Is it really only twelve months ago that the UK waved goodbye to a turbulent and dysfunctional four term, five Prime Minister Conservative administration? Calmer, quieter times were anticipated under new management; determined, competent and uncharismatic leadership were the order of the day… or so we all thought.
For the Labour government it has in many ways been a year of two halves. The initial euphoria at its landslide victory was tempered by the fact that it had secured only 33.7% of the popular vote; yet on the domestic front it has often appeared all at sea, buffeted into making repeated economic U-turns and above all lacking a coherent or convincing vision as to what kind of Britain it is trying to create. On the international front, however, its leadership has seemed more sure-footed following the second coming of Donald Trump and the unravelling – or at least severe threat – to much of the post WW2 international order. Starmer’s approach to EU engagement, his determination to maintain a continental lead on Ukraine and to resolve some awkward longstanding diplomatic disputes has been met with predictable parliamentary cries of betrayal, but has gone some way to rebuilding the UK’s reputation as a reliable global partner.
However, the economic woes that have faced Chancellor Rachel Reeves show few signs of abating. Labour overestimated the duration and extent of goodwill that would flow to the new government once the Tories had been removed from office. For all the talk about politicians, especially finance ministers, being rewarded for candour and ‘telling it as it is’ there is precious little evidence that this is so. Reeves had a genuinely challenging inheritance, but her reputation has been badly damaged by a series of unforced errors and policy reversals. The prolonged row and caving in over Winter Fuel Payments, a relatively small amount of money for both the government (roughly £1.2billion) and its recipients (one week’s pension payments), augured very badly for the much more substantial changes to welfare urgently needed to stem the inexorably-rising tide of public expenditure. This played out in almost farcical fashion as its flagship welfare reform legislation was eviscerated earlier this month in the face of unremitting Labour backbench opposition.
Chancellor Reeves’ instincts have invariably been to align closely with Treasury orthodoxy, but in the year ahead what may prove fatal to her prospects is the widely held impression that she no longer appears to have control of her brief. It is her misfortune that one of the overriding characteristics of modern-day British politics is that the voters demand quick results that do not require personal sacrifice. We all talk approvingly about the virtues of long-term policy making, but after almost two decades of stagnant incomes and rising bills, there is little appetite for yet another dose of deferred gratification. And less still for paying nominally higher rates of income tax; yet the recent squalls over welfare spending restraint make major tax rises in the autumn budget almost inevitable.
A major missed opportunity came as the New Year dawned when Starmer and Reeves might plausibly have ripped-up their General Election commitments on tax by citing radically altered global circumstances. Instead, rather than being forced to change direction as a consequence of the Trump tariff shock and the need for a major uplift in defence and security spending, they appear to be at the mercy only of their own dissident backbenchers. The fabled bond market has noticed. If a UK government with a majority of over 150 tells the financial world that it is going to legislate for a modest £5bn package of welfare consolidation but then fails to do so, market investors draw their own conclusions about pricing future debt auctions. This matters because the UK has traditionally been more reliant on overseas investors than the rest of the G7; our increasing reliance on selling short-term debt means are now firmly in the sights of those bond market vigilantes looking for a major global correction, if only to encourage less profligate behaviour.
After such a torrid baptism of fire, Reeves attempted to use last month’s spending review to relaunch the government’s economic strategy. Expect to hear much more of her four-pronged strategy in the second half of the calendar year – playing an urgent global role in defending free trade; promoting the key strategic sectors most impacted by President Trump’s tariffs; investing in infrastructure that align with an industrial strategy and picking winners in the technology, pharmaceutical and research heavy arenas where the UK already has a global lead. All well and good, but this traditional social democratic approach to redistributing the proceeds of growth may be out of kilter with the increasingly unbalanced state of the British economy, not to mention the current volatility of our party politics.
But central to any aspiration that the government might recover the support that has fallen away so precipitously during its first year is that overriding need for sustained improvements in economic growth and productivity. Few would dispute that the British economy is currently in something of a doom loop. The demands of an ageing and less healthy population mean public spending is rising inexorably. But non-existent or anaemic levels of growth hinder the generation of tax receipts. As a result, the tax burden on the working population (courtesy of holding firm on higher-rate thresholds over this entire decade) and public borrowing are both at a peace-time high. The recklessly prolonged era of near zero interest rates is now over, but its legacy is unsustainable levels of personal debt, dangerously mispriced risk throughout the global economy and permanently higher debt servicing costs. Future generations of tax-paying Britons are faced with the obscene prospect of paying out twice as much to cover interest payments on the debt racked up by the overconsumption of their parents and grandparents as is spent on the combined budgets of our army, navy, air-force and intelligence services.
Our political class appears paralysed by indecision as it tinkers with inadequate policies designed to promote economic growth. Powering the UK economy and kick-starting growth requires a step-change in getting credit and working capital into the engine of the UK economy, our small and medium sized enterprises. Only then will investment, employment and that ever elusive economic growth follow, encouraging consumers to spend and generate the tax that pays for improved public services. Key to this is encouraging responsible bank lending into the productive parts of the UK economy; too often the thicket of regulation – from enhanced capital adequacy rules and accounting standards – provides only the strongest disincentive to the smooth flow of capital.
The woeful lack of liquidity in the public markets of recent years has been well documented; so too the roll call of fast-growing British enterprises choosing to locate their IPO or re-list overseas. This uneasy vote of no confidence in the UK as a centre for the capital markets PLC has been compounded by the short-termism of private equity. Investment usually on a three-to-five-year time horizon, governed by stripping out costs and maximising short-term share price gains, means that home-grown SMEs are often poorly served in the generating further expansion and future sustainable tax receipts.
Once the optimum conditions for private sector capital investment have been set, vigilance to keep them going is essential. Two decades ago, as a fresh-faced MP for the City of London, I remember all too well that the near universal call from those in the world of financial services was for ‘light touch regulation’. No-one is seriously suggesting we return to that era, but urgent reform is now required to mitigate the deadening impact of consumer protection regulation which has bred a compensation culture and the all-pervasive consumer duty which often acts as a barrier to innovation, entry and incentive to expansion. As one practitioner put it to me recently, ‘the accumulation of precautionary regulations has had a chilling effect on lenders that would otherwise be extending credit to fuel the economy’.
Even the moderately encouraging forecasts for sustainable growth in the UK economy over the next year or two are based on some optimistic assumptions. The uncertainty over President Trump’s tariff policy has been paused rather than ended; a major correction in global stock markets is long overdue and an escalation of the post-pandemic shocks such as war and a renewal of soaring energy prices cannot be dismissed.
One last thought on the politics of the Starmer era. Every Prime Minister learns on the job and especially for those without prior international experience or expertise it can be a vertiginous journey. But growing in the job or adapting one’s style to new and turbulent circumstances is much more difficult – Starmer is the oldest person to take on the mantle for 40 years and like most people in their sixties he is set in his ways. From my experience watching senior politicians at fairly close quarters over recent decades, the one conclusion I have come to is that every politician who has had the self-belief and resilience to make it to the top job has within them an inner steel that says ‘I have done it my way to get here, so why should I now change?’ Although their supporters might wish it were not so, no Prime Ministers of recent vintage have really grown in the job. Think of Gordon Brown, Theresa May, Boris Johnson and Rishi Sunak – they all reached and left Downing Street with (the same) strongly defined personalities and styles, which both helped and hindered them along the way. No-one should hold out much hope that the present incumbent will be able to adapt to the developing political and economic challenges of the second half of this decade.
In the run-up to last year’s election, I noted that for all the talk of ‘change’ the Labour Party really was broadly offering continuity, albeit with different faces around the cabinet table. The UK electorate, whose raw, instinctive grasp of reality should never be underestimated, have already worked this out, which is why I believe the current fragmentation of party support may be a portent of more fundamental shifts to come in UK politics. Only one year in, the Labour government already looks and sounds like a tired incumbent, making familiar excuses for continued failure and tainted by what has come before rather than the reaping the benefit of being a fresh new start.
Written on 21 July 2025 by The Rt Hon Mark Field, former Member of Parliament (MP) for Cities of London and Westminster and Consultant at Buchler Phillips, an independent boutique firm with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.