Starmer’s biggest barrier to growth is the Labour party
A year into Labour rule, the UK economy shows resilience despite government missteps, but Starmer’s statist instincts and fiscal misfires risk stalling the very growth he promises to deliver, says Eliot Wilson
Sir Keir Starmer has little in common with Liz Truss, but the two Prime Ministers agreed on one issue: the UK will only become more prosperous and living standards rise through substantial and sustained economic growth. As Labour’s manifesto last year declared, “to grow our economy… will be at the heart of everything we do.” Truss had previously identified the fundamental challenge as being stuck in a “high-tax, low-growth” cycle.
The government needs growth now more than ever after a chaotic ten days in which economic and fiscal policy has owed more to Mr Bean than to Maynard Keynes. Desperate last-minute concessions to potentially rebellious Labour MPs over the Universal Credit and Personal Independence Payment Bill, including the minister agreeing from the despatch box to scrap whole clauses, wiped out savings hoped to total £5bn.
It now seems inevitable that autumn’s Budget will include more tax rises, though Labour will endeavour to frame them as consistent with its manifesto pledge that it “will not increase taxes on working people”. It will further traumatise an economy already hit by the rise in employers’ National Insurance announced last year and by some of the highest energy costs in Europe. Yet “investment” (the modish new description of public spending) has to be paid for somehow.
The UK economy grew by 0.7 per cent in the first quarter of this year, the largest rise for a year and the highest growth rate in the G7. We are not quite on the canvas yet. Ben Wiles, managing director for restructuring at financial and risk advisers Kroll, told me: “Right at the start of 2025 a perfect storm of challenges gathered and accelerated towards UK business. But midway through the year, a picture of general resilience remains – despite a potent combination of employment rights updates, national minimum wage increases, national insurance changes, higher energy costs and tariffs threats.”
It is also the case, as Wiles said, that we haven’t seen the volume of insolvencies or restructuring exercises that the gloomiest forecasts suggested; some of those firms which have disappeared were recent, Covid-era enterprises likely lacking a sustainable future anyway.
Britain can’t take growth for granted
This underlying resilience is in spite of government policy, not because of it, and we cannot take it for granted. Growth for the rest of 2025 is predicted to be weaker than those first three months, and in April the International Monetary Fund revised its annual forecast for the UK downwards from 1.6 per cent to 1.1 per cent. Whatever the exact number, we are firmly in the territory of “anaemic”, and should not take too much comfort from the fact that competitors are performing even more weakly.
There is money in the economy, certainly, but borrowing is expensive. Gilt yields rose sharply last week as the bond markets became increasingly anxious about the government’s direction of travel and whether Rachel Reeves, the embattled Chancellor, might be replaced by a more open-handed, left-leaning figure. Wiles believes businesses are “determined to weather the storm” and pay the price now to wait for more favourable economic conditions. But they cannot wait forever.
Starmer’s government has always been misguided. Instinctively dirigiste, he and his ministers believe that the state is the principal motor of economic expansion. That was underlined in the long-awaited Modern Industrial Strategy published last month. In October 2024, Starmer had reassured potential investors that the government was “not in the business of individual picking winners [sic]”. Yet the purpose of the Industrial Strategy is “to back British businesses, invest in our comparative advantage and take punts in pursuit of growth and productivity”. Picking winners, some might say.
This stifling statist approach is now aggravated by policy setbacks and changes of direction which are robbing the government of ever more financial room to manoeuvre. Ministers know that politically they must deliver perceptible change, but are struggling to afford it. The traditional Labour nostrum of tax-and-spend will put economic growth even further away: already this financial year, the tax burden will be 36.8 per cent of GDP, the highest since the late 1940s.
Labour has been in power for a year. We are promised jam tomorrow, yet almost everything the government does pushes ‘tomorrow’ further into the future. Sir Keir Starmer boasts of his willingness to take hard decisions. At what point is he willing to decide that his current approach is simply not working, that ministers cannot manage the fine details of a free-market economy and these ministers emphatically cannot? The clock is ticking.
Eliot Wilson is a writer