It Could Be Said #57 New Labour Won With Mass Immigration & So Can Sir Keir
If politics was as simple as the customer is always right, then any idiot could do it
They’re not laughing now
Since President Donald Trump successfully secured his return to the White House, the Democrats have understandably been dissecting where it all went wrong. Whilst there are clearly factors unique to American politics that allowed such a highly flawed candidate like Trump to triumph, that the Democrats actually performed fairly well when compared to other incumbent parties this year, suggests global factors are also at play.
And there is of course a clear culprit; inflation. The story of the past three years has been one of the economies of the world suffering the first sustained surge in global prices in decades. To use an example that has troubled the stomachs of the urban middle class on both sides of the Atlantic; online takeaway apps. First delivery drivers demanded higher wages due to greater demand for their services, then restaurants had to increase prices as the price of raw materials and workers surged, only for interest rate rises to end the apps’s access to cheap credit that subsidised the whole operation.
The impact has been a brutal unwinding of what had been a much loved perk with delivery fees, food prices and service charges all being significantly higher than they were before the pandemic. And this is far from an isolated example, as Jon’s Substack has been detailing in his writing about the fun crunch. More broadly this has led to a squeeze middle of people who consider themselves upwardly mobile professionals, but whose main income asset had been a credit rating that allowed them to live far beyond their current circumstances due to cheap debt they’d pay back when they got that promotion or inheritance. Only now with repayment rates rising and eligibility criteria tightening, they struggle to maintain not just a lifestyle in line with that enjoyed by their parents but people with less exalted professions.
In the face of this new reality, people are never slow to raise the usual bugbears such as how the pandemic disrupted global supply networks or warped demand by inducing lifestyle changes such as increased Working from Home. What people are less inclined to talk about is how governments mismanaged the pandemic fiscally. And this omerta makes sense because governments were often scrambling to meet popular demands for generous support for business and individuals as society closed down as the then novel coronavirus spread in early March 2020. Me and you (yes YOU!) got this just as wrong as Rishi Sunak or Steve Mnuchin and Nancy Pelosi did.
You May Be Stuck Inside, But Quarantine Isn’t A Rainy Day
With the benefit of hindsight the problem most countries were facing in March 2020 was one of an economy struggling to meet demand despite full employment. This doesn’t show up in the standard statistics which suggested that the world was entering a steep recession, but you have to remember that governments were in the unique position of forcing whole swathes of society to shut down to stop the spread of coronavirus. The official unemployment or inflation count is irrelevant - in the bits of the economy still open as normal, supply was so constrained that genuine rationing was having to be introduced with physical stores placing restrictions on how many essential items you could purchase with the elderly and disabled being giving priority access for home delivery of groceries whilst waiting lists for non-essential goods to be shipped grew ever longer. And this was because both goods and key workers were in short supply.
But of course most people were outside this physical economy. They were either trying their best to adjust to homeworking or were furloughed. In Britain, the Government recognised that this home-based life was significantly cheaper than one build around travelling into work and so limited furlough payments at 80% of pre-pandemic earnings. In retrospect that underestimated the savings people were being forced to make, and they should have provided people lower furlough payments. But worse the Government didn’t make any attempt to claw back any money from people who were benefiting from the cost savings of working from home. Many illusions were made to the Second World War during the pandemic but the Government never dared to increase taxes as was repeatedly done in either World War. It would have been more than reasonable to pair furlough with emergency taxes on those still working, with due allowances for key workers. Likewise the support for businesses closed down could have been balanced with temporary increases on taxes for those still trading, for example by charging an excess profits tax and increasing VAT on non-essential goods that only a limited number of outlets could still sell.
This would of course have been toxically unpopular but the reality is that the popularity governments enjoyed whilst throwing free money around was fake anyway. By constraining consumer spending power such tax rises would not only stop bad habits being indulged during lockdown but also ensure that people are less tolerant of high prices when inflation initially spikes in 2021 as fewer people would have built up savings that allowed them to keep spending in the face of high prices. Meanwhile a robust approach on business taxes would stop firms investing too aggressively on the clearly mistaken belief that pandemic fads would become permanent shifts. Indeed, such shifts would have been smaller overall due to restricting people’s economic power during the pandemic. And of course by setting the bar so high on taxation the post-pandemic story would not be one of scrambling to increase taxes as the bill came due but reducing taxes as the economy re-opened. There might even be some leeway to make some tax rises permanent to fund the catch-up work in education, debt repayments, health and social care, whilst people still felt the taxation burden was lower than it had been during the pandemic.
So yes, whilst it is completely counterintuitive and any politician who stood up and tried to do it in 2020 would have been condemned as a manic, the correct response really wasn’t to give the people what they wanted. By trying to make bad times a bit better, they made the good times much worse.
The Lady Is Not For Turning
There is much excitement about the idea that Sir Keir Starmer’s difficult beginning as Prime Minister has doomed him to inevitable defeat at the next election, which must be held by 2029. It is of course extremely unusual for British Governments to not secure an initial re-election, with Ted Heath’s Tories being the only one to be rejected by the public at their initial attempt to secure re-election since 1929.
It’s worth considering how the Tories recovered from the shock defeats of 1974, losses that left them having lost four out of the five elections in the previous ten years. Because rather than abandon the aim of breaking trade union power in the aftermath of the failure of Heath’s diffident attempts to stand up to the organised left, they instead considered why they had failed. They realised that going after individual trade unionists or councillors only created martyrs that helped bind more cautious labourites to the far-left. They instead developed a strategy to go after trade unions and local authorities as organisations, knowing that the threat of bankruptcy would ultimately bring to heel even the fiercest radical. Likewise they recognised that Heath scrambling to save jobs when unemployment passed one million for the first time since the Second World War, fatally undermined any attempts to impose rigor to the economy.
Thatcherism was part of the global trend away from an economics that prioritised full employed towards one that priortised low prices. This prioritisation not only led governments to run fiscal and monetary policy to reduce inflationary pressures at macro level, but also to liberalise trade policy and regulations to lower costs at the micro level. That broke down in the 2010s as the hammer blows of first the Great Financial Crisis and then Austerity led to people thirsting for anything that would get the economy moving again. It’s no coincidence that the economic case for Brexit was an explicitly pro-inflation one, with Vote Leave promising both higher wages for domestic workers and higher prices for domestic producers. Boris Johnson would hit a fleeting moment of ideological clarity in the autumn of 2021 when he demanded pay rises in response to worker shortages in the haulage industry. Such talk would be quickly forgotten as people became fully reacquainted with the full impact of high inflation.
Even at the time I argued that provoking 70s-style shortages through a haphazard mixture of immigration restrictions and trade barriers was a below-par method to supporting goals I believed in. But hiding behind questions of competence would be cowardly. After all, the more efficiently you pursue a policy, the more widespread its reach and the greater its impact. A Britain with me in charge back then would have had bureaucrats busily using Brexit to protect domestic producers as they increased prices through tariffs, import quotas, and regulations. And another set of bureaucrats restricting immigration so that domestic workers were not undercut in wage negotiations. But taken together these would mean that:
Higher prices wouldn’t lead to increased profits as they would instead be used to afford better wages/conditions to attract domestic workers that wouldn’t accept the jobs on the old terms.
Higher wages would merely ensure that workers could afford the increased prices that funded other people’s wage increases, rather than leading to any boost in purchasing power.
The increased tax receipts from business and individuals would primarily be used by the Government to pay increased prices and wages on the goods it buys, and the people it employs.
And it worth just considering how these things interplay. Those wage increases don’t just mean that prices go up, they can render whole lines of work uneconomic. If more people work as lorry drivers then they’ll be less people to deliver takeaways or consumer goods. If we successfully fill the outstanding vacancies for junior care roles in the NHS or social care, then that means fewer people to operate in service industries such as hospitality, personal care, and leisure. If British produce is actually picked from the fields by Brits, then one assumes they’ll be fewer people available to staff supermarkets.
What would that mean for the people involved? They would be earning more money but they would be working harder jobs, buying products that had become more expensive and paying higher taxes. So they would effectively be running faster to stay in the same spot socio-economically. We would have technically achieved higher productivity! But then let’s think what impact that this has on wider society. More British people working in jobs that had been previously been considered beneath them, less likely to enjoy having people fetch for or fawn over them when shopping or socialising, and paying both higher taxes and higher prices. There would be real benefits in return in terms of societal equality and economic resilience, but Britain would feel a more cramped and restricted place.
What is less clear is whether we would actually be richer in the long term. No one would suggest a lawyer or a banker should quit their high-paid job to grow vegetables in their allotment or care for an elderly relative, yet the logic of many politicians’s plans is that the nation doing so, would boost economic growth. Success in “reshoring” basic tasks could merely crowd out sophisticated work in technology, services, or the creative arts that adds greater value. We’d be worker harder, not smarter.
Brits Make Work For Idle Hands
British politics was convulsed by the revelation last month that in 2023, net immigration nearly hit one million people. What nobody noted was that the Government was much more popular in 2023 than it was in 2024 when net immigration had fallen by a fifth. Furthermore, Tory Governments were repeatedly re-elected as New Commonwealth immigration peaked in the 1950s. And in this century, New Labour and David Cameron’s Tories were re-elected despite surges in South Asian and African, Eastern European, and Southern European immigration.
It used to be said that no government could be re-elected with more than a million unemployed, and then Thatcher was twice re-elected with three million people unemployed. She managed this because she convinced the British public that this unemployment was a necessary price of the economic revolution that had ended high inflation; as her lieutenant Norman Tebbit once wrote, “If you want the meat, you have to pay for the bones too”.
Joe Biden was not halfway through his Senate career when Tebbit wrote the above in the briskly readable Unfinished Business. Just under three decades later, Biden would become President of the United States, and in his old age he had clearly forgotten how much people hated the 1970s. He thought people wanted more government spending, higher wages and a regulatory state that prioritised improving working conditions and protecting the environment over securing lower prices. Instead the Democrats discovered that not only did people still really hate higher prices, but a failure to swiftly dismantle the restrictions placed on legal immigration by the Trump White House meant nothing in the face of chaotic scenes at the border as asylum seekers surged.
It’s worth asking what would have happened if Biden had pushed through substantially more work visas during his presidency. That would have allowed him to not only address labour shortages that caused Americans to complain about reduced service and higher prices in the hospitality and leisure but also plug chronic shortages in sectors such as childcare and construction where lack of workers was going beyond high prices to actively limit provision. There may even have been some visas left over to ensure America remains open to high-skilled workers who will add value to its economy at the very highest level. That would have helped tackle those very concerns about prices that proved so fatal to Kamala Harris this November. It may also indirectly have helped him tackle the border earlier, clarifying both to progressives within America, and everyone across Latin America that the pro-immigration turn was to be focused on facilitating legal immigration not turning a blind eye to games being played with the asylum process as international law has fallen dangerously out of touch with the situation on the ground. Instead Biden presided over the worst of all worlds as America never came close to the legal immigration levels of Trump’s first year in office, but completely lost control of illegal immigration.
Of course once you recognise that you need to bring additional workers to maintain a popular status quo in terms of service, hospitality and care workers being cheap and plentiful that may make you second guess other aspects of received political wisdom. Such as whether tightening regulations to make everyone’s taxi rides or parcel deliveries more expensive would actually be politically popular or if the cheap applause for insisting on “Buy American” clauses may not ultimately mean much.
Back in the UK, it’s hard not to see the similarities between Sir Keir Starmer on both immigration and economic regulation. The Tories clearly lost control of legal immigration due to its ill-judged embrace of an Australian-style points-based, a mistake magnified by failing to properly manage the flow of refugees from Ukraine and Hong Kong it openly welcomed, or promptly process the ones that travelled across the English Chanel on small boats uninvited. It responded by with delusions about Rwanda and desperately hacking at any forms of immigration it could easily control, creating a Frankenstein mess of a system that is delivering results in the same way the late Doctor’s monster scored high on social impact. Already reductions in immigration are being reflected in lower than expected economic growth.
There’s a real danger Labour is getting high on its own schadenfreude rather than being honest about the role immigration must play in what it wants to achieve more broadly. If Labour truly wants to fill the vacancies in health and social care, and ramp up the construction of housing and infrastructure, then it must prepare to substantially increase immigration from what is currently planned. The alternative would be a combination of ballooning budgets and missed targets, as manpower shortages forced the Government and its contractors to either outbid other employers to secure workers, or scale back their ambitions. Likewise, the easiest way to rescue higher education from implosion is to help it recruit many more overseas students, which may also help combat what is effectively stagflation in the hospitality and leisure sectors by providing venues with both new workers and new customers. And if Labour is serious about using enhanced regulation to combat mistreatment of workers, then only rapidly expanding the workforce will stop such improved conditions reducing overall output.
The retort may be that this is all very well, but key swing voters want to see immigration reduced. But as Henry Ford once famously quipped, if he had asked the customer, they would have asked for a faster horse. Back in the 1980s, Tories doubled down on anti-union legislation and fiscal discipline because they ultimately had no alternative to beat inflation and develop the type of economy that could deliver on their promises to the average voter. It’s hard to see how high levels of immigration do not play a similar role for Labour today given limited room for further borrowing, tax rises or service efficiencies. Sometimes there really is no alternative but to work harder at implementing and selling the policies that your principles compel you to adopt.