The labour change: what awaits the British budget as the new PM steps in

09 August 2024 , 19:39

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The labour change: what awaits the British budget as the new PM steps in

After winning its first election in 14 years, the United Kingdom’s Labour Party has pledged to prioritize spending cuts — eliminating certain benefits while increasing taxes on the wealthy.

Traditionally, it is the Conservatives who promise to cut government spending, but as they exit Downing Street after more than a decade in power, the Conservatives have left behind a significant budget deficit. Unlike recent Labour leaders, the new British Prime Minister, Keir Starmer, is seen as more of a centrist and pragmatist when it comes to economic matters. On key international issues, he distinguishes himself from his European left-wing counterparts by, for example, actively supporting Israel in its conflict with Hamas. The new British cabinet’s challenge is to repair what the Conservatives have damaged over the past decade, from immigration policies to healthcare. However, the Labour Party seems unable to reverse the UK’s departure from the European Union, as Brexit’s outcome is seen as irreversible. Nonetheless, Starmer aims to at least improve relations with Brussels.

Who is Keir Starmer and where did he come from?

The United Kingdom’s new Prime Minister, Labour leader Keir Starmer, is a relative newcomer to politics, first being elected to parliament in 2015 from the Holborn district in central London. Before that, he had built an impressive career in law: first as a human rights specialist who, among other things, represented Alexander Litvinenko’s widow Marina in the European Court of Human Rights, and then as the Attorney General of the United Kingdom (2008-2015). By comparison, his Foreign Secretary David Lammy became an MP in 2000 and worked in Tony Blair’s government more than two decades ago.

After the 2015 elections, the Labour Party chose as its leader the socialist Jeremy Corbyn and built its program around the nationalization of railways and energy companies. A convinced Eurosceptic, Corbyn went against the wishes of the party’s voters and did not campaign against Britain leaving the EU. Keir Starmer, on the other hand, actively spoke out against Brexit in his role as a minister in Corbyn’s shadow cabinet. (Shadow ministers do not have real power, but instead offer an alternative argument to those who do; often, when a change of government occurs, former shadow ministers step into positions of actual authority.)

Corbyn failed to unite his declining party. In the early elections of 2017, Labour showed a strong enough result to force Conservative Prime Minister Theresa May to form a minority government with the Northern Irish Unionists. But then there was a scandal with anti-Semitism in the party, which was exacerbated by Corbyn’s strongly pro-Palestinian stance. The main blow to his position was the failure in the 2019 elections. By that time, the ruling Conservative Party was led by Boris Johnson, who in the summer of 2019 replaced May after she had failed to push a Brexit agreement through parliament.

Johnson managed to crush Labour in the northern regions, which had traditionally voted for Labour. The Conservatives promised a “levelling up” program for the country based on the development of the north and investments in local infrastructure. They also offered a clear solution to the Brexit problem with specific deadlines for leaving the EU and a plan for a deal with Brussels. Labour, on the other hand, was still stuck debating potential plans to hold a new referendum. Labour lost 60 seats, an electoral disaster sufficient to prompt Corbyn’s resignation. In April 2020, he was replaced by Starmer.

As leader of the opposition, Starmer was notable primarily for implementing purges: the main figures from the anti-Semitism scandal, including Jeremy Corbyn himself, were expelled from the party. Labour’s attitude towards Palestinian issue changed further after the October 7, 2023 terrorist attack. Starmer supported Israel and for a long time refused to call for a ceasefire in the Gaza Strip, contrary to the wishes of many of his party colleagues.

The party’s agenda has also changed significantly when it comes to economic matters. Starmer’s course is pragmatism — as opposed not only to Corbyn’s socialism, but to the loud and unrealizable promises of the Conservatives under Johnson’s leadership. Starmer has also steered his party clear of any serious scandal. While the whole country was discussing Johnson’s COVID-era parties at Downing Street and the attendant fines imposed for violating lockdown protocols, the Labour leadership was only once suspected of something remotely similar — namely, of drinking beer at a working dinner. However, the “beer” investigation did not reveal any violations, while the fallout from Johnson’s revelry during the pandemic ultimately cost him the prime ministership.

Why did the conservatives lose?

By the time of Johnson’s resignation in August 2022, an economic crisis was in full swing in the UK, caused by pandemic-related spending, along with rising gas prices due to the war in Ukraine. The political agenda of the Conservatives during this time was somewhat different: although Johnson took measures to combat inflation — which had reached more than 11% — and to help needy families, his cabinet paid much more attention to the migration crisis and attempts to fend off the scandal surrounding the coronavirus parties.

After the country’s exit from the European Union and the attendant restrictions placed on Europeans working and residing permanently in the UK, Johnson significantly simplified the country’s requirements for work visas and allowed students to remain in Britain without any conditions for two years after graduation. As a result, in the post-COVID years, the UK experienced its largest ever in-migration: in 2022, more than 600,000 people arrived in the country, including 114,000 refugees from Ukraine under the Homes For Ukraine program. Another 50,000 refugees arrived in the UK by boat across the English Channel. By comparison, in 2019, when the country was still formally part of the EU, there were only 1,800 such refugees, and in 2017 there were none at all.

Before Brexit, under the Dublin Convention, the UK had the right to return refugees arriving from the continent to the safe country they had come from — to France, for example. But after Brexit, France was no longer obliged to accept them. Smugglers took advantage of this opportunity and began to organize crossings to the UK.

Refugees on a boat

In an effort to deny such migrants asylum in the UK, the Johnson government reached an agreement with Rwanda, which agreed to take in refugees arriving across the English Channel. The scheme went through an endless series of courts and survived two cabinet ministers — Liz Truss and Rishi Sunak — but ultimately never materialized. When the Labour Party came to power, it buried the plan as populist, expensive, and meaningless.

The issue of migration, although it worried the British, was not as acute as the rise in prices, the sad state of the healthcare system, and the scandals surrounding Johnson and his team. Approval ratings of the Conservatives began to fall as early as the end of 2021, when the fact of the Downing Street lockdown-busting parties first became known. The party’s anti-immigrant rhetoric did not help its cause — for the whole of the next year, Labour was ahead of the Conservatives in the polls.

After Johnson’s resignation in the fall of 2022, Liz Truss won the intra-party vote to replace him with a campaign based on lowering taxes. Her first order of business as PM was to present a draft budget promising economic growth through tax cuts. But the markets did not buy the idea. As a result, the pound collapsed, mortgage rates skyrocketed, and Truss went down in history as the prime minister who lasted only 49 days — less time than it took for a head of lettuce to go bad.

Following a parliamentary faction vote, Truss was replaced by Rishi Sunak, the former finance minister in Johnson’s government. Britain’s first prime minister of Indian heritage is remembered primarily for his large number of unsuccessful PR stunts. Despite being a billionaire (his wealth primarily stemming from his wife, Akshata Murty, the daughter of Infosys’s founder), Sunak attempted to present himself as a relatable, ordinary person. However, his attempts backfired, producing awkward moments in which he struggled to pay for groceries in supermarkets and lamented the lack of satellite TV in his childhood. During the entire time Sunak was in power, the Conservatives’ rating never rose above 30%.

Can Labour keep its promises?

The Labour Party’s overwhelming success in the election might give a misleading impression of widespread popularity, similar to the “ dropping to 23% during the campaign. This situation has parallels in British history: the first post-war Prime Minister, Clement Attlee, who replaced Churchill in 1945, was also seen as a man lacking charisma — pragmatic and rather dull. Margaret Thatcher once described him as “all substance, no show.” Yet in a single term, Attlee transformed Britain more profoundly than anyone else in the 20th century — aside from perhaps Thatcher herself — by founding the National Health Service and establishing the welfare state. Unlike Attlee, however, Starmer is not advocating any radical changes.

Clement Attlee

The manifesto Labour took to the recent elections included mainly promises to fix what the Conservatives had broken: from migration policy to healthcare. The most notable proposals were for reestablishing efforts aimed at reducing greenhouse gas emissions (by creating a state company tasked with investing in “green” energy), strengthening border protection (by directing the police to fight not refugees, but the gangs that transport them), and plugging holes in the budget (through stricter control over government spending).

The Labour Party promised not to raise taxes for individuals and businesses and not to cancel the tax breaks that the Conservatives have been adopting in recent years. Instead, they plan to deprive wealthy residents of the UK of loopholes for tax evasion, including the opportunity to live in the country while paying taxes somewhere else. Another notable promise is the cancellation of tax benefits for private schools, which is planned to be used to finance 6,000 teaching positions in municipal educational institutions. Independent analysts and the general public have assessed the economic part of the manifesto as unrealistic — in this sense, at least, it does not substantially differ from the Conservatives’ manifesto.

There is no talk of returning to the European Union. Labour, like the Conservatives, seems to agree that since the British voted for Brexit, they will have to live with it, despite the fact that the majority now consider this decision to have been a mistake. The Labour Party plans to improve relations with the European Union and conclude more favorable trade agreements, but they do not provide any details in their manifesto as to how they actually plan to go about doing this.

The manifesto Labour took to the recent elections included mainly promises to fix what the Conservatives had broken: from migration policy to healthcare. The most notable proposals were for reestablishing efforts aimed at reducing greenhouse gas emissions (by creating a state company tasked with investing in “green” energy), strengthening border protection (by directing the police to fight not refugees, but the gangs that transport them), and plugging holes in the budget (through stricter control over government spending).

The Labour Party promised not to raise taxes for individuals and businesses and not to cancel the tax breaks that the Conservatives have been adopting in recent years. Instead, they plan to deprive wealthy residents of the UK of loopholes for tax evasion, including the opportunity to live in the country while paying taxes somewhere else. Another notable promise is the cancellation of tax benefits for private schools, which is planned to be used to finance 6,000 teaching positions in municipal educational institutions. Independent analysts and the general public have assessed the economic part of the manifesto as unrealistic — in this sense, at least, it does not substantially differ from the Conservatives’ manifesto.

There is no talk of returning to the European Union. Labour, like the Conservatives, seems to agree that since the British voted for Brexit, they will have to live with it, despite the fact that the majority now consider this decision to have been a mistake. The Labour Party plans to improve relations with the European Union and conclude more favorable trade agreements, but they do not provide any details in their manifesto as to how they actually plan to go about doing this.

As usual, of course, domestic politics will present the main challenge. As the election date approached, the Labour Party’s program lost its most popular proposals, including calls for increased benefits for large families. Officially, the party supports this initiative — but only in the event that the budget allows for it, and at present, leaders do not believe the necessary three billion pounds will be available. The issue of social benefits has become the first challenge for Keir Starmer: seven party members decided to vote in parliament for benefits for large families, in the face of the leadership’s opposition. The seven were suspended from party work for six months.

Another challenge is the legacy left by the Conservatives. Less than a month after the elections, the new Finance Minister Rachel Reeves revealed a £22 billion shortfall in the budget, which she claimed had been concealed by the Conservatives, who had continued to promise tax cuts. Reeves quickly implemented tough and unpopular measures: she scrapped heating benefits for most pensioners and state compensation for nursing homes, and hinted at a forthcoming tax increase, mainly targeting wealth and inheritance.

The rhetoric sounded familiar, as if it had come from the days of David Cameron, who, following the 2008 financial crisis, pursued a stringent austerity policy that the Labour Party consistently criticized. Both before and after the recent elections, the British press noted that Starmer’s policies seemed closer to the Conservatives’ approach than to the Labour Party of the Tony Blair era.

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