Labour has failed on the economy and voters punished them for it, writes Jeremy Hunt

3 May 2025, 10:57 | Updated: 3 May 2025, 11:02

By Jeremy Hunt

The local elections this week were devastating for the two major parties as large numbers voted for ‘none of the above.'

Last July voters told us why they didn’t want to vote Conservative and we have started the long and painful journey to regain trust with those who rejected us.

But much more shocking is the speed with which the country has fallen out of love with Labour so soon after its landslide. We were put in the sinbin mainly for our failures on immigration.

But for Labour, it is failures on the economy that has seen them join us.

There were plenty of economic challenges when we left office. But we did leave Labour with an economy that had successfully weathered the storms of Covid and Ukraine. Inflation was down from 11% to 2%, we avoided a deep recession and we were growing faster than any other G7 country.

We were at least starting the long journey of raising productivity – and therefore living standards – by cutting business taxes to boost investment. We were getting people back into work through childcare and welfare reform.

Donald Trump has upended the international order but we must be honest that he is not the main cause of the problems we face.

Because our economy is a big services exporter we will not be as badly impacted by tariffs as countries that depend on manufacturing exports.

Yet last month, the IMF downgraded the UK’s growth projection for 2025 to just 1.1%. The IMF Chief Economist Pierre-Olivier Gourinchas said domestic factors were the primary reason – in particular higher gilt yields and weaker private consumption at the end of last year.

That happened because the budget killed confidence and knocked investment with a massive hike in business taxation. The Resolution Foundation says that the employer national insurance rise combined with the minimum wage uplift will cost 85,000 jobs.

Unfortunately the bad news doesn’t stop there. The Chancellor’s waver-thin headroom is likely to be destroyed by the lower growth forecasts.

As she considers how to balance the books, the risk is that Rachel Reeves opts once again for growth-destroying business tax rises when she comes to the budget in the Autumn.

I am not a Labour supporter but I want Britain to succeed. We desperately need to get out of this economic doom loop. And there are only two shows in town to do so: welfare reform and public sector productivity. We have more than three million adults of working age on benefit and not even required to look for work – we need as many of them as possible in work and paying tax.

And we need better value for money from the taxes we spend. Efforts by the government in both areas have been timid but there is still time.

On welfare reform, Labour’s current plans amount to no more than tinkering. The government’s own impact assessment still expects – even after the reforms announced in the budget – a 24% increase in the number of working age people receiving disability benefits.

You heard that right: after Labour’s so-called reforms there will be 750,000 more people on benefits by the end of the decade.

Reforms are very sensitive and should be approached with compassion and decency. But we also need to be honest that a life on benefits is bad for wellbeing and mental health.

Unfortunately because of the way poverty statistics are calculated, most reforms lead to difficult headlines. But the long term route out of poverty is work not welfare. Conservative governments took many difficult decisions such as introducing universal credit – strongly opposed by Labour at the time. But after 14 years there was no rise in inequality and the number of people in absolute poverty actually fell by more than a million.

If we reduce the working age benefit bill down just to where it was before the pandemic – so to 2019 levels – the government could save a staggering £47 billion a year.

That’s a huge amount. It won’t happen overnight but would be perfectly possible over a parliament, not least because we no longer have a pandemic. We would then have more money for the NHS and social care. We could even put defence spending up to 3% of GDP.

But there is something else that will also help us out of the doom loop. If we are going to raise living standards, economists agree we need to raise productivity. That’s not easy to deliver – it requires more investment by businesses over many years.

But there is one part of the economy over which the government has direct control, namely the public sector. It alone – through the NHS and other public services – accounts for 20% of GDP. That should be the first port of call when it comes to raising productivity, which is why it was a huge mistake to give a £9.4 bn pay rise to public sector workers without asking for any productivity improvements in return. Teachers and nurses are now saying they may strike again this year – given it worked before, who can blame them?

A government elected to be the ‘most pro-growth in history’ got off to the wrong start by delivering one of the most anti-business budgets in history instead. But that doesn’t mean it can’t turn things round. The best way to tackle the anger and disillusion people feel demonstrated in the local elections is to tackle our anaemic growth.

That would mean we had more money for public services and could avoid further damaging tax rises. With a dose of political courage, it can be done. Over to you Rachel.

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