By Rohan Dubey
It's almost certain that Labour will finally be back at the helm after a tumultuous Conservative tenure. However, Labour’s vision for the United Kingdom is hardly one that you would associate with a progressive party that has spent a decade in the shadow of the Conservatives. Labour will inherit a nation that is a shadow of what it once was, ruined by a decade of self-inflicted austerity.
Once the birthplace of the Industrial Revolution is now deindustrializing rapidly. Let alone keep up with its Western European peers, the UK’s manufacturing sector is now falling well behind Eastern European nations such as Slovakia and Poland [1]. When compared to what was once seen as its ideological twin -the United States- the UK would rank as one of arguably the poorest of the 50 states, ranking well behind Mississippi [2].
While each of these claims is concerning on its own, there was an expectation that an incoming Labour government would imbue the country with inspired ideas and lead Britain out of its quagmire of low growth, investment, austerity and declining living standards.
On evidence so far, the Labour Party seems unfit for the task, as exemplified by their unambitious Green Plan.
Labour had long ago committed to investing 28 billion pounds yearly in a low-carbon industrial strategy to meet the urgent need to transform into a green economy without compromising on the standard of living of its citizens. However, in their pursuit of a balanced budget and a misinformed notion of “sound” public finance, Labour has now chosen to abandon this green pledge [3].
Investing in green infrastructure is key to multiple policy objectives of the Labour Party. Firstly, such investment will be key in driving investment in the UK, which is especially important for a country that lags all other G7 nations in business investment [4] and has undergone a decade of self-harming austerity under the Conservative government that has sharply hurt business confidence and hurt overall growth. Across the Atlantic, Joe Biden’s Inflation Reduction Act (IRA) [5] provides a great lesson in how a progressive government, which the Labour Party claims to be, should approach the greatest challenge of our lifetime.
The landmark legislation, which has blown even manufacturing giants like China out of the water, (at least in certain critical components of modern supply chains) [6] achieves the dual purpose of bringing growth and industry back into the most disadvantaged parts [7] of the nation whilst dramatically cutting emissions and decoupling the supply chain from climate change disruptions.
On the other hand, Labour’s self-proclaimed Green Chancellor, Rachel Reeves, is too afraid of causing a Liz Truss-esque fiscal chaos to move beyond the self-constructed problem - a budget constraint - and solve the real problem - Climate Change. How can the UK expect to draw business investment when countries like the USA have invested 269 billion dollars in green industrial policy and the UK grapples with the self-harming pursuit of budget surpluses?
How can it restore the confidence of investors and the general public in its ability to create resilient and sustainable supply chains without an ambitious policy like the IRA? Why won’t businesses choose to invest in Europe or the US where they can get generous subsidies to power their green transition instead of dealing with the uncertainty of the climate disaster that beckons upon the UK?
Secondly, austerity has left public services in an unacceptable state, with high costs of public transport, poor reliability, underfunded authorities [8] and counties having to make grim trade-offs [9] as they stave off bankruptcy and schools suffering from lack of teachers, adequate infrastructure and even heating.
In this state, the UK needs to be at the forefront of investing in green infrastructure that can deliver lower energy bills and a higher standard of living for a nation that has endured an unenviable 2.7% fall in real wages since 2008, putting it well behind OECD counterparts.
Thirdly, and perhaps most importantly, the United Kingdom must invest much more ambitiously to abide by its legally binding pledge of achieving net zero by 2050. Climate change is without doubt one of the foremost challenges of our times and if the UK still believes it is truly one of the leading nations of the world, it must not only step up to meet its emissions targets but also provide aid to developing nations which simply cannot afford to invest in green industrial policy like the UK can.
Having said that, there is little evidence on any front that the UK can still claim to be one of the leading nations of the world. At the heart of Labour’s inability to tackle Climate Change lies its flawed understanding of the capabilities of a monetarily sovereign nation such as Britain.
Britain can never run out of finances to solve any of its problems nor does it need to raise finances from bond issues or worry about bond vigilantes threatening the stability of the glits market. It doesn't need to look beyond Japan or the US to see evidence that continued budget deficits do not constrain the ability of a nation to exercise full control over the target rate its Central Bank decides to set or the ability of the nation to issue debt at the rate of interest it desires.
Perhaps, that’s a bridge too far for a Labour party that seems to be stuck in conservative macroeconomic thinking. Regardless, it can at least strive to understand that any government expenditure on a green industrial strategy will crowd in private investment and create a much-needed multiplier effect for a stagnant economy continually flirting with a recession.
If it doesn’t identify one of these two realities even after a decade of disastrous austerity, Britain is bound to continue its slide into a climate and societal disaster, albeit with a balanced budget. As for its citizens, the choice between Labour and Conservative merely seems a choice between who’s asleep at the helm as the nation inevitably becomes a shadow of what it once was.
References
1. Thompson, D. (2022, October 25). How the U.K. Became One of the Poorest Countries in Western Europe. The Atlantic. https://www.theatlantic.com/newsletters/archive/2022/10/uk-economy-disaster-degrowth-brexit/671847/
2. Carswell, D. (2023, August 18). Is Mississippi Really as Poor as Britain? The Atlantic. https://www.theatlantic.com/ideas/archive/2023/08/britain-mississippi-economy-comparison/675039/
3. Harvey, F. (2024, January 31). What is Labour’s £28bn green plan – and could it be shelved? The Guardian. https://www.theguardian.com/environment/2024/jan/31/what-is-labour-green-plan-and-could-it-be-shelved-explainer
4. (2023, June 19). Now is the time to confront UK’s investment-phobia. IPPR. https://www.ippr.org/articles/now-is-the-time-to-confront-uk-s-investment-phobia
5. Inflation Reduction Act Guidebook | Clean Energy | The White House. (2023, December 5). The White House. https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/
6. Nuccitelli, D., & Nuccitelli, D. (2023, September 18). The Inflation Reduction Act is reducing U.S. reliance on China. Yale Climate Connections. https://yaleclimateconnections.org/2023/09/the-inflation-reduction-act-is-reducing-u-s-reliance-on-china/
7. Bloomberg - Are you a robot? (n.d.). https://www.bloomberg.com/graphics/2023-red-states-will-reap-the-biggest-rewards-from-biden-s-climate-package/
8. Underfunded social care struggling to help mitigate growing demand on NHS - LGA statement. (2023, January 6). Local Government Association. https://www.local.gov.uk/about/news/underfunded-social-care-struggling-help-mitigate-growing-demand-nhs-lga-statement
9. Harris, J. (2024, January 15). One by one, England’s councils are going bankrupt – and nobody in Westminster wants to talk about it. The Guardian. https://www.theguardian.com/commentisfree/2024/jan/14/englands-councils-bankrupt-westminster
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