Mike Newton: From reckless regulation to excessive spending, Labour is living beyond your means

Mike Newton was Conservative parliamentary candidate for Wolverhampton West, and worked for the Bank of England during his career in the financial markets. 

A huge recession is coming to Britain, and soon. A real one, not one of the false starts we have endured in recent years when some Bank of England or Treasury policy manoeuvre has bailed us out in conjunction with decisive action from the Federal Reserve.

This time inflation is too high and persistent for the Bank to cut rates aggressively, the Treasury has no money, and multilateral economic policy coordination is at its lowest since the 1930s.

Labour is living beyond your means. I am now the most worried about the economy I have been since I started my career in the financial markets in 1994, at the Bank of England. Since then I have seen many crises, but never this unequivocally bad combination of circumstances.

The core of the problem is this: the shift of resources from the private sector to the lower-productivity public sector. This is a political choice, made with political intentions, but is almost exactly what the economy does not need at this point.

Why is that? It is evident from economic history that real improvements in living standards are always driven by the private sector, not the state. But the current reality is that the private sector must thrive in order to allow the state to pay its bills.

The Government caused this situation and is now sleepwalking into its consequences. The attacks on the private sector from Rachel Reeves’ budget and Angela Rayner’s employment legislation have left the economy in a uniquely vulnerable position.

Rising borrowing costs and the commitment to rearm (which, by the way, will not stop at three per cent of GDP) have made the private sector more crucial than ever.

Meanwhile economic volatility is everywhere on the rise, driven by the Trump Administration. Do not imagine that we have dodged tariffs for good or we have some unique relationship with the President that gives us immunity from the epochal changes going on.

The UK is very badly placed to weather this multi-year storm. Our economy is slowing fast yet the price of borrowing is rising.  Before the Budget the ten-year gilt yield was 3.75 per cent; at time of writing it was 4.66 per cent. That cannot be blamed on ‘those wicked Tories’. This is thanks to Labour policy mistakes.

Private sector activity is dropping off a cliff, and we are unable to afford even the modest increases in defence spending without higher interest rates unless Labour gets serious about reversing its blatant favouritism for the unproductive parts of the public sector. But we all know its backbenchers will never agree to that.

Where is the growth going to come from? Jobs are being shed and investment plans shelved; everyone knows somebody who has been laid off or is worried about it when the National Insurance changes kick-in next month.

Employers are also reluctant to hire because of the new employment legislation, the Employment Rights Bill (ERB), which unfairly changes the balance between reasonable employment protections and the right to manage. Several employers in Stafford, where I live, have recently told me that the combination of the NI changes and ERB are hard-stopping hiring plans as from next month. The focus is very much now on balance sheet protection.

Construction activity is meant to be the flagship of Labour’s plan for growth, yet amazingly, this is collapsing and the housing market is cratering as higher interest rates bite. The S&P Global Construction PMI dropped firmly into contractionary territory for February with new orders the lowest since May 2020.

As Conservatives, I think we have been very effective in making the case that Labour is disastrous for business. Andrew Griffith, the Shadow Secretary of State for Business and Trade, has been both relentless and forensic in his opposition.

My sense is that while we have made the sale about the malignancy of Labour’s proposals, the general public still has not fully internalized the extent to which their jobs and mortgages are going to be hit. Nor do they appreciate how much extra costs are coming their way, as employers pass-through higher employment and other costs. Everything, from grooming a bulldog to keeping mum in a care home, is going to cost a lot more.

We also have to make the case that what is good for business is also good for the public, and that we Tories are not here just for the bosses and shareholders. The market for popular capitalism and aspiration is still strong, but we need to recognize that for most people work is just work and many jobs are uninspiring and boring.

There is no magic solution for this; I spent two tough summers as a pig and potato man on a Staffordshire farm. But what we can do is make work financially worthwhile.

We need to carefully consider expanding profit-related pay to give employees a real sense of owning upside in performance; to widen the scope of employee share ownership; and to find durable solutions based on Conservative principles to ensure that those that can work, but choose not to, are penalized hard for their lack of contribution to the national effort.