In this, the first of three articles on the ‘Break-up of Britain’, Scott Lavery argues that the Labour Party of Starmer and Reeves is unable – and unwilling – to reverse the miseries caused by 13 years of Tory rule

THE forward march of Keir Starmer’s Labour Party continues.

Twenty points ahead in the polls and buoyed by recent by-election victories, Labour are in “1996 territory”, according to Strathclyde’s Professor John Curtice.

What lies behind the recent turnaround in Labour’s electoral fortunes?

A “fiscal event” is the polite parliamentary euphemism. A “catastrophic Tory economic meltdown” would be a better description.

One year ago, Liz Truss and Kwasi Kwarteng proudly unveiled their now infamous “mini-budget”. Backed by the Tory caucus at Westminster, a right-wing party membership, and a network of radical free market think tanks, Truss and Kwarteng had a plan. Their programme of massive tax cuts and increased borrowing would, they promised, “turbo-charge” the British economy. Instead, they crashed it.

The National: Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng

Sterling went into free fall, government borrowing costs exploded, and Britain’s financial system came close to collapse.

The fallout from the Tories’ economic disaster is propelling Keir Starmer towards Downing Street.

Yet, once in office, the next Labour administration will face a reckoning. Can it fix the British economy, laid to waste by 13 years of Tory misrule? Or will it be overwhelmed by the same forces that sank Truss and Kwarteng, and are now chasing Rishi Sunak into electoral oblivion?

Age of Austerity

THE roots of Starmer’s challenge lie in the Tories’ obsession with austerity.

In September 2007, then Tory shadow chancellor George Osborne made a pledge to the British electorate: if the Tories get back into government, they will honour Gordon Brown’s spending plans for the next three years. Osborne was keen to allay concerns that his party posed a threat to spending on public services.


Twelve months later, Lehman Brothers collapsed – and the global economy lurched into a crisis. Osborne quickly shifted position.

The economic crash had been caused not by City largesse, he insisted, but by reckless Labour overspending, leaving the Tories as the only sober custodians of Britain’s public finances. The volte-face worked.

At the 2010 election, the Conservatives emerged as the largest party and formed a coalition with the ­LibDems, ousting Brown from office. The new government’s priority was to eliminate Britain’s budget deficit within one parliament. The age of austerity was born.

Osborne’s Strategy

THE Tory-led coalition went on to enact swingeing cuts to government departments, carve up the welfare state, slash investment in infrastructure, and oversee a series of regressive tax increases.

Capital spending – less visible, and therefore easier to attack, than day-to-day services – was also slashed, robbing Britain of future growth potential while ­compounding deflationary pressures.

Inevitably, as the state shrank, social problems mounted – police numbers fell, local services were squeezed, and poverty rates went up.

And yet, despite Osborne’s scorched-earth ­approach, by the end of the 2010-2015 parliament, Britain’s budget deficit remained stubbornly high.

The National:

Economists often lambast the Conservatives’ ­austerity programme as an example of economically illiterate, misguided hubris. But this ­overlooks the political nature of ­Osborne’s strategy.

With his relentless emphasis on ­“fiscal prudence”, Osborne set an ideological trap that ensnared the Labour Party ­under their then-leader, Ed Miliband. ­Miliband, Osborne said, simply could not be trusted with the country’s finances.

The trap worked – albeit, with ­unintended consequences. The Conservatives unexpectedly won the 2015 General Election.

Wary of their Eurosceptic ­backbenchers, and with Ukip threatening a surge south of the Border, Osborne and David Cameron had reluctantly committed to a referendum on Britain’s EU membership.

Now, in the face of their surprise ­majority, they were compelled to legislate for a referendum they didn’t want.

The economic damage wrought by austerity was then compounded by four years of constitutional chaos, as the ­Tories and Labour tore themselves apart over Britain’s exit from the EU. Brexit re-cast British politics.

The Conservatives, first under ­Theresa May and then under Boris Johnson, ­flirted with a more interventionist ­economic policy as they sought to consolidate their support throughout Labour’s crumbling Red Wall.

But the Tories’ dalliance with statism was short-lived. In relatively quick succession, May and Johnson were toppled.

Then, following the Truss calamity, the coronation of Jeremy Hunt as ­chancellor and Rishi Sunak as prime minister ­signalled – or was meant to signal – a restoration of the old “balance-book” ­instincts of the Treasury.

But despite the return of supposed ­economic “moderates” in the form of Hunt and Sunak, the wreckage of the Osborne years still dominates Britain’s state, society, and economy.

Regional inequality in Britain is now worse than it is in Germany and Italy, two states brutally divided between west and east, north and south.

A decade of “fiscal retrenchment” – public spending has fallen in real terms by 9% per person under the Tories – decimated public services, notably the NHS, schools, and social care.

According to some projections, by the end of this decade, Britain will have a lower GDP per capita than former ­Eastern bloc countries like Poland.

The Starmer-Reeves Project

THIS is the mess that awaits Starmer if he wins the next UK General Election.

With an election likely to take place next spring or autumn, the shape of ­Labour’s economic strategy is slowly coming into view.

The problem, however, is that Starmer is trying to pursue two quite different ­economic paths at the same time.

The National: Labour leader Sir Keir Starmer, with Angela Rayner (left) and Rachel Reeves, arriving with his shadow cabinet in central London for their first meeting. Picture date: Tuesday September 5, 2023. PA Photo. See PA story POLITICS Labour. Photo credit should

Earlier this year, Rachel Reeves, ­Starmer’s shadow chancellor, flew to Washington DC to lay out her ­economic vision. The choice of location was ­deliberate.

Since entering the White House, ­President Joe Biden has broken with the free-market nostrums that shaped ­America’s post-Cold War economic ­policy. Biden has leaned into an interventionist industrial strategy – crystallised in his $500 billion Inflation Reduction Act – which aims to rebuild US manufacturing capacity, re-shore lost industrial jobs, and secure American supply chains from potentially hostile powers.

Reeves’ visit to Washington was meant to indicate that Labour, too, had ­embraced a new form of state ­interventionism, cast in the mould of Biden’s Democrats and other centre-left governments around the world.

In a meeting with Janet Yellen, the US treasury secretary, Reeves set out her case for “Bidenomics with British ­characteristics”.

In it, industrial strategy and strategic support for core industries were lauded as key elements of Labour’s new ­ economic agenda.

In a paper that was published to ­coincide with her visit to DC, Reeves wrote: “A modern state must be more active, making and shaping markets that are essential to a nation’s resilience and future prosperity”.

For Reeves, such a state must be “­willing to act in the national ­interest, pursue national goals, and invest in ­building the capacity of the industries that will determine the nation’s success tomorrow”.

A vision of a laissez-faire, “hands-off” government this was not.

Various planks of Labour’s economic programme reveal what kind of state Reeves has in mind.

Labour’s Green Prosperity Plan sets aside £28 billion annual investment in green industries and jobs – a figure that exceeds even John McDonnell’s green transition plan when he was shadow chancellor.

Although this pledge was ­subsequently watered down, the Institute for ­Fiscal Studies states that Labour’s green ­investment plans will nonetheless see public sector investment increase by 60% compared to recent historical averages.

Labour also proposed a ­National Wealth Fund back in 2022 – an £8 billion package that grants the British government an equity stake in key strategic sectors, including “clean” steel plants, battery ­factories and ports.

Other proposals include the ­formation of a publicly owned British energy ­company and a drive to insulate two ­million British homes within the first year of a Labour government.

These policies mark a break with the dominant economic philosophy of the New Labour years.

Tony Blair once famously claimed that critics of globalisation “might as well ­debate whether autumn follows ­summer”.

On her Washington sojourn, Reeves ­explicitly disagreed. “Globalisation as we once knew it is dead,” she said.


LABOUR’S re-discovery of industrial strategy co-exists with a second, quite different, economic policy.

Under Starmer, Labour are terrified of being portrayed as anti-business.

The party have been assiduously ­courting Britain’s economic ­establishment and right-wing media in a way that threatens to derail the most ambitious aspects of their programme.

In contrast to her expansive industrial vision, Reeves has set out a series of fiscal rules that, if implemented, would limit a future Labour government’s borrowing powers and commit the party to cutting the national debt over the course of the next parliament.

Britain’s creaking and cash-starved public services can therefore expect ­limited additional support during the first years of a Labour government.

Reeves has also ruled out tax increases on the wealthy, stating that there will be no increase in capital gains tax or income tax on top earners. As a General Election approaches, the ­Labour leadership is doubling down on these hawkish positions and ­retreating from key elements of “British ­Bidenomics”.

Labour have backtracked on their £28bn green prosperity fund, weakened their ­­proposals for employment protections for gig economy workers, and shelved plans to nationalise key utilities.

Increasingly, the more ambitious ­aspects of Labour’s industrial ­strategy are being sacrificed on the altar of ­Osborne-ite fiscal credibility.

Limits of the British State

ALL this reflects a long-standing pattern within British economic policy-making.

The sequence is always the same.

Economic problems accumulate, prompting bold plans for industrial ­modernisation and the rebalancing of economic activity.

But efforts to advance these reforms soon encounter intractable barriers ­within the British state – the power of the Treasury, the centralisation of power at Whitehall, the conservative instincts of Britain’s economic establishment and press and the disciplinary power of the Bank of England and the City of London.

Labour’s economic programme under Starmer and Reeves embodies this deep historical tension.

The need for economic reform is ­recognised, a plan for reform is laid out – then the proposals are rapidly jettisoned.

As the General Election approaches, the pressure to strip back Labour’s industrial strategy even further will intensify. The Labour leadership may well capitulate.

If it does, the next UK Government will find its hands tied behind its back, bogged down and buffeted by the chill winds of Britain’s broken economy and conservative status quo.

Starmer may well be on the brink of Downing Street, but Britain – as ever – is going backwards.

Scott Lavery is a lecturer on political economy at the University of Glasgow . At the Break-Up Of Britain conference on November 18, he will appear as part of a panel on the Starmer-Reeves project Tickets for the conference can be purchased at Donations, to help cover running costs, are welcome