Labour’s rival factions offer a radical rewiring of the economy

That is not to say that the Labour Party, and their coterie of advisers and thinktanks, are short of ideas. I have been struck by the number of pamphlets released in recent weeks that purport to show an alternative vision to the mantra of Stability, Investment, and Reform laid out by the Chancellor, Rachel Reeves, in her two Mais lectures. The battle for ideas on the centre left is in full swing less than two years into the Parliament.

It would be both trite, but also fair, to question where this depth of thinking was prior to the 2024 General Election. After all the Labour Party had fourteen long years in opposition to consider the economic issues that they would face in government. Whilst the global backdrop of inflation and interest rates changed dramatically in the run-in to 2024, to govern is to face up to reality. Governing does not take place in the idealised world of near-zero interest rates, benign inflation, and favourable demographics,
Labour Party insiders speak of the role of former No.10 Chief of Staff, Morgan McSweeney, in closing down debates on economic radicalism in the run-up to the last General Election. The risk of it fracturing his “Ming Vase strategy” was ever-present. That strategy secured a huge Parliamentary majority, but it failed to secure a mandate for any radical rewiring of the UK economy.

Leaving aside for a moment the political legitimacy of using a political mandate secured under alternative economic messaging - and the echoes of a similar pivot attempted by Liz Truss in 2022 - what is now emerging as an alternative to Securonomics? From what I can establish there are three distinct groupings now vying for attention from prospective Labour Party leaders.

The first of these is the Tribune Group of Labour MPs with their pre-eminent spokesperson being former Transport Secretary, Louise Haigh. This is the group that most reject the structural status quo. “Iron-clad” fiscal rules with five-year horizons, and the role of the Office for Budget Responsibility are being challenged. Tribune members are also critical of the Bank of England’s approach to asset sales, they propose splitting up the Treasury into two separate ministries, and have been most vocal on additional wealth and asset taxes. In short, they see the economic infrastructure of the UK as impediments to faster growth, and propose radical reform of the UK’s macroeconomic framework.

Second is the Labour Growth Group, with backbench MP, Chris Curtis, amongst their most vocal advocates. Their argument, proposed in the recent publication, “An Honest Day”, is that the supply side of the UK economy is broken. Rationed factors of production and widespread rent-seeking behaviour have curtailed growth and prosperity. The Labour Growth Group suggest that a procedural state is one that fails to prioritise outcomes, leaving citizens disenfranchised and frustrated. It also recognises that the burden of taxation needs to move from employment towards capital, but from reform of existing asset taxes, rather than introducing new ones.

Third and finally, is Mainstream and its champions Mayor of Manchester, Andy Burnham and the backbench MP, Clive Lewis. Mainstream is a repudiation of the supply side agenda of the 1980s that introduced market forces into what had hitherto been inefficient state provision in areas like energy, transport, and utilities. In markets for water, housing, and transport, reversing the delegation of ownership and control by the state sector are seen as key to citizen outcomes. It is probably the agenda that speak most vocally to the Collectivist view rather than the Individualist one. Manchester is seen as having been the petri dish for this approach.

There are twin challenges for any prospective leadership team looking to co-opt any of these ideas. First, the implementation of these ideas need to speak to a bond market that, contrary to the bogeyman caricature, has no political allegiances or antidemocratic tendencies. It is a market full of participants who simply price, dispassionately, their expectations for what these political ideas mean for debt issuance, and the inflation they may generate. Bond markets don’t have a priori biases against UK politicians, but are battle-hardened to persistent fiscal deficits and above-target inflation over the last two decades. Bond market investors have £2.9 trillion of skin in the game. If the wish is to loosen their influence over elected politicians then a plan that begins to pay them back is the surest such approach.

Second, proponents for a mid-Parliament economic pivot must face a Labour Parliamentary Party (PLP) who are split on the right way forward for Labour economic policy. As a cohort of MPs, the PLP largely agree that they would neither start here, nor are content with the current pace of change. The problem is the lack of a unifying feature - like an Election-generated manifesto - with which to coalesce behind. Indeed given that Starmer and Reeves, the status quo team, have struggled to push through controversial policy proposals it is a fair bet that any alternative leadership team - however good their popular appeal - will face a markedly tougher job.

And this all speaks to the “Conspiracy of Silence” my fellow Times columnist, Paul Johnson, pointed out so presciently ahead of the last General Election. Frontline politicians achieve a pyrrhic victory by subverting the depth of the economic challenges posed for a country like the UK with deteriorating demographics, no longer presiding over a reserve asset, and with an embedded inflation problem.

In fact it would be tempting to argue that Chancellor Reeves has been the big political winner from the last week. The combination of bond market murmurings on suggestion of her being replaced, a decent economic growth performance in the first quarter of the year - a G7-leading 0.6% per capita QoQ - and the sheer spread of alternative economic visions all suggest that she has managed to hold together a very loose coalition of economic views within the PLP. This is not to say that her own party, looking down the barrel of electoral apocalypse in 2029, wont roll the dice and pursue a different agenda. But come the next General Election all parties will need to learn the lesson from the last two years. A lack of honesty on the way into government will, again, make it hellish once inside.