The death of Tory economics

As in many aspects of life, timing is important. After overseeing a recession, an extremely damaging burst of inflation and high interest rates, the Tories are going to be furious that Labour has inherited a growing economy.

The latest figures show that they have done just that – the UK’s GDP grew by 0.6% in the three months to June, and it would have been even higher if growth had not stalled, probably because of the general election. People tend to see what is going to happen before making major spending or investment decisions, so we may even see a bounce back in the next figures.

Compared with a year ago, the economy is now 0.9% larger, and we have had two quarters of really quite good growth. On top of that, inflation at 2.2% is lower than expected and the unemployment figures show a fall from 4.4% to 4.2%, with wage growth slowing.

The financial markets seem to think that the economy is doing so well that the Bank of England might have a pause before cutting rates again, but they are still anticipating two further cuts to the cost of borrowing, bringing the main rate down to 4.5% by the end of the year.

We are already seeing signs that the housing market is on the rebound, with prices rising, although that is not really good news as it just means higher prices and mortgage payments for those who can get on the housing ladder. But such is the imbalance of the UK’s property market that higher prices tend to lead to exuberant spending.

All of this is good news for the new Labour government. Even GDP per head is rising, so in theory the feelgood factor should be spreading. Wage growth of over 5% is slightly worrying for the Bank of England, but it is helping to redress some of the losses that people suffered when inflation, under the Tories, was rising at a faster rate than wages.

But – and it is a big but – Labour has done nothing whatsoever to make this happen, unless you think that just the prospect of getting rid of the hopeless chancers in the last government was enough to turn the country around.
Labour has inherited a platform on which to build, but it has to change endless policies and make numerous reforms in order to increase growth and to maintain that rate of increase. On top of that, Labour has to change the zeitgeist.

For decades now we have had endless propaganda from the right, about how tax cuts for the rich boost growth, on the effectiveness of trickle-down economics, how you can have more for less, how industrial strategies are always a failure, how immigration damages growth and that the country’s finances are just like a household’s, meaning they have to be balanced. These assumptions are all wrong, and they have to go.

That is going to be the real struggle. Growth on its own, even improved growth, will not be enough. Labour, with its massive majority must use this opportunity to change the mood music and leave the Tories spluttering in the wings, wittering on about how they can cut taxation and increase spending at the same time.

They have been found out. It took 14 years, but the nation now knows that was just Tory madness. But to finally defeat Tory economics, Labour will have to show that sensible, well thought out, realistic, long term reform works, and that it works for all.