The Labour Party, having recently returned to power on July 4, 2024, after a lengthy period of Conservative rule since May 2010, faces significant challenges as it navigates a troubled economic landscape. The newly appointed Chancellor of the Exchequer, Rachel Reeves, has described the economic situation inherited from the previous Conservative administration as the worst in British post-war history. In a Treasury dossier released on July 29, she revealed a staggering £22 billion ($28 billion) deficit in this year’s budget, a scenario reminiscent of the financial turmoil that greeted the Conservative government in 2010.
When the Conservatives took power in 2010, then-Chancellor George Osborne highlighted the dire economic situation, claiming it was the worst inheritance in modern history. The subsequent period was marked by the implementation of austerity measures under Prime Minister David Cameron’s government, a strategy that significantly influenced UK public life over the next half-decade. By the 2015 election, the Conservatives managed to secure a narrow majority, having framed the political discourse around the necessity of their economic policies despite considerable controversy.
Fast forward to 2024, and the Labour government now faces a similar scenario. The current Parliament is expected to be heavily influenced by economic issues, which will likely be a focal point in the next general election slated for 2028 or 2029. Labour aims to demonstrate the efficacy of its policies, hoping to gain public support in much the same way the Conservatives did post-2010.
A key challenge for the Labour Party is to shape the public debate and present its economic strategy as the solution to years of sub-par growth. Average annual growth rates in the UK have significantly declined since the global financial crisis of 2007-08. Labour argues that had the per capita gross domestic product grown at the same rate as it did in the 27 years after 1980, each person in the UK would be more than £10,000 better off in real terms, according to the International Monetary Fund.
Labour has been vocal in criticizing the Conservative economic record from 2010 to 2024, positioning itself as the party of economic rejuvenation. The Conservatives, meanwhile, are embroiled in a leadership contest that will not be resolved until November 2, just days before the US presidential election. This internal party focus provides Labour with an opportunity to dominate the political narrative.
The Conservative Party’s leadership contest features six candidates: Kemi Badenoch, James Cleverly, Tom Tugendhat, Priti Patel, Robert Jenrick, and Mel Stride. With four of these candidates holding senior shadow-Cabinet positions, the party’s focus is inevitably split. Current leader Rishi Sunak and Shadow Chancellor Jeremy Hunt will maintain their roles until a new leader is chosen.
Labour aims to capitalize on this period of Conservative distraction to advance its policies and solidify its position. The party’s agenda includes significant economic initiatives designed to address the challenges posed by the aftermath of the COVID-19 pandemic and the war in Ukraine.
One of Labour’s flagship policies is the establishment of Great British Energy, a publicly owned entity funded by a windfall tax on fossil fuel companies. This organization, headquartered in Scotland, aims to position the UK as a leader in clean energy and enhance national energy security through projects such as wind farms. This initiative reflects Labour’s commitment to addressing climate change while fostering economic growth.
In addition to clean energy, Labour has announced the creation of a National Wealth Fund aimed at investing in future industries. This fund, which will attract contributions from international investors, including those from the Middle East, is part of a broader strategy to align the work of the UK Infrastructure Bank and the British Business Bank. A task force including Mark Carney, former governor of the Bank of England, has been assembled to drive this initiative.
The wealth fund is expected to bring together key institutions to present a compelling proposition for investors, potentially mobilizing billions of pounds in private investment and generating returns for taxpayers. An initial £7.3 billion will be allocated through the UK Infrastructure Bank to jump-start investments, with a focus on priority sectors and catalyzing additional private investment.
Labour also plans to reform the British Business Bank to better leverage institutional capital in the UK. By harnessing the bank’s investment pipeline and track record as the country’s largest venture capital investor, Labour aims to unlock significant investment in green and growth industries, supporting long-term economic transformation.
Labour’s economic strategy aims to reshape public discourse and demonstrate the party’s capability to drive economic growth. If the UK’s economic performance improves under Labour’s policies, the party’s prospects for re-election in the next general election will be significantly enhanced.
The coming years will be crucial for Labour as it seeks to establish itself as the party of economic competence and innovation. By addressing the economic challenges inherited from the Conservative government and implementing ambitious policies for clean energy and investment, Labour hopes to chart a path to sustained growth and prosperity for the UK.
