The new Labour government in the United Kingdom faces a triple whammy of problems as it takes power after years of dysfunctional Conservative government. The stakes are high. If Labour fails to improve Britain during the coming parliamentary period, it will face major voter disillusionment and significant losses at the next general election, even loss of power and a return to Far Right populism.
Labour's first problem is immigration. A return to Labour does not mean that the great British public has lost its fear of immigrants. In fact, many of the voters, who abandoned the Tories and fled to Nigel Farage's Reform UK party did so in large part due to disappointment that the Tories never delivered on its promise to reduce net immigration. As the chart below shows, net immigration has risen sharply since Brexit as higher-productivity EU migrants have been replaced by lower-productivity non-EU migrants. While there is reason to believe net immigration will decline somewhat in the coming years, the drop is unlikely to get Labour off the hook. Regardless of how tasteless it may seem, Labour will have to be seen to bring down immigration numbers. The only question is how.
Net immigration in Britain (Source: Twitter)
Second, productivity growth remains poor in Britain. Britain's problem with middling productivity growth stretches back decades, but Brexit worsened the underperformance relative to comparable economies, such as Germany and the United States. In addition to Brexit, Britain's productivity problem is caused by chronic underinvestment in human capital and infrastructure as well as repeated failures to overcome massive inequalities in British society, including the so-called North/South divide and lingering class divisions that manifest themselves in de facto dual economies in education and health care.
Britain has underperformed comparable economies in productivity growth for decades (Source: here)
The third major challenge facing Labour is the state of the public finances. The recently departed Conservative government was myopic, corrupt, and wasteful (as one would expect from a populist administration). As as result, the stock of public debt as a share of GDP has soared to the highest level in a quarter of a century. Britain is no longer able to just borrow a ton of money and get away with it. Former Prime Minister Liz Truss's experience in office shows that the government is already sailing very close to the wind as far as its ability to raise funds in financial markets is concerned. The poor state of the public finances in turn directly impedes on the government's ability to address inadequate investment and low labour productivity.
Public debt to GDP for the United Kingdom (Source: here)
So what can Labour do now that it has finally taken over the reins of power? The most obvious way to address the triple whammy of high net immigration, weak productivity growth, and restrictive levels of public debt is to rejoin the European Union (EU).
Within the EU, Britain would be able to swap large numbers of low productivity non-EU immigrants for much smaller numbers of higher productivity EU immigrants, thereby bringing down the rate of net immigration to Britain (Let us be clear, though: Britain does need positive net immigration if it wishes to prosper - see here).
Higher productivity immigrant labour would in turn boost average labour market productivity in the UK, pushing the labour force as a whole into higher tax brackets, raising tax revenues, and improving the public finances.
If rejoining the EU is such a no-brainer then why is it not already happening? There are three obstacles preventing Keir Starmer and the Labour party from announcing an immediate return the EU. The good news is that only one of these reasons is really serious. The two lesser obstacles are that: (a) many Labour MPs were elected on promises not to rejoin the EU (see here), and; (b) Britain would almost certainly not obtain quite the favourable terms it has before (see here). However, aside from a bit of embarrassment on the part of the government, these issues ought not to be insurmountable.
The far larger problem is that a return to the EU would further marginalise the most vulnerable segments of the British labour market. These segments comprise British workers, who, due to lack of education and proper training, were unable to compete with Poles, Romanians, and other immigrants from Europe during Britain's period as an EU member. It is within this group of people you find the strongest anti-EU sentiment and the strongest support for the Far Right of the Conservative Party as well as the Reform UK party.
It is high time that this vulnerable group of British voters gets taken far more seriously by mainstream politicians in Britain, both to ensure that Britain never again lurches towards the populist Far Right and also because it is morally right that these people be helped. This group of voters should not longer be feared and abandoned to the snake oil methods of the Far Right. Instead, they should be recognised as marginalised and deeply vulnerable and policies should be designed specifically to address their needs, particularly better training, education, housing, and access to finance and health care. Clearly, such interventions can only be financed if the British economy recovers. Which brings us back to rejoining the EU.
It is time for Labour to grasp the nettle.
The End
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