Sir Keir Starmer, the prime minister of the United Kingdom, came to power on the back of a single-word election slogan: ‘Change’. At its core, his Labour government committed itself to transforming Britain from an economically stagnant country with poor public services to a clean energy ‘superpower’ abundant with economic growth. And yet, he has closed so many of the means by which this government could bring about the generational change he seeks. He has promised to not raise income tax, Value Added Tax (VAT), or National Insurance (NI), he has restricted all talk of rejoining the EU, the Single Market, or allowing the free movement of people across Europe. His Chancellor, Rachel Reeves, has put herself in a straitjacket with her ‘nonnegotiable’ fiscal rules that rule out borrowing to cover for day-to-day government spending. Starmer’s “change” driven agenda consisting of ambitious policy action has delivered anything but substantive change.
In isolation, each of these ‘Nos’—these pre-conceived self-limitations—is perfectly sensible and can be defended. With the tax burden already being at a peak since 1948 and economic growth non-existent, Starmer’s commitment to not increase working people’s taxes is commendable. His cautious stance on making a major change to Britain’s relationship with the EU is the safe and obvious choice. Reeves’ commitment to the ‘golden rule’ of balancing government spending with revenue is clearly targeted at assuring markets that the public finances are in safe hands with this government in order to avoid a repeat of Liz Truss-era disaster. But, the cumulative effect of all this ‘sensible policy’, is that the government is in no position to address the UK’s chronic lack of growth and thus cannot change much of anything. Starmer exercises caution and restraint just to conjure the same old feeling of perma-crisis that has plagued the last decade of British politics.
To worsen matters, Starmer and Reeves may not be interested in rocking the boat, but the twin forces of Trump and Putin are. Trump’s one man versus the world tariff war has made economic growth an even more distant hope. His isolationism and untrustworthiness, combined with Putin’s menacing march towards Europe’s democracies, forces the need for even more spending on defense. For now, Starmer has addressed this by putting international aid on the chopping block and transferring the money directly to defense. However, if Britain really intends to reach its goal of making defense spending account for 3% of GDP by, from the expected 2.5% in 2027, something else will have to give.
All of this is to say, Britain’s Labour party, with its sober and clear-eyed view of risk everywhere, has not yet set a course of transformational moves that match the severity of the moment. So, given the state of the nation, where should Starmer go?
Changes On The World Stage
Anyone who has followed Britain’s trade policy for the last decade will laugh at the claim that Trump’s disastrous and already paused “Liberation Day” tariffs were a ‘trick’ to bring countries to the negotiating table. Since Britain left the EU, prime minister after prime minister has pined after the opportunity to sign a free trade deal with America. In many ways, Brexit can be seen as Britain’s attempt to shift its center of gravity from Europe towards the Atlantic. However, there have been intractable differences that have prevented this deal from materializing. In Trump’s first term, it was his insistence that Britain would have to lower its food standards to allow for the imports such as chlorinated chicken from American farmers. In Joe Biden’s presidency, it was a categorical opposition to signing new trade deals. Yet, despite years of failure to achieve this deal, there has been consensus between Britain’s main two parties that the country should do what it can to push the deal through. With Trump’s second coming, there have been times where it seemed possible, even likely, to cross the line. However, recent reports indicate that Trump has demoted making a deal with the UK as a priority. Given how fruitless the effort for a deal has been, and how all the original roadblocks still stand in the way to its completion, perhaps it is time the UK also finally demoted the deal’s place on its own list of priorities.
It makes far more sense for Starmer to prioritize alignment with its geographically and regulatory neighbour, the EU. Formerly, Trump’s supporters argued that the UK must choose between closer ties with the US or the EU. However, Starmer seems to have recognized that the UK cannot indefinitely delay reengaging with the EU in the hopes of appeasing Trump, as evidenced by the reports that the UK and the EU may be close to agreeing a youth mobility visa scheme for 18-30 year olds. Given that Starmer was initially opposed to a deal like this, it seems that Labour is at the very least warming to the idea of a more significant reset with the EU than at first expected.
The question is now whether this thawing of relations is the first step in an arc which leads Britain back towards Europe. With the EU and the UK drafting a joint declaration of ways they can work to reduce trade barriers and cooperate more on security, this seems likely. Once the EU and the UK say the quiet part out loud, and admit that trade barriers are a nuisance we would all be better off without, what point is there in arguing to be outside the common market? When the two parties can agree that it is imperative for Europe’s defense that its democracies unite and contribute to each other’s rearmament, why sign an agreement that treats Britain’s arms industry as if it were in the EU when it could really be in the EU?
Trump’s sudden threat to impose tariffs on UK goods and his seeming deference to Putin have provided the UK a dose of reality that would have been useful 10 years ago. The UK is in Europe, the fate of its security is shared with the EU in a way that is not the case with any other country or bloc. The UK’s closest and busiest trade routes all run through Europe. These undeniable and invariable facts should be reflected in Britain’s arrangement with the EU. The boldest change Starmer could make is to heed these truths and initiate the official journey back towards EU membership by making it an issue in the next general election.
It is a significant political risk and could fuel the pro-Brexit factions who are opposed to Starmer. Yet, at the same time, it could also help Starmer genuinely unite the left and center in the face of Nigel Farage’s ascendant right wing Reform party around something that feels like a substantive decision of the greatest weight. With a stronger pro-EU policy, Starmer could entice both Liberal Democrat voters and disaffected center-right Tories who voted to stay in the EU in 2016. Also, strongly moving in favour of reconciling with the EU could force his opponents into a bind. The general feeling in the country is that leaving the EU was a mistake. At a time when GDP growth is so hard to find and yet so needed, the lifting of trade barriers with its biggest trading partners is an obvious gift for anyone campaigning. He can leave it to the two parties most tied to Brexit, Reform and the Tories, to explain why they support the less popular anti-growth position. Furthermore, these parties are currently splitting each other’s vote and are locked in an existential battle for dominance of the right. With some Tories being deeply against making a deal with Farage’s more right wing party, it is not obvious how well the two parties could coalesce in response to a move of this boldness.
It is often said that the UK voted for Brexit because of nostalgia for better times. The decade after the Brexit referendum has been one of the most challenging and painful in Britain’s modern history. Constitutional crises, a pandemic, a stagnant economy, inflation, a prime-ministerially induced market crash, have hurt the country and the once promised ‘Brexit benefits’ are few and far between. Perhaps, this time around, the currents of nostalgia will lead the UK into, rather than out of, the EU.
Changes At Home
Nothing hints at the limits of Labour’s cautious, tweak by tweak approach to government than its policy of changing ‘non-dom’ tax laws. In order to pay for slight increases in spending on public services, Labour abolished a tax status for foreign individuals, ‘non-doms’, designed to attract talented people to the UK’s shores. Previously, non-doms would not have to pay tax on income earned overseas, they would only have to pay tax on money earnt in the UK. The policy was sensible. Why would a young entrepreneur from, say, the US, want to live in the UK if it meant that their income was being taxed by a government which provided no services to support the creation of that income? However, Labour abolished the status anyways and now there has been a 157% increase in millionaires leaving the country. This ‘brain drain’ is not just an exodus of talented individuals from across the world, but an exodus of money which could have translated to job creation and tax revenue in Britain. Labour felt comfortable making this change because no one will shed a tear for wealthy foreigners who will now fill the restaurants of Dubai instead of London, thus in one sense, it is good politics. However, good politics are often synonymous with awful economics; it should be the position of the UK government to do whatever it can reasonably do to attract people who can make outsized contributions to the economic vitality of the country.
Just like with Starmer’s change of mind on a UK-EU mobility scheme, there seems to have been some recognition that the policy was wrong-headed. Reeves softened the policy a bit by providing a slightly more generous phase-out of the tax benefit. However, if she is serious about pushing all levers to bring about economic growth in the short and long term, she should move to resurrect the tax-status as part of a wider effort to attract foreign talent. She can use the uncertainty Trump is creating in the US as her cue. Whilst Trump attacks the stability of law afforded by due process and the research opportunities created by university funding which makes America attractive to so many young people, the UK should move to be a foil by comparison. Labour can show the world that Britain is an attractive haven of political stability and home to some of the best universities in the world, but is also a financially rewarding place to be.
It is also important to point out that not everything Starmer has done can be criticized as overly cautious. He has promised major planning reforms that will allow millions of homes to be built and has moved to curb regulations that slow down infrastructure projects. Furthermore, although the government has tied its hands when it comes to borrowing money for day to day government spending, Reeves was flexible enough to allow for borrowing for long term infrastructure projects in her rules. Therefore, in its dash for growth, the government is not without tools at its disposal. Where it is already showing boldness in its attitudes to cutting red tape and investing in the future infrastructure of the country, it must not be dissuaded by the inevitable political opposition that its Tory predecessors faced from NIMBYs (people who refuse to allow projects to develop in their area).
Looking to the Future
Since winning the 2024 election, Labour and its new prime minister Keir Starmer’s defining characteristic has been a sober cautiousness despite a promise for ‘Change’. The country still stands desperately in need of this change, it needs economic growth so that its public services, finances, and the national defense can return to health. Yet, Starmer has been holding himself back by swearing off a proper reconciliation with the EU and promising to not raise taxes that would allow for major investments. However, given the remaking of the global stage by Trump and Putin, it is important that Starmer moves the UK significantly closer to the EU. Furthermore, it should move to make the UK the perfect place for talented people from across the globe to come to by restoring the ‘non-dom’ tax status. And whilst not everything the government has done has been defined by caution, specifically its drive to deregulate house building and infrastructure, it must stay on the course that will finally get Britain building again. If Labour can show boldness on all these fronts, it may finally be in a position to deliver the beginnings of a transformational, yet long overdue, change for the country.
Featured Image Source: Leon Neal/REUTERS
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