Labour’s clouded vision for the UK economy

The Prime Minister Sir Keir Starmer is out in the Gulf, peddling infrastructure projects to Saudi Arabia’s Mohammed bin Salman. His Chancellor Rachel Reeves will be in Brussels, pitching for a better relationship with the European Union. Meanwhile, the government has been pushing for closer ties with China, while also angling for a trade deal with President-elect Donald Trump. Sure, there is plenty of activity – but in reality, Labour appears incapable of deciding what kind of economy it truly wants to create.

There is nothing wrong with looking for a closer relationship with the Gulf. Indeed, the UK could probably learn something from their low tax, light regulation economies, which, along with lots of oil, has made the region one of the fastest growing in the world. But there is probably no point in trying to secure a closer relationship with the EU at the same time – especially as Brussels is going to demand that we accept all its rules and regulations in return. It would make far more sense to choose one or the other.

Likewise, there is little to be gained by trying to repair relations with China, while at the same time trying to restart talks on a trade deal with the United States. The largest and second largest economies in the world are now clearly embarking on a trade war, and countries will have to pick one side or the other. 

It does not stop there. Starmer’s government has set out an ambitious employment target of 80 per cent, aiming to move people off benefits and back into work. And yet, at the same time it has massively increased the tax on jobs, with the result that vacancies are now falling at the fastest rate since the pandemic. You can’t encourage people into jobs that don’t exist. Labour says that it wants to invest in technology and green industries, because that is where the growth is. But at the same time, it has started renationalising the railways, and may well take British Steel back into public ownership over the next few weeks as well. To put it mildly, there is nothing very 21st century about either of those industries. 

In reality, five months into the new government Labour economic policy is a mess. Starmer and Reeves have no idea what kind of industrial base they want for the UK, what kind of trade strategy they believe in, or how to get output moving upwards again. They are flailing around, trying out anything that might work, but with little purpose or cohesion. The result? The UK is stagnating, business confidence is falling, and investment is evaporating, while the entrepreneurs increasingly flee abroad. Very soon it will be too late to turn things around.