Labour’s plot to surrender Brexit is advancing

Reeves is moving Britain’s economy away from US dynamism towards full throated EU sluggishness

Last month, scientists told us they had discovered a mysterious “third state of existence” between life and death, in which cells can carry on existence for a time even when the organism is already dead. Could it be that here we have found the inspiration for Rachel Reeves’s Budget?
For her Budget and her government have in their first hundred days killed off the British economic model as we know it. Such dynamism as we possess in future will come from habit and instinctual loyalty to making the country work. But the motor behind it is passing away.
The new driving force now is one which will make us an economy more like France, Germany, or Italy. However well they have done in the past, all these core Europe countries now suffer from a mix of similar difficulties: high taxation funding high benefits, notably pensions, as well as public services; ossified employment markets; dated industrial structures and a huge bias against innovation; and of course high energy costs.
And so, according to the IMF, in 1995 these three economies collectively had a GDP per head of about 73 per cent of that of the United States. By 2018, that is, just before the pandemic collapse and recovery, that figure was down to 63 per cent, and it continues to fall. That’s why, as I wrote yesterday, they shouldn’t be benchmarks for this country.
The UK’s performance has hardly been stellar but it has been better. In 1995 our GDP per head was 79 per cent of the US. In 2018 it was 78 per cent. The UK model, of something approaching US style innovativeness and flexibility, coupled with a somewhat less generous European style welfare state, did broadly keep up with the Americans.
British voters could see this difference and it was one of the underlying factors behind the vote to leave the EU in 2016. For all our economic policy-making failings thereafter, Brexit still mattered. Tory politicians had at least to pay lip service to “doing things differently” to continental Europe, and some, like Jacob Rees-Mogg, Liz Truss, and dare I say it, myself, actually meant it.
And it is still true. Making a success of Brexit depends on marking out a different path to core Europe, one of deregulation, of liberalisation, and of support for innovation; and of benchmarking ourselves against the best economies in the whole world, not just our nearest neighbours. That could now be happening if the Conservative ministers in power for the last couple of years had not proved so bad at politics as well as economics.
Instead Britain is now having a disaster inflicted upon it. This Labour government is doing the exact opposite of what’s necessary. Spending is now stuck at 44-45 per cent of GDP, five points higher than before the pandemic, and ten points higher than Blair’s first term. Taxation is the highest it has ever been. And to judge by the Cabinet arguments before the Budget, all the pressure will be to push those numbers up in future. We are on the way to those same core Europe tax and spend levels, with all the pathologies that come with them, putting us into a different world from the successful Europeans like Poland, let alone boom countries like Australia or Israel.
But tax and spend is not the only disaster. Look at everything else the government has done. It’s unravelling all the employment law flexibilities introduced since 2010 and bringing back trade union rights. It’s renationalising the railways. It’s gumming up the rental market even further. It’s regulating the Premier League, one of our most successful industries. It’s bringing in European-style corporatist bodies, Great British Energy or the so-called National Wealth Fund, whose job is “to catalyse investment into clean energy industries and support the delivery of the new Industrial Strategy”, whatever that means. It will inevitably get captured by the green blob and deliver little of value to the broader economy.
The Government is doing all this, of course, because its leading members are believers in a socialist, redistributist, statist mentality. But it is also doing it because it’s still mesmerised by Europe. It still thinks European countries hold the Holy Grail for economic policy-making. It likes European-style regulation. So it’s preparing the ground for alignment with the EU on food and animal health, on product standards, on asylum, and anything else it can get away with. Labour know they can’t rejoin now, but they want the task, when it comes, to seem as easy and natural as possible.
The impending decline this will cause is already sinking in. Labour’s approval rates are collapsing. Voters sense that Starmer and Reeves are totally at sea. After all, successful governments get a grip in their first hundred days. Starmer has shown he has no capacity to steer the Whitehall machine or even run his own No 10. He and Reeves are now blithely destroying what’s left of the free-market motor that, fairly successfully, drove the British economy. Yet they are quite incapable of understanding what they are doing or of changing course, and soon the consequences will become obvious. The truth is this Government has already failed. They just don’t know it yet.