Starmer’s economic vision for UK a vain hope and magnet for discontent
How realistic is Labour’s pledge to deliver the highest level of sustained growth in the G7, asks Political editor-at-large Martin Shipton
Strade, 7% lower; and services trade is around the same.
According to CEF, the Brexit hit has inevitably led to tax rises, because a slower-growing economy requires higher taxation to fund public services and benefits.
If Brexit had not happened, most of the tax rises that then-Chancellor Rishi Sunak announced in March 2022 would not have been necessary.
If the UK economy had grown in line with how it would have performed if we had still been in the EU, tax revenues would have been around £40bn higher on an annual basis.
In his March 2022 Budget, Sunak announced tax rises of £46bn.
Starmer’s mission is to get the UK to a point where it has sustained growth that exceeds that of the G7, a group that includes in addition to the UK the US, Canada, France, Germany, Italy and Japan.
The EU as a whole is also seen as a G7 member.
How does Starmer’s mission for the UK stack up in relation to economic forecasts for the other G7 counties?
The British Chambers of Commerce (BCC) expects the UK economy to avoid a technical recession but shrink by 0.3% in 2023, before returning to growth in 2024.
Inflation will slow to 5% by the fourth quarter of 2023. BCC forecasts the economy will not return to its prepandemic size until the final quarter of 2024.
Growth forecasts for the other G7 countries are as follows:
■ United States: The Congressional Budget Office estimates that there is an approximately two-thirds chance that the annual rate of real GDP growth will be between −1.5% and 1.7% in 2023 and between 0.7% and 3.6% in 2027.
■ Canada: The OECD’s updated economic forecasts positively reflect the resilience of the Canadian economy during a period of global economic uncertainty by projecting an improvement in GDP growth compared to its November forecasts, with growth expected to be 1.3% in 2023 and 1.5% in 2024.
■ France: Considering the whole of 2022, the French economy rose 2.6%, after a 6.8% increase in 2021. For 2023, the European Commission forecasts a 0.6% growth.
■ Germany: Altogether, real GDP is expected to increase slightly by 0.2% in 2023. This represents an upward revision from the – 0.6% projected in the Autumn Forecast, mainly driven by abating energy prices and by the policy support to households and firms which have shored up the growth outlook.
■ Italy: In the second half of the year, consumer spending is forecast to resume growing, in parallel with accelerating investments, also thanks to the public investment projects included in Italy’s RRP (Recommended Retail Prices). On average, GDP is set to grow by 0.8% in real terms in 2023.
■ Japan: Japan is expected to grow at 1.8% in 2023, which is a slight upgrade from 1.6% in the October World Economic Outlook. As the government has relaxed Covid-19-related restrictions and reopened borders, growth has been boosted by pent-up demand, supply chain improvements and policy support.
■ EU: GDP is projected to expand by 0.8% in 2023 and 1.6% in 2024 (0.9% and 1.5% in the euro area). Headline inflation in the EU is forecast to fall from 9.2% in 2022 to 6.4% in 2023 and 2.8% in 2024. In the euro area, it is projected to decelerate from 8.4% in 2022 to 5.6% in 2023 and to 2.5% in 2024.
Clearly there are other countries in the G7 whose economic growth performance is ahead of the UK’s.
Starmer is hoping to overtake them with a spurt of investment which is unlikely to be available from increased tax revenues.
If the public sector is unable to supply the required capital, an incoming Labour government would turn to the private sector – which explains why Wes Streeting, Labour’s Health Secretary for England, has been wooing private health firms.
It is, however, a route Welsh Labour is unlikely to be comfortable with – and there is no guarantee of success.
And even if the mission is fulfilled against the odds, will it necessarily deliver economic improvements in an equitable way across the whole of the UK?
The next Labour government hasn’t even been elected, but ideological battlegrounds are already taking shape.