‘Outflanked on both sides: why Labour is losing touch with the economy’

As the fallout of another disastrous by-election result for the Labour Party continues, we in the party have a choice to make. How are we going to return to electability?

As so many have already said, the Labour party was outflanked on the Right by Reform, and by the Greens on the Left. A series of government U-turns compounded the narrative that Labour is rudderless. Some are now arguing Labour must tack left and recapture that vote.

But for me, the obvious and correct solution is for the Labour Party to return to the principle and promises which got us elected to Government with one of the largest majorities in history in 2024. And that means restoring our economic credibility.

‘We have reverted to the instincts of Labour governments of the past’

In the run up to that general election, the leadership, and in particular the then Shadow Chancellor Rachel Reeves, was unapologetically pro-business, pushing for growth, and promising to get the United Kingdom working again. But since getting into power, we have reverted to the instincts of Labour governments of the past; a larger state, interventionist and following policies that damage business confidence. 

In response, investment has left the country, growth has largely flatlined, and unemployment is on the rise. Confidence is in the economy has been shattered.

The problems really started with the Chancellor’s first Budget, which introduced two measures which effectively told private business to not bother hiring people. 

The first was the increase in National Insurance contributions. This measure, only placed upon the private sector, made it harder and more expensive for private business to grow and recruit new employees

Secondly, increases in the National Minimum Wage began to price young people out of the jobs market, making it unaffordable for employers to give people that first taste of work, and we now have high youth unemployment.

‘The government has pursued policies that disincentivise job creation’

The Chancellor’s second Budget only made matters worse – running contrary to how Labour promised it would govern when in power.  

Increasing and equalising the age brackets on the National Minimum Wage effectively priced young people out of the jobs market. Now thousands can’t get the essential first-job skills they need to push on in their careers. 

Businesses don’t even try to hire people. And you can see the evidence in the sharp drop in jobs available and the steep rise in the unemployment rates. 

It doesn’t take a doctorate in economics to realise incentives drives behaviour, and the government has pursued policies that disincentivise economic growth and job creation.

‘Little point implementing workers’ reforms while disincentivising businesses to recruit’

The same approach can be seen in other pieces of legislation, most notably the Employment Rights Act. While there is much to be lauded in it, such as better maternity rights and bereavement rights, there are also several measures which can only be described as “anti-business”.

I will always advocate for workers, but we must also recognise that businesses have an equally important role to play. There is little point implementing a package of workers’ reforms while simultaneously disincentivising businesses to recruit.

We must seek to strike the right balance when it comes to these economic policies, so we can continue to deliver for the people who voted for us in 2024 and restore confidence in our ability to improve the economy.

One such measure is the upcoming changes to allow trade union access rights to workplaces with over 21 employees. There is a very real risk that these measures will work against SMEs – and create further barriers to growth and recruitment. 

Most SMEs simply do not have the capacity to deal with large unions. They won’t be able to cope with the administrative burden. And with so many already suffering with cost pressures, it seems unlikely the Government has fully thought about the impact of this policy on the small and medium sized family business community.

‘We need to think about policies that improve our ability to deliver for voters’

Fortunately, there is a solution which better balances worker interests and business viability – and helps us rebuild our economic credentials.

The government should adjust the threshold for trade union access to businesses at businesses with a headcount of over 250. By doing so, we can both offer protections to workers and allow SMEs the space to grow – demonstrating to businesses that Labour is listening and maintaining the party’s commitment to support workers. 

In the aftermath of the Gorton and Denton by-election, instead of trying to outflank Reform and the Greens, we need to think about policies that improve our ability to deliver for voters – and that starts with the sensible, balanced economic policy that got us elected in 2024 and which can get us re-elected in 2029.

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