UK

Labour’s drift to the right could risk Keir Starmer being a one-term prime minister


Opinion

Prem Sikka

Today

Left Foot Forward.

The government's honeymoon has been short lived.

After 14 years of Conservative rule, on 5th July 2024 Labour Party formed the UK’s government under the premiership of Sir Keir Starmer. It came to power on the back of anti-Tory sentiments rather than any specific radical policies. Due to quirks of the first-past-the-post voting system it secured 411 of the 650 seats in the House of Commons on the back of 33.7% of the votes cast, giving it a simple majority of 172.

The government’s honeymoon has been short-lived. By November, Labour lost over 40% of local council by-election seats that it was defending. Some might dismiss this as the wobbles of a new government, but is more than that. The party’s vote share has fallen in 80% of local authority by-elections, and in almost half, its vote share fell by at least 10%. By December an opinion poll reported that that 70% of the voters are dissatisfied with the government, and 61% are dissatisfied with the Prime Minister’s performance, and only 26% intend to vote labour.

What has gone wrong? Labour fought the election with the incessant promise of ‘change’ but so far voters have mainly seen continuation of Conservative policies, or even worse with the party moving to the right of Tories on many issues. Vast majority of the population has seen no positive material change to their economic circumstances.

Labour didn’t come to office with a radical or redistributive agenda. It quashed people’s hopes for change by continuing with the Conservative two-child benefit cap, which prevents parents from claiming child tax credit or universal credit for more than two children. Some 5.2m children, 36% of all children, live in poverty; and 55% live in families with three or more children. The abolition of the two-child benefit cap would have cost the public purse between £2.5bn and £3.6bn in 2024/25 and lifted about half a million children out of acute poverty. The government chose not to do so.

This was followed by the abolition of the universal winter fuel payments (WFP) of between £100 and £300 to retirees receiving the state pension. Even the Tories didn’t adopt such a policy. Some 10m pensioners have lost the right. In general, the WFP is now only given to pensioners receiving pension credit (PC), which is available to a single pensioner with weekly income below £218.15, or less than £332.95 for a couple. Before the abolition, 1.4m pensioners claimed PC and another 880,000 were eligible but did not claim as they could not cope with the bureaucracy. Despite the increase in applications for PC, over 700,000 are expected to miss out. Then there are pensioners trapped between the income ceiling and poverty line and will miss out on WFP. Altogether, thousands of pensioners will be worse-off, just when energy prices are rising.

Women born in the 1950s have long claimed that they were e not properly informed of the increase in state pension age from 60 to 66. In March 2024, an ombudsman’s report concluded there had been maladministration and injustice by a government department during the years of the last Conservative government. It recommended a public apology and compensation. In December 2024, the Labour government issued a public apology but has refused to offer any compensation, alienating millions of women.

The less well-off were hit with further disappointment by the government’s adherence to Conservative tax policies. In 2021-22, the Conservative government froze income tax thresholds. Tax free annual personal allowance was frozen at £12,570. With the effect of inflation, the real tax burdens increased and more people became liable to pay income tax. With 16m people living in poverty, the Labour government could have alleviated poverty by changing the tax thresholds, but the October 2024 budget did not. The Chancellor said that from April 2028, just before the next general election, these personal tax thresholds will be uprated in line with inflation”. In 2021-22, some 31m people paid income tax. By 2028-29, that number is expected to surpass 40m.

Household budgets have been depressed by corporate profiteering. Corporate profiteering is rife. Since the pandemic, electricity and gas supply companies increased their profit margins by 363%, oil and gas companies more than doubled their margins. Profit margins at Centrica, owner of British Gas jumped from 0.8% before the pandemic to 60% in 2022. Energy bills continue to rise. Some 3.7m households in England are living in fuel poverty. Labour has done nothing to curb profiteering.

Household budgets in England and Wales have been hit hard by privatised water companies. They have hiked bills in real terms and neglected investment. Around one trillion litres of water a year are lost in leaks, and sewage is dumped in rivers for 3.6m hours. Instead of investing in infrastructure they have paid over £85bn in dividends, mostly financed by borrowing over £65bn. Around one-third of customer bills are swallowed by debt and dividend payments. Most water companies are teetering on the edge of financial bankruptcy, but the Conservative government refused to renationalise water. Labour has continued with that policy even though 82% of the popular opinion favours nationalisation. The Water (Special Measures) Bill, essentially a Bill drafted by the last Conservative government, enables the government to restructure the industry and hand it back to the private sector. Shareholders are reluctant to invest. So, customers are being forced to bailout companies. Ofwat, the regulator, has hoisted average water and sewage bill increase of 36% (£157) for the next five years.

Labour’s 2024 election manifesto promised to bring rail passenger services back into public ownership. However, that isn’t quite what the Passenger Railway Services (Public Ownership) Act 2024 delivers. A publicly-owned company will operate passenger services but it will not own rolling stock, which will continue to be leased from private companies. The three leading rolling stock companies make over £1 billion a year profit and this would be guaranteed by the government, reducing resources available for other areas.

It isn’t just in financial and public service matters that the Labour government has embraced right-wing policies; it has done so in other arenas too. For example, through the Financial Services and Markets Act 2023 and other laws the Conservative government began a new phase of deregulation of the finance industry, effectively reversing the reforms introduced after the 2007-08 financial crash. This included dilution of consumer protection, requiring regulators to promote growth of the industry, ending the bonus cap and reducing capital requirements. Labour has accelerated deregulation and the Chancellor has told regulators to tear up rules and encourage more risk-taking even though regulators have warned that deregulation will attract more criminals and sharp practices to the City.

People judge the success or failure of a government by assessing its impact on their disposable income. Early impressions are important and lasting. The Starmer-led government has alienated women, families and pensioners by depressing their incomes. The cost-of-living crisis continues as the government has made no attempt to curb corporate profiteering, possibly under the mistaken belief that this will somehow revive economic growth. On tax, water, rail and the finance industry, its policies are not that different from the Conservatives.

Labour promised ‘change’ but has adopted too many Conservative policies. This is set to continue with a promised fraud, error and debt bill, effectively a revival of the Conservative Data Protection and Digital Information Bill. It will enable the government to 24/7 snoop on the bank accounts of anyone receiving benefits administered by the Department of Work and Pensions. The snooping will not require any court order and people will have no right of appeal. The Bill assumes that all recipients of benefits are criminal and will have no right to financial privacy.

In principle, Labour’s drift to the right can be checked by debate but the leadership is authoritarian and has closed spaces for discussion. During the last Labour government’s term in office from 1997 to 2010, no MP had his/her whip withdrawn for showing dissent. All that changed within the first three weeks of the Starmer-led government even though it has a huge majority in the Commons. Seven Labour MPs had whip withdrawn for opposing the two-child benefit cap. Left-leaning candidates were purged before the July 2024 election. Since the election, experienced left-leaning MPs have been removed from parliamentary committees and replaced with newcomers towing the leadership’s line. Local party branches are emasculated. Critical motions at party conferences carry no weight and are ignored by the leadership. In such an environment, there is little critical evaluation of the government’s policies. There is a real danger that without a major change in policies this could turn out to be a one-term Labour government.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Image credit: Simon Dawson / Number 10 – Creative Commons