Like Sunak, Starmer advocates for controlled immigration, investment in infrastructure, incentives for innovation and policies for a better-educated workforce. Despite media reports of a more permissive “Swiss” trade deal with the European Union, Starmer made no attempt to challenge Brexit again (Sunak also rejected the idea). So far no rolling paper between the two.
In some ways, this marks a new economic consensus in British politics. Harking back to the era of Tony Blair, Starmer placed his party squarely in the political center. “My Labor government will care – must care – about raising productivity everywhere as much as we have about redistribution in the past,” Starmer told the annual meeting of the Confederation of British Industry.
And yet that doesn’t answer the central question of UK Plc and struggling SMEs: what is the growth strategy? Having ruled out ambitious plans, the answer from both sides of Britain’s political divide appears to be some form of Bidenomics.
As economist Barry Eichengreen described it in 2021, Bidenomics essentially prescribes a greater role for the state in a country that has long been suspicious of state-based solutions but needs more of it to maintain competitiveness and long-term racial address inequalities. The delivery mechanisms are primarily investments in infrastructure, improving America’s worn-out social safety net, protecting the environment and increasing taxes on the richest.
That sounds appealing to British ears. But the premise is very different in the UK, where households are seeing the biggest collapse in living standards since measurements began in 1956. It is expected to be the slowest-growing of the developed economies (other than Russia’s), has the highest inflation in the G7 and chronically low labor productivity.
Both Sunak and Starmer accept that the central fact of economic life is a large and growing state: taxes are at their highest since World War II and the public sector is on track to consume more than 43% of GDP . As my colleague Martin Ivens wrote recently, if Labor is elected in the next general election (which could not take place until January 2025), Starmer would likely face an empty coffers and the delayed cuts Sunak made.
In his CBI speech, Starmer cited Janet Yellen’s theory of “supply-side modern economics.” Speaking to the World Economic Forum in Davos in January, Yellen stated that significant capital tax cuts and deregulation that characterized the traditional supply-side orthodoxy have failed to deliver the growth promised. Its “new” version seeks to increase labor supply and unleash supply-side forces by making improvements in infrastructure, education and R&D spending. Critics see it as rebranded as Keynesianism, but you can see the appeal in a country where there’s little room on the tax side and where the public demands a high level of taxpayer-funded services.
Indeed, Sunak and Starmer can both be seen as modern providers by Yellen’s standards. Both are committed to showing they have mastered the details of delivery, a weakness of the Conservatives in recent years and an area where the public has not trusted Labor for some time. Now that the Tories have abandoned Liz Truss’s tax cut agenda — in what I would say an overcompensation for her mistakes — the competition between the two has turned to how the state can work smarter to drive growth.
The Tory fight here is a 12-year record in office that’s hard to defend, though Sunak personally scores well for competence. But while Sunak may have joined Goldman Sachs Group Inc. has worked, Starmer has enlisted former Goldman Sachs chief economist Jim O’Neill – a Chancellor of the Exchequer in two Conservative governments and now a cross-bench peer in the House of Lords – to advise on how to improve business conditions.
It is noteworthy that both Sunak and Starmer operate under two political constraints that limit their flexibility in implementing growth policies. The first is Brexit. The costs of leaving the EU – in lost growth and productivity, increased trade wrangling, diminished scientific collaboration and diminished investor confidence – are obvious to all but the most misguided Brexit supporters. The talk of eventually renegotiating the terms of trade between the UK and the EU will go nowhere so soon after Brexit, but it won’t go away either. The latest YouGov poll found that a clear majority – 56% to 32% – think the UK was wrong to leave the EU. One in five of those who voted for Brexit now think it was the wrong decision and a further 11% don’t know.
The other major limitation is the National Health Service. The NHS is the largest public expenditure item – after pensions and social security – and will continue to consume more and more resources as the population ages and health care becomes more expensive. Across Europe, there are other models of universal health care that are not in constant crisis and provide excellent services. But questioning the NHS’s fundamental model of a taxpayer-funded service that is so far free at the point of access remains a sacrilege in British politics, so even conservative growth plans must reckon with high and growing expenditure on health and social care.
Without a significant change in the way Britain trades with its nearest neighbour, immigration or the functioning of its health care system, the number of solutions to Britain’s low growth problem has narrowed and both leaders know it. “It’s not about the size of the state; it’s about what the state does, how it supports companies to innovate and grow,” Starmer told the CBI. It also means delivering robust, sustainable growth will take longer and more consistent policies than the UK has had in ages, something investors will believe when they see it.
However, once the broad outlines of medium-term economic policy have been set, the only question for voters is who they trust most to deliver.
More from Bloomberg’s opinion:
• Sunak beats markets. Voters are a different story: Martin Ivens
• Will Sunak test the love of Britain’s top 1%?: Therese Raphael
• The Fall and Rise of Jeremy Hunt: Adrian Wooldridge
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Therese Raphael is a columnist for Bloomberg Opinion on healthcare and UK politics. She was formerly editor-in-chief of the Wall Street Journal Europe.
More stories like this are available at bloomberg.com/opinion