‘Why Left-Wing Labour Members – Including Politicians Like Me – Feel Stifled By Keir Starmer’s Leadership’

Critiquing policies put forward by the leadership of the Labour Party has become something of a no-go area for members. 

Party conferences are stage-managed, local branches are emasculated, policy development groups are anonymous, submission to committees disappear into a black hole and 30-second questions at Parliamentary Labour Party (PLP) meetings result in soundbites rather than any rigorous dialogue.

Any member raising their head above the parapet risks deselection, withdrawal of the whip and expulsion. Policies seem to be developed in an echo-chamber populated by a select few and do not easily withstand scrutiny. 

A few examples help to illustrate the problems.

For some time, Labour had promised to make £28 billion of green capital investment a year until 2030. This would have funded factories to build batteries for electric vehicles, the hydrogen industry, offshore wind turbines, and everyday infrastructure such as home insulation, cycle paths, tree planting and flood defences. This investment was also to develop Great British Energy and deliver “100% clean power by 2030”. 

This policy is central to ‘A New Business Model for Britain‘, a policy document published last month after three years of deliberations. In addition, Labour is committed to long-term tax breaks for business, cutting business rates and providing food subsidies for an unspecified amount.

How will these policies be funded? Labour’s leadership has deliberately limited its choice to neoclassical borrowing and/or taxes to raise revenues.

It has closed-off the borrowing route by saying that, under a Labour government, “debt will fall as a share of GDP and that day-to-day spending must be sustainably funded”. That leaves tax revenues as the main route for additional investment.

Labour’s promised reform of the non-dom tax perk may generate up to £3.2 billion of extra annual revenues and it is earmarked to fund “breakfast clubs in schools and more NHS staff”. By closing the “carried interest” tax perk available to private equity mangers, Labour hopes to raise £440 million a year. There is a promise to levy VAT on private school fees and remove the charitable status of private schools that are not special schools. This may raise £1.75 billion a year. 

These measures cannot provide the resources for green investment and NHS staff funding, far less address chronic problem of low investment and productivity, primarily due to the state being side-lined.

The Labour leadership has ruled out other potential sources of tax revenues. For example, the promise of “fair” taxes seems to rule out any increase in the basic rate of income tax and national insurance. It has ruled out an increase in the 25% rate of corporate tax. 

Currently, capital gains are taxed at rates of 10-28% while wages are taxed at 20-45%. By aligning the capital gains and income tax rates, and ensuring that recipients of capital gains pay national insurance, Labour could raise up to £25 billion a year, but the leadership has promised not to reform taxation of capital gains. 

Labour can generate additional tax revenues, not only by adjusting the tax rates but also by broadening the tax base. The richest 50 families have more wealth than the bottom 50% the population, and a 4% wealth tax would generate up to £18.66 billion but the Labour leadership will not broaden the tax base by levying a wealth tax. 

This is by no means a comprehensive list of the leadership’s statements on taxation. But it shows the general direction of travel. 

At the first breeze of public scrutiny, the leadership backtracked on its £28 billion investment promise. It will now take place in the second half of the next Parliament if Labour wins the 2024 General Election. In practice, it means that Labour cannot meet its target of 100% clean energy by 2030, additional jobs, new industries and rejuvenation of the former industrial heartlands. 

In 2020, Labour Leader Sir Keir Starmer promised to abolish university tuition fees. This policy has now gone. By scrapping tuition fees, Labour would have enhanced the spending power of the masses by around £9.5 billion a year, a vital stimulus for rebuilding the economy.

Labour has also backtracked on its policy of providing universal free childcare for children over nine months, something that would have enabled many parents to enter the labour market and relieve dire labour shortages.

A common thread to backtracking is that Labour wants to be seen as a party of fiscal responsibility i.e. it won’t fund day-to-day spending by borrowing. That signals a continuation of Tory austerity and real wage cuts for public sector workers. Are workers not part of any long-term investment?

The reversal of the tuition fees policy shows that Labour is content for austerity-stricken households to take on more debt and deplete their spending power even though economic risks are better managed through public investment.

And yet, no questions are asked about the composition and quality of the public debt, which currently stands at around £2.5 trillion or 99.2% of GDP. Last August, Jacob Rees-Mogg said that “if you exclude quantitative easing, which is ‘money owed by the government to the government’, we’re under a 60% of debt to GDP ratio”. So why is Labour willing to stifle investment?

Shortly after the Second World War, public debt was around 270% of GDP and enabled the Atlee Government to rebuild the economy – a process that ushered in prosperity, the NHS and welfare state. It is hard to recall previous generations fretting about it as the proceeds of prosperity eventually reduced the debt to 49% of GDP in 1976. 

The state became entrepreneurial and invested in shipping, steel, railways, mining and many other industries. It laid the foundations of biotechnology, information technology, aerospace and other industries as private capital was unwilling to take the risks.

Since the 1980s, the state has been restructured and has become a guarantor of private profits as exemplified by the private finance initiative (PFI), outsourcing and relentless privatisations. It subsidises private businesses, such as railways, steel, oil, gas, nuclear power and information technology, just to name a few.

With the downgrading of the role of the state as a societal investor, the UK is starved of investment in productive assets and is ranked 27th on business investment among the 30 OECD countries. The era of low inflation, interest rates, corporate taxes and negative real wage growth has not stimulated business investment.

In the absence of a restructuring of the state, how will Labour boost investment into productive assets?

With self-imposed strait-jackets on borrowing, taxes and public investment, and a continuation of Tory austerity, how will Labour rejuvenate the economy? Such questions will become critical during at the next election, and any backtracking and incoherence could be damaging.

A Starmer-led government may be tempted to emulate the 1997 Labour administration and accept the constraints of the Tory financial plans for the early years of the government. That would be catastrophic.

People have seen their living standards erode. The average real wage today is unchanged since 2005 and the hospital waiting list in England stands at 7.4 million. Failure to address people’s aspirations would rapidly lead to disenchantment with Labour and create a crisis of legitimacy.

Labour needs to develop better, robust policies. Sir Keir should start by broadening the policy-making space, and engaging with critical voices.

Lord Prem Sikka sits as a Labour peer in the House of Lords. He is Professor of Accounting at the University of Sheffield