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Labour says ‘there’s no money left’. We asked experts if that’s true

Smelling a route into government, Keir Starmer is keen to appear like a safe pair of hands with the economy. But does it stack up? Here's what experts say

Starmer is reluctant to commit to any new spending if he gets into Number 10 at the next election. Image: TOLGA AKMEN/EPA-EFE/Shutterstock

There’s no money left. That’s according to Labour frontbencher Lucy Powell. Because of the disastrous economic conditions the UK is facing, Keir Starmer’s Labour party is changing the mood music and becoming more reluctant to splash the cash if he becomes prime minister.

Recent weeks have seen the party row back on its green investment plans because the Conservatives have “crashed the economy”, in the words of shadow chancellor Rachel Reeves, and controversially commit to keeping the two-child benefit cap. In a bid to project fiscal credibility, Starmer will follow the current government’s fiscal rules if he gets to Downing Street.

No money for public services. Talk of balancing the books. A grim set of policy choices. It’s starting to feel a lot like 2010. The language also brings back echoes of the infamous “I’m afraid there is no money” brandished by David Cameron as a weapon against Labour in the 2015 election.

But does the claim that ‘there’s no money left’ stack up? Just like the idea that pay rises will make inflation worse, and the notion of a ‘fiscal black hole’, it’s a piece of language that can quickly get accepted as an economic reality. We asked some experts to see what they think.

‘It is about political credibility rather than ideology’

A government can always find more money to spend. But this comes with consequences – as Liz Truss discovered.

“In one respect, there can always be money in the short term, either by diverting it from other expenditure or by accepting that public borrowing be allowed to rise,” says Iain Begg, a professor at LSE specialising in political economy.

“But after the heavy public spending (notably on furlough) since 2019, the UK’s public finances are vulnerable and this is exacerbated by higher interest rates which have to come out of current budgets. On balance, therefore, I would say that the ‘there is no money’ line IS economically justified, especially if you accept that more debt means more interest will have to be paid in the medium-term. creating a possible snowball effect,” says Begg.

Government debt (excluding Bank of England debt) rose from 84.2% to 90.4% of GDP in the year to June 2023. Meanwhile, the cost of debt has increased. In March 2020, interest rates reached a historic low of 0.1%. But by June 2023 they had risen to 5.0% as the Bank of England attempted to control inflation. During that time, the UK spent 49 days experiencing a genuine “economic shock”.

“Moreover, the experience of the Liz Truss episode is salutary: she and Kwasi thought they could take the risk of letting debt take the strain and the markets said ‘nyet’,” says Begg.

“For Labour this translates into wanting to look ‘responsible’ in their approach to the public finances and (maybe ironically) pointing to the profligacy of the Tories. It is worth recalling that in the mid-1990s, Gordon Brown took a very similar line in reining-in spending commitments.”

He adds: “It is about political credibility rather than ideology.”

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‘They want to appear to be fiscally responsible’

While there may still be money left, governments don’t have a free hand in spending, adds Mike Berry, director of international development at Cardiff University’s school of journalism, media and culture.

“States almost always run a budget deficit and they do this by selling gilts in the markets. There might be a point theoretically where they might struggle to sell debt in order to raise money but we haven’t seen any real sign of that yet. So in that sense it is wrong to say ‘there’s no money left’. That doesn’t mean there are no constraints on government spending or borrowing,” says Berry.

What a government does with borrowed money is also important, adds Berry, as governments can find themselves at the mercy of the markets: “If the markets thought Labour was looking to borrow what they thought was too much – especially if, like Liz Truss, they wanted to spend that borrowing on tax cuts or something else unproductive – that the cost of borrowing would go up and that would have a negative impact.”

A long-standing – but not necessarily warranted – perception that Labour is weaker in managing the economy may also come into play.

“I suspect people like Rachel Reeves are saying this because they want to appear to be ‘fiscally responsible’, especially when Labour has in the past – most notably after 2010 been viewed by much of the public as being guilty of dangerous overspending,” says Berry.

“That belief has been false – public spending by Labour had nothing to do with the big crash that took place from 2008 onwards – but that doesn’t matter politically if it’s believed by lots of voters.” 

‘It represents a lack of imagination’

A desire to appear responsible and win power explains Labour’s economic caution, says Nye Davies, a lecturer at Cardiff University’s school of law and politics. But it also reveals the limitations of Starmer’s vision.

“While it is true that the economy is in a terrible state, the ‘there is no money left’ rhetoric is also an ideological choice – it is a commitment to piecemeal, moderate reform and an acceptance of the status quo (one that is the legacy of over a decade of Tory austerity). Starmer constantly warns that the Conservative government’s mismanagement of the economy means that there will be no money left for a Labour government when/if it comes to power. But the purpose of a left government should be to change things,” says Davies

“The strategy has made it difficult to work out what exactly Labour stands for beyond ‘reform’ and ‘big thinking’. Not only that, but it has also led Starmer to drop progressive commitments and make a series of U-turns, such as ruling out scrapping the two-child benefit cap, refusing to commit to increasing taxes for the wealthiest, and diluting the party’s commitment to tackling the climate crisis.”

Rather than simply getting into power for power’s sake, Starmer could follow the intellectual foundations of Aneurin Bevan by achieving power “over the commanding heights of the economy”.

Simply doing the former, says Davies, “gets to the heart of what is wrong with the Starmer rhetoric of ‘there is no money left’”.

He adds: “It represents a lack of imagination and desire to fundamentally change society during a time of economic and climate crisis. It represents ideological inertia and, as Bevan said, ‘intellectual disarmament’.”

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Higher taxes on the rich could provide extra money

If there isn’t any money sitting around, there are ways to generate revenue for the public purse.

“It’s simply not true to say ‘there is no money left’. Besides being economically illiterate, as a wealthy person, I know there is plenty of capacity to raise revenue for our country from higher taxes on people like me,” says Geetie Singh-Watson, award winning restaurateur and member of Patriotic Millionaires UK, a group of wealthy individuals calling for higher taxes on the rich.

“It’s time our political class started serving the interest of the country and the people, rather than designing their talking points and policies for a few obscenely rich people and handful of very wealthy media outlets”.

Beyond individuals, there are companies putting paid to the idea that there’s no money left. Just look at British Gas’s profits soaring by 889% to £969m.

Savings can be false economies

Scrapping the two-child benefit cap would cost £1.4bn a year.

Some quick maths can show how ‘savings’ like this can often end up costing more in the long run.

Child poverty costs the UK £39bn a year, according to estimates. With 4.2 million children living in poverty, that’s a rough cost of £9,000 a year for every child kept in poverty.

Removing the cap would lift at least 250,000 children out of poverty. Keeping those children in poverty, going from the above estimates, would cost £2.25bn – almost double the cost of scrapping the cap.

Keeping kids in poverty is expensive, and prevention can stop a whole host of problems taking root.

Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.

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