Big decision now looms for Keir Starmer and Rachel Reeves

The National

07-07-2025

On the world stage, it is frankly embarrassing. Across the Pond, Donald Trump mobilises the mob behind tax cuts for the rich and health cuts for the poor. Liberal democratic leaders throughout Europe keep their distance, but Starmer can't cosy up enough.
The character of this Labour Government is dispiriting. It prefers re-armament over aid, as people who look like they've never had so much as a playground scrap strike a pose as the new world warriors.
UK Defence Secretary John Healey doubles his budget on the frankly absurd assumption that we must prepare for our first military invasion since 1066. Meanwhile, people worry their kids will face conscription.
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This Labour Government is authoritarian and illiberal. Intent on banning musicians for expressing a point of view. Making terrorists of activists spray-painting a plane while supporting the Israeli state whose military use starving people for target practice.
But it is on the economic front that the wasted opportunities are most manifest. Labour have used up vast amounts of political capital on attacking the poor – keeping the two-child cap, axing the Winter Fuel Payment and threatening to cut disability benefits.
One year and several U-turns later, these look like major strategic errors. Apart from not achieving anything, they have left the party divided internally and run off the park by Nigel Farage. Why did they do it? The answer to that lies in the nature of their victory last year.
Labour got 33% of the vote in an election in which fewer than three in five people voted. That's fewer than 10 million votes from an electorate of nearly 50 million.
The corrupting first-past-the-post system airbrushed this mediocre result into a landslide majority because the right of British politics was hopelessly divided.
But the reality is that the election result wasn't much of a mandate for anything. A sensible strategy in such circumstances would have been to deliver for the people who did vote for you and then use the authority of the majority to build support further with policies that benefited most people at the expense of the privileged.
The problem was that the Starmer/Reeves project had ruled out in advance the use of major tax levers to achieve precisely this aim. And so, rather than increase revenues, they set about cutting welfare spending. It looked like turning on the very people who voted for them.
No doubt some Labour strategists even hoped that looking hard on welfare would win support from the right. It didn't. Attacking the poor just legitimises the parties who want to do it for real.
In fact, these actions drove down Labour support. Part of this will be from the vulnerable and marginalised whose despair of and alienation from the political process increases.
But it will also be from so many decent Labour voters who might not depend on these benefits themselves but still harbour a belief in social solidarity and looking after those less fortunate.
And this is still where we are. Labour need to decide, and soon, whether they will continue to eschew the tax system as a means of redistribution.
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Capitalism creates inequality. Throughout its history, reformers have understood tax is an essential tool to tackle that inequality. Tax means that private wealth can be marshalled for public good.
This socialisation of the economy has been at the core of social democracy. The greater the proportion of any country's economy that is deployed in the public realm, the more equal, and the more prosperous, it becomes.
But this is not just about the overall amount of social spending. Who pays is important too. There's no point taking more off people who have barely enough to live on while the rich get richer.
It's time for the wealthiest to pay more. A wealth tax of 2% and equalising income and capital gains taxes could raise £50 billion a year. If the UK copied Scotland's marginally higher tax rates, it could raise billions more.
If Labour refuse to consider these measures, then they will have no alternative but to squeeze up taxes for everyone, by freezing thresholds and allowances.
This will increase the cost of living and, by protecting the wealthy, undermine public support for an increasingly unfair tax system.
Moving to a higher tax/higher spend economy won't be welcomed by the 1%, but it won't spook the stock markets, either. Perversely, for an economic model built on risk, markets don't like uncertainty. But if governments are clear, markets adjust. The big decision for any government is whether it will set the rules by which the markets must play – or accept it happening the other way around.
I have low hopes of this Labour Government changing now. It lacks the conviction and shows no sign of building the necessary political consensus for reform.
But its refusal to intervene in the economy in a way which benefits the majority of its citizens will continue to underline the opportunities on offer if and when we choose to establish an independent Scottish government for ourselves.