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Since my last note, another opinion poll of Tory members — this time from Opinium Research — showed Liz Truss on course to win the leadership election by a margin of 61 to 39 per cent.
But the focus of today’s newsletter is primarily the Labour party. Sir Keir Starmer has unveiled a set of proposals to tackle the economic pressures facing UK households, as new data today shows real wages falling at the fastest pace in two decades. Some thoughts on that and Labour’s prospects below.
Mr Freeze Rides Again
Labour would freeze household energy prices for six months until the spring of 2023, Sir Keir Starmer has announced. Labour costs the proposal at £28.9bn and has laid out a series of ways it would pay for the policy, including by backdating the windfall tax on energy companies to January (Chris Giles runs his ruler over those revenue raisers here).
A lot of the comments I made about the Liberal Democrat policy proposal last week also apply to this one: it doesn’t provide anything to ease the energy bills burden on public services, such as schools and hospitals, or businesses whose bills are not capped by Ofgem anyway.
Like the proposal offered by Lib Dem leader Ed Davey, who welcomed the Labour announcement, Starmer’s plan does involve spending money on households that don’t need it. However, in both cases I think this criticism is overdone. Even among the richest fifth of households, median income is just £62,700 and so the UK will need to have a measure of support quite high up the income distribution.
And of course, the other thing that unites the Starmer and Davey plans is that they are a whole lot better than the thin gruel on offer from either of the Conservative leadership candidates at present. (Though I doubt very much that whoever emerges triumphant from that contest will wait very long before unveiling her own proposals once she takes office.)
Politically speaking, Starmer will be pleased that the policy polls well and that it opens up a useful dividing line with the Conservatives for as long as it takes for them to propose their own way through the crisis.
But there are a couple of big problems with Labour’s plan.
The first is how to pay for it. A quarter of the £28.9bn is paid for by lowering government interest payments on debt, which Labour said would be possible because its plan would suppress inflationary pressures. Now, this works perfectly fine if you assume that by April 2023 natural gas prices will be falling, but it is, to put it mildly, not entirely clear that this will happen. As our energy editor David Sheppard put it over on Twitter:
If Labour think this is over in six months . . . Triple it and you’d get a more realistic read. That’s not to say the funding aspects of it can’t be extended too. But this idea that we get through this winter and crisis solved is for the birds.
Paul Johnson over at the Institute for Fiscal Studies thinks the eventual cost of Labour’s proposals will be closer to £60bn, while Carbon Brief’s Simon Evans puts the real cost at £73bn if extended for a year.
This puts Labour in an unlovely position: either the policy would end in April, in which case you can hardly use the prospect of lower inflation to pay for it and there is a £7.2bn hole in the policy, or it wouldn’t, in which case there is a £30bn one.
The second related problem is that the increase in energy prices is not just a household problem. It is also a problem for businesses and a problem for the public services. And of course, to do anything about that means yet more money.
One reason why Labour has been reluctant to commit anything like the required sums is that the party wants to demonstrate its economic credibility by showing that its spending commitments have been paid for.
Shadow ministers have been told they need to identify redundancies in their department or “switch spends” in order to get sign-off for new spending, which is part of why Starmer’s commitment to abolish tuition fees is coming under pressure.
But the numbers required to do something about the pressures facing UK households, public services and businesses are large and if you don’t want to talk about increased borrowing or broad-based tax increases (or, more realistically, to talk about increased borrowing today and broad-based tax increases tomorrow), you end up with a £28bn solution to a £70bn problem.
How much of a problem is that for Labour? Honestly I don’t know. On the one hand, the depth and scale of the challenges facing the UK are so daunting that you’d sort of assume that any government, however effective, would be out on its ear at the next election.
Labour leads the Conservatives on almost every major issue in most polls, and Keir Starmer does not particularly frighten people. When I remember that Liz Truss has given herself very little room to wriggle out of a trade war with the EU on top of all that, the next election looks like one Labour ought to, and will win.
On the other hand, it seems to my eyes to be a major problem that Labour’s big announcement on energy prices has not convinced either the energy policy experts that they have their arms around the scale, depth and duration of the crisis, or economic experts that they can plausibly fund their policies.
Truss is not a fool and given that Labour’s transparent anxieties around talking about borrowing or tax rises are well, transparent, I assume the Conservatives will do everything they can to expose and exploit them.
It feels like an election in which the country feels it is time for a change from the Conservatives but has lingering doubts about Labour’s ability to deliver: and those elections tend to have the traditional result of a Tory victory.
I haven’t yet decided which analysis is more convincing to me — reader thoughts, as ever, hugely appreciated!
Now try this
I have just finished Ruth Ozeki’s novel The Book of Form and Emptiness. As Randy Boyagoda puts it in his excellent review, it is “an often moving story about two people struggling over the unexpected loss of a third. It’s also an ostentatious self-commentary about how we tell and receive stories through books”.
I found the ostentatious self-commentary less irksome than Boyagoda seems to have, but equally I didn’t have to review it and after a while I essentially skimmed those sections. Still, I found the meat of the book a typically enjoyable Ozeki novel. If you haven’t read any of her work, I’d start with All Over Creation or A Tale For The Time Being.