In 1997, the Blair/Brown Government famously committed to stick to the spending limits set out by the preceding Tory Government- the aim being to reassure markets and media that Labour could be trusted with the public finances. Keir Starmer has done something similar, refusing to rule out a Labour government keeping to planned Tory cuts to public spending. However, the 1997 context was very different.

In 2024, the UK is in a far worse state than in 1997. After 14 years of Tory rule, we have become one of the most unequal countries in Europe, while continuing austerity has left public services and infrastructure in all sectors and all parts of the union in a state of imminent collapse. We have seen a widespread return of levels of poverty not seen since the 1930s, with households unable to meet the most basic needs for food shelter and warmth. Buildings including schools and hospitals are collapsing, roads are full of potholes, dangerous nuclear waste is leaking from dilapidated buildings at Sellafield, almost all local authorities are heading towards bankruptcy and inability to meet statutory requirements, while prisons are a disgrace, our once wonderful health service is starved of funds and unable to cope with waiting lists , while privatised utilities provide poor services while extracting billions and despoiling the countryside by discharging sewage into our rivers. Rather than deal with the dire legacy, Tory spending plans envisage further deep cuts in public spending to pay for promised tax reductions- though those tax ‘reductions’ are actually no more than a partial rollback of stealth tax increases. The conservatives can offer these completely unrealistic tax and spending plans in the secure knowledge that they will be out of Government and not required to implement them.

The conservatives have set a trap that Starmer is in danger of falling into. If Starmer rules out significant public expenditure increases funded by higher taxes , he has guaranteed that little will be achieved in a first Labour term, and thereby increased the likelihood of an early return of the Tories.

I do not deny that the outlook for the public finances is extremely difficult. Keir Starmer is right to say that the debt burden is too high and there is little scope for borrowing more to pay for more public spending. He is also correct to argue that, at least in the medium to long term, economic growth needs to increase in order to enable us to afford the living standards and public services we aspire to. However, he is wrong to argue against tax increases in the short term. Our entire public realm is in crisis and needs an urgent response. That immediate response is entirely compatible with a focus on increasing our dire economic growth rate, and I would argue that sustainable economic growth is dependent on us addressing the many issues being faced across the public sector.
The biggest drags on UK economic growth are stagnation in living standards, the increasing difficulty of international trade post BREXIT, and the poor state of public services and infrastructure. Although the tax burden is high by UK standards, it is not high compared to other major European countries, and is not a significant factor in explaining our growth performance. Paul Johnson in his recent book’ Follow the Money’ has set out ways in which our tax system could be improved and significantly more revenue raised in ways that are both equitable and economically efficient.

Higher taxation need not be a drag on economic growth if it is appropriately targeted. It is also worth emphasising that the composition of economic growth really matters. The Tory path of lower taxes is likely to further increase inequality between London and the rest of the economy, with further pressure on housing and other asset costs and little benefit to ordinary households. By contrast, growth based on higher public spending and more cash in the pockets of those who need it most will be far more widely distributed, and will build the foundations for sustained improvement into the future. Research into economic growth repeatedly shows the importance of a healthy and well educated population living in a country with low inequality and good infrastructure and public services. As the climate crisis worsens, we will also find that those countries that invest in a green future will be those that succeed in improving the lot of their populations. Labour have recognised this- but have restricted what they can achieve by ruling out tax increases.

The biggest question is whether Labour can win an election based on promising higher taxes and higher expenditure. I think that it can. The extent of the crisis we are in is widely recognised and I think a strategy that recognises the need for bold but fair steps to tackle it would stand a better chance of success than one based on an approach perceived as little different from the Tories. The extent of the problems will in practice inevitably force whichever party is in power to both tax and spend far more than is currently envisaged. It is better to explain this now and place the blame where it belongs, rather than to be forced to row back on promises immediately after the election.