Daniel Hannan: Labour can intone their growth mantra all they like but they won’t make it actually work

Lord Hannan of Kingsclere was a Conservative MEP from 1999 to 2020 and is now President of the Institute for Free Trade.

Labour’s economic policy resembles one of those Oriental religions where you manifest something through ritual chanting.

“With my government, Britain is open for business,” intoned Sir Keir Starmer yesterday, as if mouthing that phrase would make it true. Rachel Reeves keeps repeating the word “growth”, perhaps in the hope that, rather as Buddhist prayer flags are activated every time the wind stirs them, so that syllable will magically cause our factory conveyor belts to spin.

Meanwhile, Britain continues to slither toward recession. Indeed, if we ignore the impact of immigration and measure GDP per head, we are already in one.

Starmer, unlike most of his Labour predecessors, inherited a fragile economy. Britain had not recovered from lockdown. Many employees were no longer prepared to work a full week. Civil servants had all but stopped turning up to the office.

Productivity was falling as government spending was rising. The taps that had been spun open on a supposedly emergency basis in 2020 were proving hard to screw shut again.

Taxes were at a 70-year high, the state accounted for 45 per cent of GDP and the national debt stood at 100 per cent. So what did Reeves do? Did she try to return spending to where it had been in February 2020?

Of course not. She went on a further binge, not only paying public-sector workers more, but hiring more of them – or, at least, cancelling the 66,000 job losses that had been scheduled following the end of the notionally one-off pandemic increases. She funded this bonanza partly by maxing out the national credit card – Britain is borrowing around £100 million this year – and partly by levying taxes on employers.

And that was just the start. Companies have slowed their recruitment in anticipation of the National Insurance hike and the recent rise in the minimum wage. Now they also face having to offer full employment rights to every new employee on day one.

2025 will be the year that our long run of low unemployment – something that has set us apart from most of Europe for three decades – comes to an end. A rise in joblessness means fewer people paying tax while more claim benefits. Our fiscal situation will deteriorate further. Markets will demand an even higher premium to lend to us.

None of this should surprise anyone.

Yet, incredibly, it seems to surprise ministers. Rachel Reeves is shocked that high-net-worth individuals have not hung around waiting to be taxed. Ed Miliband is genuinely angry that the refinery at Grangemouth closed shortly after he had imposed retrospective taxes on energy companies and banned new North Sea drilling.

I think they had truly convinced themselves that it would be easy.

If even the Evil Useless Tories had avoided recession, how hard could it be? Labour MPs had come to believe their own slogans. Although spending had climbed to 45 per cent of GDP, they told one another that Britain was suffering from “austerity”. If this or that budget was too small, they averred, it was purely as a result of Tory sadism. And if the country was baulking at some of the more expensive eco-regulations, it could only be because the corrupt Tories were in bed with Big Oil.

So, alongside the cost of government, we have the most expensive commercial energy prices in the world. Never mind what this does to steel, cement, ceramics and other manufacturing industries. Where does Starmer think it leaves his ambition of becoming an AI superpower?

Generating growth depends on doing things that are, in the short term, unpopular.

Building runways and reservoirs and, indeed, whole towns will help. But, more urgently, we should recognise that energy is the vector of economic growth. We should drill in the North Sea, frack for shale and abandon the impossible net zero targets that leave us importing dirty energy from dirty dictatorships. Instead of asking regulators to come up with ideas for growth, we should push the one solution that they will never recommend – their abolition.

And we need to get serious about cutting spending. Right-wingers often pretend that this can be done by reducing foreign aid, a tiny budget that they spend over and over again in their minds. Left-wingers do something similar with tax avoidance. Both sides pretend that there are huge efficiency savings to be had – as though no one had ever tried that before.

The truth is that the big increases in state spending have come in healthcare and social security. If you are not prepared to cut those, you don’t really want to cut spending.

Labour is plainly not ready to contemplate any of these measures. And neither, so far at least, is the country.

Things are about to get a lot worse.

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