Forget the ‘worst economic inheritance since the war’ – Labour could get very lucky indeed

“Change through economic stability”. This is the mantra which is about to float Sir Keir Starmer’s Labour Party to an overwhelming majority in next week’s general election.

As a campaigning message, it hardly sets the pulse racing. But it’s also what people want after the chaos of recent years.

The nation has had enough excitement. It craves more settled, middle-of-the-road government, according to the polls, even if that means a rising tax burden. Stability is in itself change.

Labour doesn’t have to promise the earth to win; all it has to do is promote the idea that it can provide the competent government that has so sadly eluded us these past eight years.

Whether Labour can in practice achieve such an outcome is another matter. It may be that the challenges are just too great. Or the below-the-surface divisions in the Labour coalition too disabling. But luck may be on its side.

Rishi Sunak and his chancellor, Jeremy Hunt, aspired to the same thing, and indeed went some way to delivering it.

Yet the brand had already been trashed by what went before; restoring the required sense of calm in the time available to them was always a hopeless task.

In any case, it is their economic legacy that Labour will shortly be building on, and it’s actually not nearly as bad as widely portrayed. Labour’s shadow chancellor calls it the worst economic inheritance since the Second World War, but if that’s true, why does she propose to do so little about it?

Instead, Labour promises only more of the same. There are a few tweaks to tax and spend but nothing that might unduly frighten the horses.

If the manifesto is to be believed, headline rates of income tax, National Insurance, VAT and corporation tax will remain unchanged, the spending envelope is only slightly increased, and ministers will be bound by virtually the same fiscal rules as the present government.

We can expect a change of tone, outlook and faces in Downing Street, but not much else. It’s scarcely going to seem like a new beginning. On the broad outline of economic policy, the direction of travel looks little different from the present trajectory.

Paul Johnson, director of the Institute for Fiscal Studies, calls it a “conspiracy of silence”, with neither of the two main parties prepared to face up to the scale of the challenges in the public finances.

He says: “Regardless of who takes office following the general election, they will – unless they get lucky – soon face a stark choice: raise taxes by more than they have told us in their manifesto or implement cuts to some areas of spending. Or borrow more and be content for debt to rise for longer.

“That is the trilemma. What will they choose? The manifestos have left us guessing.”

But are things really quite as desperate as the IFS chief paints them? He adds an important qualification – “unless they get lucky”. Here’s how that luck might play out.

Most things in economics are relative and compared to much of the rest of Europe, Britain’s position already looks pretty good.

Our first-past-the-post electoral system is about to deliver Labour a huge working majority, and although this might be seen as a licence to do stupid things, much more likely is that Labour’s leaders will interpret it in the way the electorate meant: as a mandate for predictable, centrist and competent government.

If Labour wants a second term it would be well advised to keep the markets sweet, and focus like a laser on planning, NHS and public sector reform. Disillusionment with the Tories only works once as an electoral weapon.

Contrast this with the political chaos unleashed in France by President Emmanuel Macron’s petulant decision to call a snap parliamentary election. This is already looking extremely dangerous for Europe’s fragile monetary union, even if you wouldn’t bet against it given the determination European leaders have shown to date in sustaining it.

Yet Paris is a mainstay of the whole construct and if it is kicked away by the deluded demands of the French Right and Left, then there is a real possibility of the whole thing tumbling down.

At the very least, continental Europe seems destined to enter another chaotic age. Set against this, the UK may come to be seen as a safe haven and a consequent magnet for international capital.

Nobody in their right mind would invest in France as things stand. Assuming Labour doesn’t similarly turn the nation into a no-go area for commerce, Britain ought to be a major beneficiary of this capital flight.

At last there might be some purpose in Brexit in that it would partially shield the UK from Europe’s descent into economic anarchy. Political stability isn’t everything when it comes to economic growth, but it is an essential backdrop.

Labour’s hopes of more benign economic conditions are further underpinned by the natural rhythm of the cycle. Much of the current mess can be attributed to the pandemic, or rather the Government’s response to it, and the subsequent energy price shock.

The after-effects are proving more persistent than we might have hoped but they are gradually fading, with the economy beginning to function normally once more after the pummelling it’s been through.

The biggest reason the public finances are in such dire straits is that there has been a £50bn increase in debt servicing costs as a result of higher interest rates.

These extra costs help explain why the tax burden has risen to record peacetime levels even as public services are squeezed to the point where they no longer operate properly.

They thought zero interest rates would last forever, and spent accordingly. How stupid can you get?

Debt servicing costs are admittedly very unlikely to return to the much lower levels that existed three years ago, but they should abate to some degree at least.

That said, Office for Budget Responsibility forecasts are already based on growth accelerating from next year onwards, and on debt interest payments falling from around 4pc to 3pc of GDP; yet even so, the Government still struggles to stay within its fiscal rules.

To get out of jail free Labour needs higher growth still or a sustained average of 2pc or more over the years ahead. Fortunately, this is not altogether implausible even with much lower levels of net immigration.

One thing that will undoubtedly help is the application of artificial intelligence. It’s impossible to know how much this might boost productivity, but my guess is that it will be by a lot. Even if it’s by no more than the information technology revolution of the 1990s and Noughties, it still promises to make a big difference.

Forget the worst economic inheritance since the war. By luck rather than design, Labour may be about to fall on its feet.