UK’s Labour Party defines battleground for reelection
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There are major political differences between the Labour government that was elected on July 4 and its Conservative predecessor which gained power in May 2010. However, one common challenge that each faced on day one was that of a troubled economic inheritance.
The new chancellor of the exchequer, Rachel Reeves, claimed she inherited from the Conservatives the worst economic situation in British post-war history. On July 29 she released a Treasury dossier that revealed a “£22 billion ($28 billion) black hole” in this year’s budget.
In this sense, there are some parallels with the situation in 2010 when the Conservatives regained power from Labour. The chancellor at the time, George Osborne, said: “This government faces the worst economic inheritance in modern history.”
As Prime Minister David Cameron’s government pursued a controversial strategy of national austerity, this economic issue framed the next half-decade of UK public life. At the next election, in 2015, the Conservatives emerged victorious with a narrow majority.
Fast forward to 2024, and a troubled economy inherited by a new government is once again likely to frame the current Parliament, and potentially prove to be a key issue at the next election, which is likely to take place in 2028 or 2029. The Labour Cabinet will be hoping it can convince the public of the merit of its policies, in the same way the Conservatives managed to do in the years immediately after May 2010.
One big factor that helped the Conservatives frame the political debate at that time was the fact that not only did Labour lose its majority in the House of Commons, but several key frontbenchers immediately moved to the backbenches, including defeated Prime Minister Gordon Brown.
Moreover, some of the key Labour figures who remained at the forefront of the party, including Ed Miliband, his brother David, and Ed Balls, became embroiled in a lengthy, intra-party leadership contest (with Ed Miliband ultimately declared the winner). This distraction allowed the Conservatives to frame the public debate over whether its austerity strategy was necessary, despite the controversies that surrounded it.
Now it is the Labour Party that hopes to frame the debates over whether its governing agenda for rejuvenating the economy, after years of sub-par growth, is the correct next step for the nation.
Average annual growth rates in the UK have more than halved since the international financial crisis of 2007-08. Labour often highlights the fact that had per capita gross domestic product grown as rapidly in the 15 years after 2007 as it did in the 27 years after 1980, every person in the country would be more than £10,000 better off in real terms, according to International Monetary Fund data.
In making its case, Labour has slammed the economic record of the Conservatives between 2010 and 2024. Meanwhile, the Conservatives are locked in a leadership contest that will not conclude until Nov. 2, just a few days before the US presidential election.
The six contenders to lead the party are: Kemi Badenoch, the former business and trade secretary who now serves as shadow communities minister, is a right winger and the current favorite to win; James Cleverly, the former home secretary whose politics are more centrist, and who is now shadow home secretary; Tom Tugendhat, the former security minister, who is the most moderate candidate and is now shadow security minister; Priti Patel, the former home secretary and a close ally of former Prime Minister Boris Johnson; Robert Jenrick, the former immigration minister who seeks to attract the same right-wing vote that Patel and Badenoch are targeting; and Mel Stride, the shadow work and pensions secretary, who is one of former Prime Minister Rishi Sunak’s closest allies.
Labour’s goal is to shape and steer the public debate about the economy.
Andrew Hammond
Given that four of these six hold senior shadow-Cabinet roles, the focus of the Conservatives in opposition is inevitably somewhat distracted right now. However, Sunak and Jeremy Hunt remain in the two most senior party posts and will continue to serve as leader of the opposition and shadow chancellor, respectively, until the new leader is chosen.
In the months until this happens, Labour will therefore seek to dominate the political space vacated by the Conservatives as a result of their leadership contest.
One key element of Labour’s agenda, following the twin shocks of the pandemic and war in Ukraine, is its plan to try to position the UK as a clean-energy superpower, in part by setting up Great British Energy. This new organization, funded by a windfall tax on fossil fuel firms, will be publicly owned and its headquarters will be in Scotland. Its goal is to enhance UK energy security, and it will manage and operate clean power projects such as wind farms.
One of the other big economic announcements by Labour so far is a new National Wealth Fund that will be used to invest in the industries of the future. It will include contributions from overseas investors from the Middle East and beyond. Efforts have already begun to align the work of the UK Infrastructure Bank with that of the British Business Bank, and the government has assembled a task force that includes Mark Carney, a former governor of the Bank of England.
Under the government’s plan, the wealth fund will bring together key institutions to offer a compelling proposition for investors, which it believes will mobilize billions of pounds in additional private investment and generate a healthy return for taxpayers.
About £7.3 billion of funding will be allocated to the plan through the UK Infrastructure Bank, in addition to existing funding it provides, so that investments can begin straight away, with a focus on priority sectors and efforts to catalyze private investment on an even greater scale.
Moreover, there will be reforms to the British Business Bank in an attempt to ensure it can mobilize the deep pools of institutional capital in the UK by harnessing the potential of its investment pipeline and its track record as the country’s largest investor in venture capital. The government hopes this will unlock billions of pounds of investment in the UK’s world-leading green and wider growth industries.
Taking all of this together, Labour’s goal is therefore to shape and steer the public debate about the economy. If economic growth recovers to levels above the trend following the 2007-08 financial crisis, this would significantly bolster the party’s reelection prospects.
• Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.
