Can Britain survive four more years of Labour?

Telegraph

a day ago

One year on from his landslide election victory, Sir Keir Starmer's plans are in disarray.
His Chancellor is in tears. His MPs are in open rebellion. But most importantly outside Westminster, his promises to restore growth in the economy have come to nought, despite extremely expensive plans to force a rebound.
Here are the charts that show why the optimism of last summer – when Labour's victory supposedly replaced the inept Tories with 'grown-ups' – has withered.
Growth
Since the shock of the pandemic lockdowns and the boost from reopening the economy, GDP has only grown in fits and starts.
In last year's election campaign, the Conservatives made much of the 'gangbusters' growth of the first half of 2024. But that rapidly petered out.
The opening months of this year also saw a brief growth spurt which came to an end even more quickly – the economy shrank again in April.
Looking through the short-term bumps to compare GDP with its level a year ago, there are few signs of any sustained recovery. The economy is not even 1pc bigger now than it was 12 months ago.
The outlook for living standards is not much better. Productivity – which measures the average output created for each hour worked – has been in freefall for the past two years.
Last year it dropped by 0.8pc, according to the Office for National Statistics (ONS), double the 0.4pc fall suffered in 2023.
Those represent the biggest drops since the financial crisis.
Higher productivity over the longer term is the key to sustained higher wages, lower inflation and economic growth, so the outlook is extraordinarily bleak.
Inflation
Sir Keir came to power after the cost of living crisis pummelled the British public.
Living costs are up by more than 25pc since the eve of the pandemic and essentials are up even more.
Groceries cost more than 30pc more than they did just over five years ago. Electricity and gas bills are up 57pc and 73pc respectively.
Rachel Reeves, the Chancellor, and her colleagues thought they had got spectacularly lucky last year, as inflation fell back to the Bank of England's 2pc target in the month before their election victory.
But they are receiving little credit for keeping a lid on living costs: 2pc inflation still means prices are rising, not returning to anything like pre-Covid levels.
And worse still, inflation only stayed at target fleetingly. Consumer prices are now up by 3.4pc on the year and the Bank of England expects a further acceleration in the months to come.
Many of the factors driving inflation higher are caused by the Government, from the VAT raid on private school fees to prices set by regulators such as water bills.
The Bank of England fears this will lead to a fresh wage-price spiral driving inflation up further – hence cutting interest rates only very cautiously, sustaining the high borrowing costs facing Britain's indebted households.
Unemployment
Andrew Bailey, the Bank's Governor, is waiting for more signs the jobs market is weakening. That would ease concerns about a fresh spiral of inflation.
But it is also bad news for workers.
The Governor has flagged up the signs that the labour market is indeed softening. Unemployment is up at 4.5pc and is set to rise to 5pc, the Bank forecasts.
That is a level last seen in lockdown, and threatens to take Britain back to 2015 when the economy was still shaking off the hangover from the financial crisis.
There are other signs of workers suffering too.
Bailey says the cost of the Chancellor's £25bn raid on employers' National Insurance contributions (NICs) – the biggest chunk of her record-breaking tax-raising Budget last October – appears to be falling largely on workers, in the form of less hiring and lower pay rises.
Sure enough the number of job vacancies in the economy is falling firmly below pre-Covid levels.
After the post-pandemic hiring frenzy, which pushed vacancies up to 1.3m, the number of posts now available has fallen by more than 40pc. The ONS found 736,000 positions on offer in the three months to May.
Business confidence
There is a bitter irony in this.
A year ago, bosses cheered on the election of Sir Keir and his party. The economic confidence index compiled by the Institute of Directors soared to levels not seen since the rollout of Covid vaccines promised to put an end to the pandemic lockdowns.
Yet within months sentiment was in freefall, plumbing depths as low as those seen in the early months of the pandemic and in the crisis after Liz Truss's catastrophic mini-Budget.
The cause? Labour's mismanagement of the economy.
By hitting companies with a NICs raid, Reeves left businesses feeling betrayed. Labour's manifesto promised not to raise the tax. The Government claimed that its pledge only applied to the minority of NICs paid directly by workers, not to the much bigger chunk paid by their employers.
This was news to companies, which had fallen for Reeves's charms prior to election day.
Low confidence means less hiring, less investment and less of the vital growth and prosperity which Labour had vowed to restore.
Debt
The record-breaking, manifesto-bending tax increases which shook the economy so badly were at least supposed to serve a purpose: getting the public finances back on the straight and narrow.
Unfortunately, even they were not enough to fund the Government's spending plans. The Chancellor also changed her fiscal rules to justify additional borrowing at the same time.
Even if everything went to plan, the Office for Budget Responsibility estimated her plans would add hundreds of billions of pounds to the national debt compared to their forecasts under the Conservatives.
By the end of the decade the number-crunchers expect the debt to stand at £3.4 trillion, up from the £3.1 trillion previously estimated for 2028-29.
Yet slower growth, about-turns on reforms, stubborn borrowing costs on that mounting debt and fresh promises on military spending all mean Reeves is yet again facing a black hole in the finances.
That means more tax rises are anticipated, whether stealthily in the form of frozen tax thresholds or overtly with higher rates - all on top of the record tax burden already weighing down the private sector.
More tears are on the way, and not just from the Chancellor.