Labour's First Year

Sixteen panellists responded to this question. Over 40% of the panellists believe that the Labour government’s policy interventions in its first year would contribute moderately to economic growth and living standards over the course of the parliament. A quarter of the panel believes that the policies would have no effect on growth. Roughly a third of the panel believes that Labour’s first year policies would harm growth, with almost 20% saying that the harm would be moderate and slightly over 10% saying that the harm would be substantial. When weighting these answers by experts’ self-assessed confidence, the share of panellists who believe that the policies would have no effect or contribute to growth remains roughly the same. While fewer stated that the policies would harm growth, some are emphatically opposed to them and are very confident that their harmful effect would be substantial.

When looking at the panellists’ individual answers, there is broad consensus on which policies were positive for growth and which were harmful, with the differences in opinion reflecting diverging views on their net effect.

Most panellists agreed that the Labour government has taken steps to increase public investment, which should promote growth. Charles Bean (LSE) says that: “over the long-term - and mainly beyond the lifetime of this Parliament - the step up in public investment should boost potential output”. Thomas Sampson (LSE) agrees that: “the steps Labour have taken to increase public investment should bring moderate medium-to-long term benefits”, but adds that these steps: “are unlikely to transform the fortunes of the British economy”.

Panellists also mention the efforts on reducing energy costs, and regulations around private investment as policies yielding positive impact on growth. Ricardo Reis (LSE) sums up that: “There were some opportunities taken: removing regulatory barriers to private investment, some public investment projects, some improvements in energy production”. Charles Bean (LSE) adds that: “A reduction in regulations on e.g. planning, should also help”.

There is general consensus that this is a piecemeal approach that will have no more than a moderate effect on economic growth. James Smith (Resolution Foundation) summarizes this view: “The government's approach to boosting growth has been to focus on a large number of small, supply-side measures, including on infrastructure, regulation, planning and energy costs. These should boost growth modestly, albeit with a lag”. Other panelists point to missed opportunities for bolder change. Thomas Sampson (LSE) says that: “Despite the mantra that growth is the number one priority, the government has often chosen political expediency over boosting growth. For example, rejoining the EU's single market and customs union would boost GDP by several percentage points, a much larger gain than offered by any of the policies the government has implemented”. James Smith (Resolution Foundation) also points out that: “More can be done, particularly on trade and industrial policy and tech adoption, where the UK appears to be particularly weak”.

On the negative side of the ledger, the panel focuses on tax increases that may affect labor supply, productivity, and lead to capital flight. Ricardo Reis (LSE) says that: “there have also been some negative steps, like the tax and visa policies that harm two of the most competitive and productive sectors in the country (finance and higher education), and the combination of policies discouraging hours worked”. Roger Farmer (University of Warwick) adds that: “high tax policies are catalyzing an exodus of the high net worth individuals who make up much of the tax base”. Charles Bean (LSE) refers to the increasing in employers’ National Insurance Contribution, saying that: “in the near term, however, potential output is likely to be depressed by the ill-judged reduction in the employer NI threshold in combination with the rise in the NLW, which will render unviable a swath of low productivity jobs in sectors such as hospitality and retailing”. He suggests that: “It would be far better simply to e.g. abolish the age limit on employee NI contributions, so effectively equalising the rate at which income is taxed between the young and old, or else raise the standard rate of income tax appropriately”. 

Additionally, some panellists also anticipate fiscal tightening and future tax rises, and estimate the potential effects of such policies to come. Charles Bean (LSE) claims that: “To the extent that the U-turns on pensioner winter fuel payments and disability benefits imply a further increase in taxes in the autumn Budget, then that may impart a further depressing effect if the taxes are not well chosen”. Michael Wickens (Cardiff Business School & University of York) says that: “The worsening public finances will shortly increase the tax burden on the minority who pay taxes and deter economic activity further. With such economically illiterate policies their long-term aspirations for GDP growth are doomed to failure”.

Some also mention Labour’s immigration policies as having a negative effect on growth. Roger Farmer (University of Warwick) believes that: “the continuation of the policy of following the dictates of the ECHR as regards immigration are fast leading to civil unrest”. He also adds that: “net zero policies are leading to an exodus of manufacturing”. 

Concluding, Michael Wickens (Cardiff Business School & University of York) evaluates Labour’s policies by saying that: “An objective assessment of Labour government policies shows that they are majoritarian. In pursuit of ideological policies on welfare, energy and immigration paid for by the tax-paying minority they are deterring the growth that they claim is a priority. Demand for resources, including housing, is outstripping supply as the economy is shackled”. Ricardo Reis (LSE) assesses the net impact of the policies, saying that: “Overall, the net effect may be close to zero. It is a shame, since the negatives did not have to be there offsetting the positives”. Finally, Andrea Ferrero (University of Oxford) points out that: “Global uncertainty, related to tariffs, the Russia-Ukraine war and the political situation in the Middle East, is still the dominating factor in the macro outlook so the effect of the proposed domestic policies is likely to be secondary”.

Question 2: How well has the government balanced fiscal responsibility against other aims (e.g. economic growth)?

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