Labour faces a test: Managing high expectations without new debt

The Labour Party, aware of public finance limitations, tried to temper social expectations before the elections. Still, the new government has some abilities to meet them without increasing debt, said Professor Iain Begg, an economist from the London School of Economics.

Thursday’s general election in Britain gave the Labour Party a large majority in the House of Commons, where they will have as many as 411 out of 650 seats. However, the social expectations of Keir Starmer's government regarding the high cost of living and the pressure on public finances are equally high, meaning that these expectations cannot be quickly and efficiently met. This, in turn, means that voters may soon turn away from the Labour Party, especially since – as political scientists point out – the British are becoming less loyal in their party preferences and more willing to vote for parties other than the two main ones, Labour and Conservatives.

Professor Begg, speaking with PAP, agreed that support for the Labour Party is broad but shallow and pointed out that an additional challenge is that they have been in opposition for the past 14 years, saying, "When you are out of power for so long, it takes time to get back into the mechanisms of governance."

- The Labour Party is perhaps not facing a public finance crisis but limitations in public finances. They cannot count on increasing spending to solve all the problems they want to address. Can they meet expectations? Well, they were careful not to generate too many expectations. I think it was a sensible strategy to explain that public finances are limited, only to say: we will do everything we can within the limits of public finances to find ways to grow the economy - said Begg.

In his opinion, to improve the situation quickly and without large financial expenditures, the Labour Party government will likely focus on changing its approach to two areas long seen as holding back economic growth.

The first of these is health care. The British public health service is primarily oriented towards treatment rather than prevention. If the Labour Party says it wants to use resources to a much greater extent for prevention, it should also reduce the treatment pressure. So, he explained that it is an example of changing how public services are delivered rather than increasing spending on them.

He mentioned construction and infrastructure as the second important area that needs reform and can be changed without spending much money. The problem in Britain is the deficient number of houses built, partly due to a restrictive planning system. If we simplify the planning system, we should expect more homes to be built, which will stimulate the economy—again, he said, without using public money.

The same applies to infrastructure. An example is the proposed new crossing over the Thames in eastern London, where investigation after investigation into building permits has been conducted, generating 300,000 pages of documents, but not a single shovel has hit the ground. Professor Begg has assessed that the planning system is so stringent that it stifles development, one of the British economy's most significant failures.