Before the General Election Labour was proudly proclaiming its commitment to generating economic growth.
The first ‘mission’ in the party’s manifesto was to secure the highest sustained growth rate in the G7. After Keir Starmer’s speech earlier today, that mission has been downgraded to an ‘aim’.
The new pledge, heavily trailed before the speech, is to “raise living standards in every part of the UK”.
The technical metrics used to measure whether the government has been successful will be real household disposable income (RHDI) and GDP per capita.
For a lot of reasons, this is sensible.
Governments should only commit to achieving things that they can actually influence. To state the obvious, Keir Starmer cannot influence the growth rates of every G7 economy.
To promise the fastest growth rate in the G7 was to make the government a hostage to fortune. (It makes you wonder why they ever made the commitment in the first place…)
To state the obvious again, it also makes sense to choose a target which is more closely aligned with what you want to achieve.
Politicians only care about GDP to the extent that it acts as a proxy for general economic welfare. What they really care about is whether people feel better off or not.
The new pledge is therefore designed to be a better measure of whether people have more money in their pockets. (Again, presumably someone had thought of this before the election…)
In other words, the switch from GDP to living standards is sensible. So sensible, in fact, that it makes you wonder why the government had ever been so reckless to promise anything else.
But it is also worth saying that, at first glance, the new pledge is strikingly unambitious.
RHDI has increased in every parliament since 1955 – including the last parliament – while GDP per person has increased in all bar two, at both the national and regional level.
“They are not so much stretch targets as the absolute bare minimum for any functioning Government,” the Resolution Foundation said in a statement following the speech.
That does not mean the targets are unimportant. Growth in living standards has averaged just 0.6 per cent since the financial crisis, compared to 2.3 per cent in the 16 years before.
So there is clearly a genuine problem which needs fixing. The danger for the government is that it is unclear whether it has the right solutions.
The Office for Budget Responsibility (OBR) forecasts that growth in RHDI will average 0.5 per cent over the course of the next parliament, which would make it the second worst performance for living standards since 1955.
Although living standards will improve relatively quickly over the next two years, the impact of tax hikes will then start filtering through the economy, slowing wage growth and putting up prices.
Indeed, the OBR’s forecasts suggested that RHDI per person will be 1.25 per cent lower at the start of 2029 than was projected in March.
Why have the forecasts got worse compared to March? “The bulk of this difference (around 85 per cent) is explained by policies announced in this Budget,” the OBR said.
While the government will still meet its commitment on the OBR’s forecasts, it is hardly setting the world alight.
Where things get a bit more challenging is on the regional targets. Starmer said that “growth must be felt by everyone, everywhere”.
His comments put into a pledge what has long been the view of many on the left, that growth must be evenly distributed, both along geographic and income lines.
This is a more difficult pledge to achieve. According to the Resolution Foundation, only three of the last six parliaments have delivered higher GDP per capita across every region in the UK.
But it is also worthwhile. One of the most important obstacles to the UK’s economic success is the relative under-performance of its regional cities.
To meet this pledge, that will have to change. Living standards can only rise sustainably if productivity improves. It is by no means certain – or even likely – that this will happen.
Fortunately for Starmer, accurate figures on regional living standards take some time to come out.
By the time we know whether the government has met its pledge, Starmer will either be safely ensconced in a second term or wondering where it all went wrong.
No doubt someone had thought of that before making the pledge.