What next for Labour?
Hard decisions balanced against internal priorities sent
Ahead of Thursday’s polling day, we wanted to share our speculative view of what comes next for the likely incoming Labour government, with a view towards their first 100 days or so in power. We have assumed that the polls are accurate and that Labour will win a large majority, while the Conservatives will lose around half of their current MPs. Thank you for reading and please get in touch with any queries or comments.
Our view:
The Labour Party is the overwhelming favourite to win Thursday’s general election. Keir Starmer has published relatively few details about how he would govern as Prime Minister. Labour’s election manifesto, the closest the party has come to outlining its policy plans, points to higher taxes, higher spending, greater state intervention (and possibly investment) in the economy, and a less flexible labour market.
Economic growth is set to remain low in the next 12 – 18 months, hindering Labour’s ability to make immediate, large-scale changes. The likely next Chancellor, Rachel Reeves, will probably undertake an autumn Budget in September or October, using the set piece to change the UK’s fiscal rules to allow the government to take on more debt. Any large investments will likely come online after a Comprehensive Spending Review (CSR) in Q1 or Q2 2025.
Labour will likely have a large working majority in Parliament composed of a minority of seasoned MPs making up the next government’s ministerial ranks, and a much larger cohort of MPs new to Parliament. Spending decisions, particularly on infrastructure, and foreign policy decisions, especially surrounding the ongoing conflict in Israel/Palestine, will prove contentious.
State of the polls
Source: The Economist
Our broader views:
Starmer will likely win, but will make internal foes outlining his vision
Starmer has maintained a large polling lead for 18 months through ruthless culling of internal dissent to engender and enable party loyalty – that loyalty will be tested almost immediately. Starmer has so far faced a relatively docile media, which has prioritised relationship building with future sources in the party while deprioritising scrutiny of Labour’s policy intentions. This has begun to change as the Conservatives look increasingly electorally irrelevant.
Once in power, Starmer will more fully articulate his vision for the country and take difficult and unpopular decisions while under heavy scrutiny. He has occasionally lacked the ability to manage media scrutiny, particularly in controversial areas like North Sea energy policy, earning him a reputation for policy reversals and U-turns. Although U-turns will be easier for him to undertake when in power, they will be more damaging to party unity. Ambitious MPs and trade unionists will have less of an incentive to completely abide by Starmer’s policy messaging if decisions are taken against their interests because the election will be behind them, many will have large majorities, and the Conservative Party will be in disarray. Starmer will therefore likely continue to get ahead of any internal political discord by blaming the Conservatives for “leaving the economy in a mess” while expanding the number of government departments and therefore ranks of junior ministers in order to provide more job prospects for new, loyal MPs.
Labour is likely to have a large majority, making it easier to pass legislation but potentially making it harder to get “big things” done at first. Most polls have Labour winning between 375 and 425 seats, with some polls predicting a majority of over 250 seats. Labour’s most articulated policy positions are in certain areas of taxation and spending. Higher rates of taxation, especially on private schools and the wealthy, will likely see wider party and support, but will require primary legislation to come online. Spending priorities, particularly in areas like infrastructure and the net zero transition, will face greater internal resistance because there can only be so many spending commitments during tight public budgets, especially as economic growth remains low and NHS appointment backlogs remain historically high.
There will also be a lag between announcing decisions to increase spending and getting shovels in the ground. That timing discrepancy represents a long runway for MPs who feel left out to rebel and voice dissent as a way of steering public funds to their constituency, but indirectly gumming up the decision-making process. It will, however, take at least several months for new parliamentary factions to form, limiting their initial ability to create widespread headaches for the new PM.
A slowing economy will hamstring Labour until it brings in its own fiscal rules
Against the backdrop of strong political and media pressure for change, Labour will struggle to pay for big spending decisions, making institutional and rule changes more likely at first. Starmer has so far shown a penchant for institutional change, highlighting the detrimental role that the UK’s excessively restrictive planning and feudal leasehold laws can have on overall productivity. Substantive financial and investment choices do need a long legislative and political runway and more buy-in from Labour’s internal and media stakeholders, however. Starmer is therefore more likely to focus on changing the rules of a sector rather than big spending decisions, as a way of granting himself time to gamble on a stronger economic recovery tailwind while he “sorts out the Conservatives’ mess.”
Labour will likely wait until its first autumn Budget, currently pencilled in for mid-September or early October, to make substantive financial decisions. Starmer’s chief of staff, Sue Gray, is a former senior civil servant, as are many of the senior advisors to the likely next Cabinet, and their experience and expertise will inform the execution of Starmer’s ideas. Starmer and Gray will likely seek to harness the power of the civil service rather than work against it as many Conservative governments have tried to. This approach will likely be even more successful if the Conservatives’ losses are as large as predicted.
November’s US Presidential election will likely be Starmer’s first big international test if Donald Trump becomes President again
Although Starmer and the Labour manifesto both say that the Labour Party will work with whoever is in the White House, Trump’s absolutist but unpredictable approach to foreign policy, along with his strong pro-Israel bent and probable intent to “make a deal” in the Ukraine and Russia war, will place him at odds with Starmer’s more traditional and cautious foreign policy views. Starmer’s MPs, trade union backers, and party members’ also tend to view President Trump and his foreign views negatively. With a large enough majority, though, Starmer may attempt to carve out a space as a soft public critic of President Trump, but with conflicts at Europe’s borders and as one of the two European nuclear powers, he will likely attempt to side with President Trump when possible, adding further pressure on his relationship with his party and voters.