Conventional wisdom has it that when the economy is growing, voters will reward incumbent politicians with a new mandate, and that overseeing a recessions is a quick route to the political wilderness.
In the US, a growing economy and huge public investment by President Joe Biden seemed to have little impact on both his and Vice-President Kamala Harris’s political survival. Ordinary people didn’t feel better off, and any growth was swallowed up by inflation.
Keir Starmer’s Labour government is committed to making the UK the fastest growing economy in the G7, but the first six months in power has hardly been smooth, with the Chancellor, Rachel Reeves, facing heavy criticism across the political spectrum.
Labour is also losing voters who feel economically insecure, and losing them fast, according to recent research commissioned by the Joseph Rowntree Foundation. So, what can the government do to make sure it doesn’t just win on its economic spreadsheet but in the streets too?
“[Investment takes] time to feed through completely to living standards. It depends on what you’re spending the money on, how quickly it goes through to wages and making sure it’s regionally dispersed,” said Jeevun Sandher, Labour MP for Loughborough and an economist.
He gives the example of the Warm Homes Plan, which upgrades homes to make them more energy efficient. This is a labour-intensive investment that will get money into the pockets of workers (and to the people living in those homes) quickly.
By contrast, a huge infrastructure project such as Crossrail, will deliver most of its economic benefits long after the election cycle, and maybe under a different governing party. This is largely what happened to investment under Biden’s 2021 Inflation Reduction Act, which only really came on stream in 2023, not in time for its impact to be felt by the time of the US presidential election. Sandher notes that under the British system, it is easier for governments to pass a finance bill and get money “out the door”.
“We haven’t had any kind of meaningful living-standards growth for 15 years,” said Lindsay Judge, research director at the Resolution Foundation. She believes the government is right to focus on growth, but is keen to see prosperity spread more evenly.
Judge and her colleagues undertook a study to see if there was a way to grow the UK economy that would ensure that prosperity was spread regionally and reduced inequality in the process. They concluded that without other significant policy interventions, this simply wasn’t likely for an economy like the UK’s.
The Resolution Foundation spoke to people in Manchester and Birmingham and found that they were reluctant to accept a growth model that concentrated wealth and widened inequality. “They weren’t anti-growth, in any sense of the word, but they were deeply, deeply sceptical and suspicious of growth that wasn’t widely felt,” Judge said.
Absent of an obvious growth model, policies to redistribute wealth are the next logical option. A growing economy creates jobs, and those tend to be “bottom-heavy”. “There’s obviously a lot the government could do to enable people to take up those employment opportunities. Childcare is a really good example,” Judge said. Other examples include supporting people with long-term conditions into work, and providing additional skills so people can move into different roles.
Once in a job, pay and the experience of those at the bottom end can be improved through better conditions and by raising the National Minimum Wage, which the current government has promised to bring within 66 per cent of the median wage. “The more ambitious we are with the minimum wage, the more redistributive we are,” Judge said.
Reducing the housing burden is another priority. “Housing costs are a living-standards headwind. You might be earning more, but if your rent is going up even faster than your earnings, you’re no better off,” Judge said. While the current government has undertaken to carry out extensive housebuilding, the commitment needs to be bipartisan and long term in order to have a meaningful effect.
One idea that the government is unlikely to consider is raising benefits. “In the in 1970s average unemployment benefits were about 30 per cent of median earnings, and today they’re 15 per cent,” Judge said. “The benefit offer is very poor in this country.”
Meanwhile, Marcus Johns, a senior research fellow at IPPR North, argues that growth needs to be tangible on a personal, community level and regional level. “We see and feel a lot of the things that flow from growth, but people struggle to say exactly what it is that is driving that,” he said. Examples might be a thriving high street, good transport links, being able to get a takeaway or go out for a nice meal.
Johns and IPPR North argue that growth needs to be linked to a sense of place. For that to happen requires “regionally led national renewal”, in particular delivering economic renewal to places that have not benefited under the current model of growth. It should include regional job creation, with rising wages, and a regional industrial strategy to mitigate the impact of economic shocks.
“Growth in those places should deliver tangible things that people will experience,” Johns said. In order to do that, Johns wants to see further devolution, investment in projects such as Northern Powerhouse Rail that will fix the foundations of the regional economy, and then consistent investment. These are potentially big asks for a government that seems ever short on cash, but without them there is the prospect of further political discontent in the Red Wall.
It will take a lot for the Labour government to achieve growth at the levels it wants, especially in the current geopolitical environment. The government also has to contend with a political legacy as well as an economic one. “Austerity was such a cynical project, in the sense that not only did it take money away from people, it took away that sort of sense of trust in ‘my government will deliver for me’,” Judge warned. Delivering on growth may be the way to restore that trust.
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