This year is likely to be a very tricky one for the Labour government, and not just because of the rantings of American-based billionaires or their pipsqueak cheerleaders here in Britain.
Prime Minister Keir Starmer’s government will succeed or fail depending on whether people feel better off. The Conservatives were kicked out last July – slumping to their worst election defeat in history – and rightly so: they had overseen the worst Parliament for living standards on record.
Every poll tells us that the No1 issues for voters is the cost-of-living crisis. Starmer recognised this when he delivered a speech just before Christmas setting out his milestones, which made raising household incomes the priority.
New Year Resolutions: the public spending less money is bad news for the economy
But after Christmas, the Resolution Foundation published a report forecasting that average “disposable income is likely to fall” in 2025. Happy New Year, Rachel Reeves.
This really shouldn’t come as a surprise as the Office for Budget Responsibility’s published analysis alongside October’s Budget said that the level of real household disposable income per person will be 1.25% lower by the start of 2029 than was forecast in March 2024.
The economy cannot grow while people’s incomes remain suppressed and are being constantly eroded by higher bills (energy bills rose by 10% in October and then by another 1.2% in January), higher housing costs (rents are rising above inflation) and taxation (the outgoing Conservative government froze income tax thresholds, trapping evermore numbers of low-paid workers into the tax-paying bracket, and Labour retained the policy).
Council Tax is also likely to rise by 5% in April in most councils across the country.
All of this means that consumers have less disposable income to spend in local economies – going out for a meal, to the pub or the cinema, and generally they are spending less in the shops.
Pollsters YouGov asked the British public last month what their New Year’s resolutions would be. The top answer was to “spend less/save money”.
This does not bode well for economic growth, living standards or tax receipts. While Labour can rightly complain about the black hole left in the public finances, the bigger fundamental problem for Labour is that it came into office without a proper economic strategy for the worst inheritance of any government for decades. And they still don’t seem to have developed one.
Not much help: there were £40bn of tax rises in Rachel Reeves’ Budget
The data continues to look bad for Labour. Figures out this week from the British Retail Consortium show growth of just 0.4% in retail in the last three months of 2024 and they say 2025 will be even more “challenging”, as the hikes in National Insurance take effect.
Chancellor Reeves both increased the rate of employers’ National Insurance (from 13.8% to 15%), and lowered the threshold at which employers pay it, from £9,100 a year to £5,000. It increases the cost of employing staff, making it more expensive to hire lower-paid and part-time workers, who are disproportionately women.
Many service sector businesses are likely to respond by cutting staff numbers or hiking prices (which could in turn push up inflation).
Consumers are unlikely to pick up the slack. Inflation is running at 2.6%, but benefits will only rise by 1.7% in April, and public sector pay awards look set to be capped at 2.8% – which may in turn prompt another wave of strike action in some sectors
Either way, such a low pay settlement, after years of real terms pay cuts, certainly won’t help the recruitment crisis in the NHS and social care.
Labour’s NHS gamble
The NHS is voters’ second biggest concern.
Despite the furore over tax rises, many people welcomed the increase in funding for the NHS in Reeves’ Budget. Under the Conservatives, NHS waiting lists swelled to record levels and key targets for urgent cancer treatment referrals and the like have been missed for decades.
Public means public: Keir Starmer appears to have changed his position since 2020
On Monday, Starmer set out his plans for how to reduce waiting lists. Unfortunately, this did not involve expanding NHS capacity (necessary in the long-term), but funnelling money to the private sector. This will no doubt please some of Labour’s new corporate donors with large investments in private health, but it is less good news for patients.
The problem with this is not an ideological one.
Expanding private sector funding inevitably means taking staff and resources away from the NHS. The private sector does not train staff. It just poaches NHS-trained nurses and doctors, leaving less capacity elsewhere. Where that money could have gone is in buying private sector hospitals to expand the number of operating theatres and other facilities available in the NHS.
Dr Tony O’Sullivan, the co-chair of the campaign group Keep Our NHS public, said: ”Long-term private sector contracts threaten to permanently embed the profit-taking parasite in the NHS host, undermining the prospect of NHS recovery as a publicly provided service.”
Less than five years ago, Keir Starmer appeared to agree. The then candidate for the Labour leadership posted on Twitter, “Public services should be in public hands not making profits for shareholders… end outsourcing in our NHS”.
One of the other problems with the NHS is the underfunding of social care. Age UK estimates that more than 2.5million older people are not getting the care they need. The system is massively underfunded, with huge numbers of job vacancies unfilled. This results in older people ending up in hospital through neglect and then being unable to be discharged because there is no suitable community care available.
Rather than address this long-running problem, Labour has kicked it into the long grass with a three-year review which will report in 2028, making it very unlikely that Labour will even begin to address social care before the next election in 2029.
Labour has a tough year ahead, and on the two issues that matter most to voters, the cost-of-living and the NHS, their approach is, at best, flawed.
- As well as his column, Andrew is also conducting regular podcast interviews, in-depth and informed with specialists and national figures, sharing their expertise with Croydon, and available on Inside Croydon’s Spotify channel
Andrew Fisher’s recent columns and interviews:
- Government must act to end the chaos, austerity and decline
- The Andrew Fisher Interview: What Trump’s election means for us
- The Andrew Fisher Interview: how to tackle the housing crisis
- Grievances not solutions: Tories are going full-on Trumpian
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