Week in Business: Will Starmer Slash the State?
Well here’s another gem that Labour left out of their manifesto – the state is too big and needs to be cut down to size…we’ve been writing that headline at CityAM for 20 years – so, is Starmer finally on board?
On Monday I asked who, if anyone, will have the courage to take a chainsaw to the British state. It’s an inelegant metaphor, but an effective one as Argentina’s Javier Milei and Elon Musk in the US revel in the process of hacking away at state infrastructure. Milei won his election after waving an actual chainsaw around on stage, as a theatrical warmup act ahead of his radical (and effective) reform agenda.
Now Keir Starmer is setting out his plans to reform the state, with aides apparently referring to this agenda as “project chainsaw.”
This is gratifying, but the question is whether the kit will be Black and Decker or Fisher Price.
Starmer has talked a good talk on slashing regulation and there’s no doubt that he’s nudged some industry watchdogs into more of a pro-growth mindset, but he insists he wants to go further and he’s interested in nothing less than a total overhaul of the state’s functions, capabilities and (apparently) size.
Writing in the Telegraph the PM bemoaned the fact that the civil service has grown by 130,000 in just under a decade but – and he’s right, of course – public services have not improved. So what’s he going to do about it?
We’re told that thousands of Whitehall jobs will go, quangos will be scrapped or merged and government departments will take on many of the roles currently the preserve of arms-length bodies. This is good, sensible stuff and it’s certainly the case that the Tories took their eyes off the ball during the last few years of their period in office.
When I put it to shadow business secretary Andrew Griffith that his party didn’t exactly bequeath an agile, efficient public sector he conceded that “the malaise has gone on for decades” and that he’s “100 per cent supportive” of any effort to slim down the regulatory infrastructure. His leader, Kemi Badenoch, has said that she wants to take her time in working out a complete “rewiring” of the state ahead of the next election, so is Starmer stealing a march on her?
Not exactly.
Starmer says “I’m not interested in ideological arguments about whether [the state] should be bigger or smaller. I simply want it to work.”
Well, I am interested in the ideological arguments and I think the state should be smaller. I think it has to be smaller.
Just don’t call it austerity
In 2010, government spending as a proportion of GDP was 46 per cent, having climbed steadily from a low of 35 per cent in 1997.
What became known as austerity under David Cameron saw a gradual decline of state expenditure – falling from 46 per cent to about 39 per cent of GDP by the end of 2020.
Covid hits – and the government spends hundreds of billions of pounds in its response, taking state expenditure to a peak of 53 per cent of our entire national output.
When the pandemic receded, public spending fell, of course, but not back to its pre pandemic level, not even close. By 2023 it had settled back to around 45 per cent.
Hemmed in by economic reality, ministers are going to wield the axe at the Spring Statement. They have no choice. I’ve heard of some unprotected government departments bracing for 10 or 11 per cent cuts to their budget. That’s austerity by any measure.
But ministers are allergic to that word, so it stands to reason that the Prime Minister, mindful of the need to take his chainsaw to public spending, will frame it as reform.
Tories slash the state, but Labour will fix the state.
Tories want a small state, but Labour wants a smart state. Get it?
Starmer actually says he wants an active state – revealing that he is in fact, perfectly ideological, and he’s entitled to be, I don’t know why he shies away from it.
Do you believe for a second that he entered politics motivated by a desire to slash red tape, deregulate and shrink the public sector? Did Rachel Reeves, did Johnny Reynolds, did any of them? Of course not.
I don’t actually doubt their reforming zeal; they’ve come into office and discovered a bloated, inefficient system and, of course, they’re absolutely right about the moral and financial arguments in favour of dramatic welfare reform – something that sets Starmer up for a mighty battle with his backbenchers.
This debate matters enormously – it’s bigger than a single government or a single Chancellor or how much fiscal headroom exists in March – because it goes to the heart of the biggest questions we face, answers to which will define our future – determining our individual and collective prosperity.
I wish Starmer well with his reform agenda. Yes, deploy AI in public services. Yes, get rid of underperforming civil servants. Yes, scrap some quangos and agencies and keep regulations under constant review – but we can judge this government by their choices and they have relieved their priorities – taxes up, public sector pay rises handed out, more than 20 new quangos and regulators announced, with businesses called upon to fund all this.
All in all, it’s just very hard to picture Starmer wielding a chainsaw. He’s more of a scalpel man.