Merlin Weekly Macro: An open letter to Sir Keir Starmer

Congratulations completing the Labour Party Conference and emerging still reasonably intact as leader.

There the good news ends.

Labour (19%) trails Reform (34%) by 15 percentage points in the latest polls; the Tories at 16% are in a wilderness contemplating their own navels. Those remaining Conservative votes will never be yours because your party despises the people who own them (Conservatives know that the “Tory Scum” mud slung by Angela Rayner is an enduring and widely-held sentiment however apologetic she was); offending Tory voters is a standard political calculation. But given many drawn to Nigel Farage and Reform are Red Wall former Labour supporters whom you will almost certainly need for Labour to be re-elected in 2029, was it wise to brand a Reform policy as “racist”, and allow the inference that all Reform supporters are racist too?

Offending, insulting and alienating half the voting population accounting for the Conservatives and Reform when you also face significant competitive, ideological threats from the other left-wing parties shows lack of judgement if it were deliberate, or lack of awareness if it were accidental. Electorally, both are potentially fatal.

Immigration is the defining and dividing political subject of these times. With the best of intentions you preach the supremacy of “decency” over the pernicious pestilence of “division”. However, in the manner of your doing so, you have fallen into the elephant trap of your own design: anyone who thinks differently from you and associates themselves with Reform is by your own linguistic logic not considered decent. That itself is deeply divisive and inflammatory. Joe Biden in 2021 committed the same mistake: in his inauguration speech he preached national healing and unity and then promptly accused the near-half of the electorate who had voted for Donald Trump as unprincipled and undemocratic and not holding decent values; he never recovered. In the Conservatives’ long-running internecine Brexit wars, John Major never overcame his infamous, intemperate “bastards!” outburst about Eurosceptic Tory MPs, and David Cameron’s “swivel-eyed loons” were his own undoing in the 2016 Referendum. The political dustbin is littered with the detritus of ill-considered language to which you appear to have added a new bin-liner’s load.

You have, but do not enjoy, a large parliamentary majority. As Matthew Parris wryly and accurately identifies in The Times, Labour is “not a parliamentary army supported by a fan-club national membership. It is the other way round”. Different from other mainstream parties, your MPs are beholden to movements much more than they are to the leadership; you are not in control. As you and Rachel Reeves ponder the options for the Budget on November 26^th, you face a defining moment. A surefooted leader in the mould of Margaret Thatcher or Ronald Reagan would have few doubts about the right direction (the pun is intentional) when confronted with a crossroads; unhesitatingly they would take the route they believe to be in the national interest. Are you brave enough to do the same? Or will you opt for the path of least resistance and pander to the factional Left.

Face it, the country’s economic prospects are poor. The financial situation is bad but not yet dire. Certainly you inherited a difficult situation but all the evidence of a year in office says that so far you and your next-door neighbour have only made it considerably worse. But the outlook is potentially dire. The OBR, the government’s own judge of economic probity, is pointing the way towards what will happen on the current trajectory: today’s debt/GDP of 100% will nearly treble to 275% in 50 years’ time, while the government’s debt servicing bill will multiply from 4% of GDP to 12%. Sharing a similar age, you and this letter’s author will be dead by then, or at least beyond caring; not so our children and certainly not our future grandchildren. But the OBR points to the tipping point beyond which the debt and the debt interest become an uncontrollable and unaffordable runaway train as being from 2040, 2045 at the latest. 2040 is only as far ahead as the Global Financial Crisis is behind us, recent and fresh in our minds: not long. Do you want to go down as the Prime Minister who knowingly allows the world’s sixth biggest economy to be de-railed and humiliated? Some legacy.

You are already entertaining the highest UK tax and debt burdens in modern history outside wartime. Public spending likewise is at its greatest percentage of GDP. We have the highest energy costs in the western world. Growth remains torpid and elusive, not least because of the assaults in last October’s Budget on private sector employers, heaping taxation and employment costs on them, and on private industry by breaking the inheritance protection afforded to the duration and continuity of what needs to be permanent business capital with all the knock-on effects on investment and employment.

The employment data itself is dubious to the point of being dangerous: an official unemployment rate of 4.7% (1.6 million people are officially registered as “unemployed”), even if it has been rising, points to an economy that is close to what economists consider “full employment”. And yet a staggering 9.4 million adults, 21% of all working-age people aged 16-64 are defined as “economically inactive”, including 948,000 18-24 year-olds classified as “NEETs” (not in employment, education or training). In the short fourteen months of your own government so far an estimated 1 million additional people have been signed off work because of health issues, particularly mental health, with no requirement to seek employment. DWP records that 10 million people, nearly a quarter of the 44 million of working age, are claiming benefits. It is difficult to escape the brutal conclusion that the UK is increasingly a nation of the shy and the sick. The ONS says that 6.45 million workers are employed in the public sector; however much they support the economy both as providers of public services and as taxpayers and consumers, as a cohort they belong to a sector which itself does not provide economic growth or create national wealth, nor is it the engine of progress and competitive positioning in an open, capitalist global system.

Sir Keir, we cannot tax our way to prosperity: you have said it yourself. Whether you believe or understand it or not is a different matter: the recent appointments of new personal economic advisers to yourself and Rachel Reeves with their common background in the unapologetically Marxist Resolution Foundation say otherwise. Your back-benchers have rebelled to the point of constraining your ability to control government expenditure; that is a fault of your own leadership. But as you approach this crossroads and contemplate the direction of travel while trying to restore fiscal responsibility, please stop, take three deep breaths and consider maturely: is the left fork in the road, the large redistribution of wealth being talked about under the guise of “those with the broadest shoulders paying their fair share” (when the facts are that they already pay many multiples of their proportionate share) actually in the national interest? Certainly, the egregious taxation of a small minority of the wealthy in favour of a far superior number of the unproductive and inactive holds a strong factional appeal from a partisan political standpoint, but that is not the same thing at all. Sucking the life out of the private sector, whether taxing assets, occupational and private pensions and not only the income but the capital value of their pots, as well as income, transactions, inheritance and consumption, eventually it all corrodes the national economic fabric to the point it is no longer self-sustaining. That has political consequences too. You only need to look across the Channel to France to see the result.

Comparisons are made between the plights of the UK and our French neighbours. Both are free to pursue national fiscal policies.  As a result of Brexit, we have the freedoms and choices about regulation and trade denied to the French; on the other hand the French have the protection of the ECB and its Transmission Protection Instruments to keep its government bond market stable. Before the Remainers complain that we lost that protection thanks to Brexit, for the UK it never existed because we were never part of the eurozone. However much your rival Andy Burnham says to ignore the bond markets, you can’t: like it or not they are marking your card, measured not only in yields but in pound notes of cost. They are punishing you. If you really want to take a leaf out of a neighbour’s book, look to Greece. A dozen years ago they were wrecked and had to be rescued by the Troika of the European Commission, the ECB and the IMF. Today, having taken a stiff dose of fiscal medicine, they are on the path to restoring rude health, the workforce is putting in a full shift voting for a six-day week when many of your political friends would prefer to be paid five days’ wages for four days’ work. Having been on life support and a 10-year bond yield of 25% in 2012, today at 3.3% they are paying less than both France and Italy and 1.4 percentage points less than you are being forced to endure.

Greece points the way: it is not just about cutting costs; it is about the restructuring of society and a way of a way of life and doing things very differently. Yes you need tight purse strings, but to go with it you need to offer the opportunities which come with full-scale public sector reform (with a small ‘r’) which not only repairs public services but redefines them. You talk of “renewal”; think radically, Sir Keir! There are plenty of robust workable alternatives to today’s creaking or collapsing edifices. Then you can begin reducing taxes and stimulating enduring investment. Presented with deep thinking, intellectual rigour and unflinching leadership, together they offer hope. Fortified with hope, revival is possible from which everyone benefits. Without hope, there is only decline and extinction.

If it helps you, forget about the constraining labels of “Left” and “Right”. This is about national prosperity or national penury, a future or none. The problem is ours. The choice is yours. Are you man or mouse?

Sincerely yours etc.

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