The verdict: Experts react to Keir Starmer’s plan for the economy

Keir Starmer is right to harness the power of government and business working together to fix the UK economy, but “time will tell” whether Labour sticks to sensible spending, economists judged after his maiden speech of 2023 today.

Speaking in East London, the opposition leader promised to work side by side with private firms to revive an ailing UK economy if the Labour Party wins the next general election.

“We need to use the power of dynamic government, harness technology to drive through reform, convene a real industrial partnership between business and unions,” Starmer, 60, said.

Britain has likely slipped into a recession that experts have warned could last for the whole of 2023 and may wipe around two per cent off gross domestic product.

Although the country is on course for a slow burning slump, Britain’s economy has been plodding since the financial crisis.

Blaming 13 years of Conservative rule, the Labour leader set out the broad principles to arrest the country’s economic decline should seize the keys to No 10.

“A new approach to the power of government. More strategic, more relaxed about bringing in the expertise of public and private, business and union, town and city, and using that partnership to drive our country forward,” he said.

He said Labour would introduce a “Take Back Control” bill that would likely hand more power to local leaders to make decisions. The name of the bill is a nod to Dominic Cummings’s Brexit leave campaign slogan.

Economists said stronger partnership between private markets and the UK state could lift the country’s living standards.

“Many of our current economic challenges stem from a failure to think in the long-term about the value of investing in public services, and from an ideological aversion to the government taking the lead – in partnership with the private sector,” Carys Roberts, executive director of the Institute for Public Policy Research (IPPR), said.

“Only by harnessing this partnership approach can we remedy our stagnant economic growth,” she added.

In a bid to win over voters who still blame Labour’s fiscal rashness for causing the financial crisis, Starmer promised he and shadow chancellor Rachel Reeves would not be getting their “government cheque-book out” if they win the next election.

Experts said continuing with the Conservatives’ weak levels of investment would block improvement to public services.

“Pledging to not “spend our way out” of the UK’s current crises risks perpetuating” them, Alfie Stirling, director of research and chief economist at the New Economics Foundation, told City A.M.

NHS waiting lists have swelled to record levels, while the social care system remains lopsided.

Labour yet to convince on fiscal plan

Others welcomed Starmer’s pledge to work more closely with the private sector, but said further details on tax and spending plans are needed before judging if Labour’s economic strategy stands up to scrutiny.

“It’s difficult to see the precise framework Labour is putting forward for fundamental reforms,” Morgan Schondelmeier, director of operations at the Adam Smith Institute, said.

“Taxpayers can’t be expected to dip into their pockets again and again to prop up broken services and a bloated bureaucracy,” John O’Connell, chief executive of the TaxPayers’ Alliance, said.

Under the current Conservative government’s fiscal plans, the tax burden is on course to hit its highest level since just after the Second World War, while debt as a share of the economy is nearly 100 per cent.

It’s difficult to see the precise framework Labour is putting forward for fundamental reform 

TaxPayers’ Alliance chief, John O’Oonnell

The state bloating has been largely driven by a huge surge in spending in response to the Covid-19 crisis and a costly household and business energy bill support scheme. 

However, sluggish economic growth since David Cameron seized power in a coalition with the Liberal Democrats in 2010 has not helped the public finances.

Inflation over the last year has also surged to a peak of 11.1 per cent, largely driven by Russia’s invasion of Ukraine jolting international energy markets. That price surge has squeezed families and businesses and is the main factor pushing the UK into recession.

Prime minister Rishi Sunak yesterday promised to halve inflation by the end of the year, a forecast made by the Bank of England in November. He also pledged to get NHS waiting lists down, tackle the small boat migrant crisis, lift UK GDP growth and cut the debt pile.