits of entrepreneurs.
I have spoken to operators in the financial markets who believe such a step would indeed be good for confidence and, yes, growth.
A more long-term approach to the fiscal problem would be essential for Labour to achieve a growth-oriented investment programme. The idea would be to build up much-needed public sector investment, which would also encourage private sector investment. As for the current restrictive fiscal rules, no less an authority than the former top Treasury official, Lord Macpherson, revealed in the Financial Times last Friday: “I always advised chancellors not to become mesmerised by such rules. They come and go.”
