Starmer’s economic promises would spell disaster for the UK

Britain is paying a terrible price for two decades of fiscal incontinence. Our borrowing costs have risen to the highest amongst advanced economies. Core inflation (which excludes food and energy) is actually rising. Mortgage costs are spiking as expectations mount that interest rates will be raised once again. Chancellor Jeremy Hunt has conceded he would be comfortable with a recession if it brought down inflation. We have been living beyond our means, and the day of reckoning is here. 

Rishi Sunak has lost any claim of being a ‘safe pair of hands’ at the tiller; all the opposition really needs to do is sit back and watch the Conservatives lose the next general election. Labour now have a 17-point lead over the Tories.

Instead, however, the shadow chancellor went to the United States, cosied up to Joe Biden and pledged a new economic approach that would mirror his profligate administration. Speaking at the Peterson Institute in Washington, Rachel Reeves explained that Labour is taking inspiration from Biden’s plan to tackle inflation and create jobs. She was perhaps unaware that the President’s various stimulus packages have led to US inflation hitting 40-year highs, while real wages have been shrinking since the Democrats passed their American Rescue Plan. 

Reeves may have displayed her true colours in Washington, but the warning signs have long been flashing. She has previously talked of her plan to become the UK’s first ‘green chancellor’ by spending £28 billion tackling the climate ‘crisis’. The party will freeze council tax, provide ‘free’ breakfast clubs in every primary school, abolish student loans, nationalise industries and hire an additional 13,000 police officers.

This won’t come cheap. At the start of the year, Treasury analysis suggested households would have to pay an additional £1,650 to cover Labour’s spending. To match Biden’s industrial strategy would, on a simple per capita basis, cost the UK £200 billion, which rather undermines the shadow chancellor’s 2022 promise of ‘iron clad discipline’. 

Reeves and her colleagues on the Labour front bench defer most questions on fiscal policy to the publication of the next manifesto. Insofar as they have attempted to explain how they would fund their extensive programme, it mostly involves a promise of financial responsibility and an intention to slay the bogeymen of the British economy: independent schools, landlords, non-doms, tech giants and fossil fuel extractors.

But the promises do not withstand scrutiny. Keir Starmer has suggested that adding VAT to private school fees will raise £1.6 billion a year, while making the schools fully liable for business rates will raise another £104 million. But the former figure assumes the total amount parents pay won’t change as a result of this policy. In reality, if just 10-15 per cent pulled their children out of private education, it could cost around £350 million per year to educate their children in the state system, and that’s before you consider the capital cost of building new schools to accommodate them. 

Labour predicts that ending non-dom status would raise £3.2 billion, but that seems to assume just 0.3 per cent of these residents would leave the country if they were forced to become full UK taxpayers. Given how sensitive individuals are to tax changes, this seems extremely low. Treasury research, seen by the Daily Telegraph, suggests Sir Keir’s plan to raise taxes on investment funds and non-doms would drive investors out of Britain and, in the end, reduce revenue. 

Meanwhile, it was reported earlier this year that oil and gas companies are scaling back North Sea operations and prioritising investment outside the UK because of windfall taxes Labour intends to increase. When Reeves was chairman of the business select committee, she once called for new levies on property, land and gifts. Were she to press ahead, she would be doing so in spite of a body of evidence showing wealth taxes are counterproductive and encourage avoidance, evasion and capital flight.

The idea that Starmer is leading a ‘Conservative march’ on No. 10 is misguided – though the same could reasonably be said of the Tories. Hunt has no plans to meaningfully trim our bloated state until after the next general election. In 1991, 1.6 million people in the UK were paying the 40p tax rate, 3.5 per cent of adults; by 2027, 7.8 million people will be paying the 40p, 45p or some higher rate – 14 per cent of adults.

There is public sector waste wherever you look. Net-zero by 2050 was pushed through without a proper parliamentary debate. It is disappointing that the Tories have failed to deliver on their promises. But it will be disastrous if Labour deliver on theirs.