Starmer's economic policies have collapsed into an incoherent mess

Yahoo

08-05-2025

What, exactly, is the point of Sir Keir Starmer's Government? This isn't a rhetorical question. It's not a rhetorical set-up for a cheap joke about 'raising your taxes to subsidise Indian workers', or 'establishing representation without taxation for as many migrants as possible'. I mean that if you sat down and grilled the Prime Minister, I'm not sure he'd be able to give you an answer.
After less than a year in office, the Labour Party is drowning in a sea of rapidly proliferating targets and rebrands.
We already have six milestones, six first steps and five missions by which to measure and judge the Government, and after last week's local election drubbing another reset appears imminent as Sir Keir attempts to stuff Nigel Farage back into his box.
As Harvard Business School professor Michael Porter remarked, strategy is choosing what not to do. If everything is your first priority, nothing is. And if you attempt to chase every car that passes by, you'll end up in a dizzy mess exactly where you started.
So far, that appears to be the fate of Sir Keir's Government. With few principles beyond a blind adherence to a maximalist interpretation of international law to guide it, Downing Street has no way to coherently assess trade-offs, or to maintain a course towards long-term objectives.
The result is an operation that is constantly on the back foot, reacting to the world around it with slapdash policy decisions that fail to cohere into a programme for Government.
The India trade deal is an excellent example of the chaos that results. Taken on its own, it's probably mostly fine. There's still a chance that the Government is attempting to pull a fast one on migration, but assume for a moment that it isn't. Then you have a deal that will raise GDP by about 0.1pc, and boost real wages by cutting the prices of a few imports. It's a minor victory that could be sold as a big one, appealing to precisely those Reform voters who want to see the Government capitalising on Brexit.
But it's also a deal that gives Indian workers posted to Britain a three-year tax break on National Insurance contributions just as the UK is raising the tax burden to its highest level since the Second World War. Those defending the deal have claimed it's simply a way of avoiding the same work being taxed twice, which entirely misses the point.
If these workers are in Britain, earning British incomes, making use of British infrastructure and institutions to earn their incomes, then they should be paying British taxes, and doubly so at a point when Rachel Reeves is imposing £36bn in tax rises to try and make the books balance.
India is desperate to send educated workers overseas because it can't provide enough work for them domestically – its graduate unemployment rate is roughly 13pc – and because their labour has rapidly become one of its most important exports. Personal remittances to India are equivalent to roughly 3pc of its GDP, roughly four times higher than inwards direct investment, and sufficient to cover its external trade deficit.
From India's point of view, relieving its ex pats of the burden of UK taxes – and let's remember, that's what National Insurance actually is – is a great deal that allows it to continue collecting its own social security contributions and frees up income to be brought back with the worker when their posting ends.
From the Treasury's point of view, a paper co-authored by the Confederation of Indian Industry put the cost in the region of £500m or so a year in 2020. Given that National Insurance revenue has risen roughly 25pc since then, the deal could end up being a £625m a year sweetener tied to making it easier for migrants to work in Britain.
This, remember, in a week where Labour is preparing a migration crackdown in an attempt to ward off Reform, in a period when concern over fiscal pressures is seeing departments ordered to scrimp and save at the public expense. The problem isn't so much that the deal is a bad one, so much as it's one that it's hard to sell alongside other elements of the Starmer agenda. When policy in each field is being made in response to immediate pressures, there's no common theme.
In the coming weeks we are apparently expected to sign a 'limited' deal with Washington granting relief from some of Donald Trump's 'liberation day' tariffs. A more ambitious deal is off the table in part because Downing Street wants plans for a closer deal with Europe, which will in turn be limited by fears of too openly walking back the Brexit vote. Torn between two outcomes, Sir Keir will choose neither.
Over and over, the same pattern plays out. The prime minister who set out to cut red tape has created 27 quangos while drafting employment-destroying regulations. The leader who slammed a Tory experiment with open borders has ended up renting houses for illegal migrants. And a europhile who wants closer ties to the EU has ended up torn between that goal and capitalising on opportunities with trade with the US, making political concessions without fully realising the potential economic benefits.
Returning to Porter, what is Sir Keir choosing not to do? He isn't willing to confront the courts and the activists on illegal migration. He isn't willing to bite the bullet on NHS reform, or address the broken university fee system driving the sector off a cliff, or address the government failures bankrupting councils. He isn't willing to commit to Europe or to the globe. In short, he's choosing not to make big decisions.
It's less a matter of a Prime Minister triangulating between constraints than it is veering from decision to decision with no real plan, a manager without an objective to reach. Strangely, the core of the problem may be that Sir Keir is too conservative in a very loose sense of the word, instinctively attempting to preserve the systems he's inherited rather than attempting to reshape them.
Indeed, where possible he appears to take his cue from 'the rules' rather than making decisions for himself. So a budget black hole is no barrier to forking out billions to give away a vital strategic asset, and the definition of 'woman' is made clear by the stroke of a judge's pen.
But this is clearly inadequate for the challenges facing Britain. When you're headed for the rocks, the challenge isn't keeping the ship of state on an even keel. It's finding a new direction.
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