State of Emergency

New Statesman​

4 days ago

Illustration by Carl Godfrey
We are on the edge. The Middle East war – having surely begun but not ended – threatens an economic shock that could completely upend us. It could end social democracy in Britain for our lifetimes.
We have almost no agency. We are barely partners with the US, never mind equal ones. The Prime Minister had no serious conversation with Donald Trump about his intention to attack Iran; then felt obliged to tacitly support the strikes afterwards. It's nobody's fault, but the truth is we are irrelevant.
Yes, David Lammy, the Foreign Secretary, was involved in the Geneva discussions with Iran and the E3 (France, Germany and the UK) about Iran's nuclear intentions, and has been trying to act as a bridge to Washington. But since Iran didn't want to engage, this turned out to be meaningless courier-diplomacy. Jerusalem doesn't care what we think – not about sanctions, not about the Senate of Lilliput. Nor does Washington. So, we must try to protect ourselves against Iranian sleeper cells, defend our scattered interests in the region and hold our breath.
But the trouble is, this is all happening as the government itself loses authority both in the country and in parliament. Last week, I quoted a No 10 insider who told me: 'It's quite unbelievable how unfit the state is to meet the crisis we have right now.' Since then, the crisis has intensified. And since then, many Labour MPs have been in touch to say that, from the outside, they are just as worried about the strategy coming from No 10. There is more than a whiff of rebellion in the air.
Outside shocks don't tend to topple stable, well-managed countries. What they do is pitilessly expose underlying weakness. By 1973, when oil prices quadrupled, the British economy was already clearly suffering from an obsolete, under-invested industrial base and terrible labour relations, with a crumbling public sector. Six years later, during the second oil shock, when prices doubled again, these problems were compounded by a Labour government that had lost financial control.
The outward symbols of all this – first the candlelit Britain of Edward Heath's three-day week, then Denis Healey's abortive scurry to the IMF in 1976 as the pound was plummeting, topped off by the 'Winter of Discontent' in 1978-79 under Jim Callaghan – are etched on our national memory.
Every aspect of that decade of crisis is surrounded by a thicket of 'yes, but' and 'often forgotten' and 'if only'. If only the Treasury hadn't… If only that vote had gone slightly differently… But each of these politicians shared to a greater or lesser extent a post-1945 British establishment consensus that was exposed and blown apart by the economic pressure initiated by King Faisal of Saudi Arabia.
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With one Cromwellian exception, we do not have a tradition of violent revolution. But the closest Britain came to a political uprising in the 20th century was in 1979 with the arrival of Margaret Thatcher and her market-driven regime change. A flicker of recognition becomes a shiver, when we recall that it was triggered because of Western support for Israel in the Yom Kippur War, and a sense of Arab humiliation and fury.
Today we have a very different political landscape: the unions present but less powerful; our old industries grey, powdery wastelands; outside the EU at the time of European war, and confronting, in AI, an entirely unfamiliar industrial revolution. But the state is no more popular, the political establishment even less trusted.
A simple truth remains. In relatively stable democracies, an establishment status quo is generally toppled and forced to take a different direction only from the outside. There may be discontent, obsolescence and fragility in the system – but it's the hammer on the door that forces change. That hammering may be, most obviously, the shock of war, producing votes for (some) women in 1918, and later the welfare state in 1945; then it was oil, stagflation and Thatcherism.
This regularly happens to social democracy in Britain. Tony Blair never enjoyed the same respect and authority after the Iraq War. When he left office the wound of British engagement in Afghanistan was still bleeding. Gordon Brown, succeeding him and hoping to draw a line under foreign entanglement, had his premiership brutally knocked to one side by the 2008 financial crisis; after it, he was dogged by the global recession and endless leadership manoeuvring.
Today we know all about the discontent in the system over living standards, housing, migration and crime. We observe the obsolescence of the state as it struggles to reform itself – critics from Dominic Cummings on the right to Morgan McSweeney on the left more or less agree.
We know two-party democracy has become fragile. The most recent polling by Ipsos put Reform nine points ahead of Labour (the Tories were nowhere) and implied Nigel Farage in power with a majority of almost 200 seats – Conservatives a risible ten, Labour 140. Just a poll? Yes, but it's very much the mood of the moment. It's just the big outside intervention, the knock on the door, that a febrile Britain is waiting for.
Is it coming now? We cannot say. Before the US bombing, I spoke to Mohammad Marandi of Tehran University, who is close to the regime and was indeed part of its nuclear negotiating team. He predicted that in the event of war the price of oil and gas would 'go through the roof' as Iran would not only block the Strait of Hormuz but would also attack oil tankers and oil and gas installations, causing economic 'catastrophe'.
We don't know how much damage was done by the strikes or whether the regime will survive – or whether it will be able to rebuild towards a nuclear weapon. Since the strike, American officials have conceded that they don't know what's happened to Iran's stockpile of uranium – Trump had claimed on the evening of 21 June that this material had been 'completely and totally obliterated'. But a quantity of anarchy has been unleashed. Iran is too big to invade, is furious, and has struck out at a major US airbase in Qatar. Even after a ceasefire was announced on 24 June, the threat of a wider war and its impact on the world economy is worryingly real.
According to Trump, both Israel and Iran violated that ceasefire within hours of it apparently coming into force. A global energy shock, rippling through the world economy, remains a very real possibility. Such an event would knock our Labour government pretty much senseless.
The Rachel Reeves investment strategy for the long term is shrewd, needed and indeed possibly essential for the country's future. But she is reportedly contemplating yet another U-turn, this time on inheritance tax for non-doms – it's all strategy, no politics. A Middle East-generated inflationary shock would render almost all her previous numbers meaningless. She would be able to maintain a standstill on public services only by raising taxes, probably quite sharply, in the October Budget.
And her position is not strong. The Chancellor has become extraordinarily unpopular among Labour MPs who blame her for the benefit cuts and winter fuel allowance mistake, marching them up the hill then down again, making them look stupid – and then coming back to do it again. For the first time, I'm hearing quite moderate Labour MPs saying privately that Keir Starmer should sack her; and that if he does not, he himself may be 'over, done, finished' after the May 2026 elections.
I have relied too heavily on there being four years left of this parliament and no obvious cabinet-level rebellion against the Prime Minister. All true. But in May 2026 there are not only Welsh and Scottish elections which could result in Reform smashing through two crucial regiments in the Labour army but also English borough elections, including all the London boroughs.
Try to imagine Starmer's position if there is a huge revolt next year at both ends of the country. Some MPs, looking at his personal ratings (down to -46 per cent net favourability, the worst ever recorded by YouGov, in May), are in despair about his ability to win the next general election.
Something serious has gone wrong in relations between Downing Street and the Labour Party in parliament. Welfare reform is essential and yet the Liz Kendall bill may even be lost – such is the scale of the unhappiness on the Labour benches. On 19 June, Richard Burgon, on the left of the party, compared it to the winter fuel payment error but on a much larger scale. He told me the government just hadn't made enough concessions: the bill, despite desperate pleading by Labour MPs, 'confirms our worst fears that it's going to be… plunging hundreds of thousands of more disabled people into poverty'. MPs who voted for it would find, back in their constituencies, that it was 'hanging round their necks like a millstone'. New Statesman readers know very well the counter-argument about the huge number of people moving on to sickness benefits, and the vast cost of that. But plenty of MPs who are not Burgon's natural bedfellows agree with him.
There comes a point when joining a rebellion is the safer thing to do, both for holding your seat and aligning with a majority of your colleagues; 1 July, when the welfare reform bill vote is scheduled, may be that moment.
Losing that vote would hold the government below the waterline; MPs are being told it would be an unpatriotic and suicidal thing to do at this moment. It would also threaten the Prime Minister and Chancellor directly. So soon after a general election, that would be an extraordinary thing to do. After so many years of self-indulgent Tory leadership battles, could Labour really throw itself into something similar? We should be sceptical. But once a party has decided its leader simply cannot win, nothing matters more.
Labour MPs have been exchanging rumours about the bill being pulled, or at least postponed until after the summer recess to allow more pressure – including from ministers – to be put on backbenchers. Simply withdrawing the bill would not only be disastrous for Liz Kendall but would hang a further question mark over all Treasury calculations – terrible news for Reeves. But, says one minister, 'looking at the names on the rebels' letter, this is going to get bigger still'.
Moving against Starmer or Reeves now would provoke an ideological fight, probably Wes Streeting against Angela Rayner. 'Après moi, le déluge,' Starmer might retort. But in other news, the deluge orders itself another reflective pint in a quiet Mayfair boozer and wonders whether he – I mean Nigel Farage, of course – in some senses, isn't in power already?
On the national enquiry into grooming gangs, on frustration with the European Convention on Human Rights, on nationalisation, the winter fuel payment U-turn and a more permissive attitude to oil and gas licences in the North Sea, the government has been sounding unmistakably Reform-y. 'Where is our vision of a better Britain? Where is our politics?' says a deeply frustrated minister.
That is the question. Even natural supporters of Starmer ask whether there is a private No 10 room in which a genuinely political conversation is taking place. They conclude it doesn't exist, that the Prime Minister surrounds himself instead with civil servants, his comfort zone. To be part of this government is becoming a lonely experience.
In one peculiar twist, what most distinguishes Starmer's Labour from Reform are the very same Reeves policies which so upset her colleagues. Her determination to balance the books, not to promise more than can be afforded and to focus on the long term is a million miles away from populism, which is why Starmer has taken to comparing Farage to Liz Truss.
Farage, meanwhile, continues to evolve as he eyes the changing landscape. He told the Telegraph recently: 'This country needs political surgery through every single sector of public life. We need a very gentle, British, political revolution. I'm the moderate. If I don't succeed, watch what comes after me.'
It is unclear whether this 'moderation' involves a Thatcherite assault on the state and an orgy of creative destruction, or whether it would end up being more of the old trouble: big promises then being let down by the realities of taxation and the bond markets. His radicalism is most likely to be seen on the other great issue which divides him from Labour (migration and race), but that also produces a great dilemma for Farage.
He is a subtle man with emotional intelligence who is coarse, angry and provocative only when it suits his purpose. Note the 'come on in' language about a 'very gentle, British' political revolution. Likewise, his long-standing and passionate protest against allegations of racism.
The trouble is, a lot of the rising nationalist tide against things-as-they-are is very angry and racist. It isn't just about the boats or hotels. It's about demography, Islam, criminals from overseas and English history. Returning to the 1970s and Enoch Powell, whom the younger Farage admired and once chauffeured to an event in the 1990s, we find there is nothing new in this.
Except, perhaps, the scale. It is more than before. There are no National Front skinhead demos. But polling from Merlin Strategy has found that 76 per cent of the public worry about future political violence. And if there is one thing that could hold back Reform, it is fear of uncontrollable community tension or, to put it more bleakly, race war.
Somehow Farage must harness the anger while soothing the fear. That is very tricky in opposition and would prove impossible in power. Trump has struggled. But if the British establishment is to be overturned after a further economic shock, the next revolution will be around borders and race, rather than privatisation and deregulation.
Liberal Britain hasn't gone under quite yet. Cabinet ministers have been shown polling that suggests that the higher the stakes, the less voters are likely to trust Reform. But this is a genuinely perilous moment for social democracy. I hope it's not too much for the struggling government we have, but I worry.
In the 1970s, Britain had formidably eloquent, learned, tough Labour leadership. Where are the Jenkinses, Healeys, or indeed Benns of today? And if they failed, why should we think today's leaders won't?
[See more: Trump's fragile truce]
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