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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
If Brexit ought to have taught the UK one thing, it was that once people no longer feel the system is working for them they will be open to radical — even self-harming — alternatives.
Nine years on from that referendum, ever larger numbers feel they live in a country that is letting them down. And this feeling is especially acute among younger workers, the later millennials and early Gen-Zers turning in rising numbers to populist parties both left and right.
Yet last week’s Budget showed a government plodding steadfastly towards the guns of electoral showdown. Keir Starmer did not create this problem — the damage done by the Conservatives cannot be overstated — but it is making matters worse.
The consequences are far wider than just for Labour. Capitalist liberal democracy relies on a belief that the interests of ordinary voters are sufficiently aligned with the interests of the more successful. The shares of the pie, of course, are unequal but the have-nots must see a path to becoming haves; the have-somes to having more. The chance of a home, a job that more than covers the bills, prospects for their children and so on: this is the stake in the system that creates that alignment of interests and embeds political stability.
The central crisis of western politics since the financial crisis has been the erosion of this promise. For what happens to liberal democracy and the capitalist model when rising numbers question if they will ever have that stake?
We can see an answer in the levels of support for insurgent parties peddling nonsense economics. Nigel Farage’s Reform UK has led in the opinion polls for most of the year. Meanwhile, the charismatic new leader of the Greens has taken his party to second place among 25- to 49-year-olds, advocating defiance of the markets with an inflationary borrowing spree and taxing the richest out of the country.
All of which brings me back to last week’s Budget. Any government with an interest in long-term political stability ought to be thinking hard about why so many young people are wandering into the arms of economic populists.
The overriding mission must be to do whatever it takes to get the economy motoring. Yet after a brief pick-up, real household incomes are set to stagnate once more over this parliament. For all the things it is getting right (planning reform, more investment in infrastructure), over two Budgets and almost 18 months Labour has added costs and regulation to business and increased taxes on working people.
Its response to the cost of living is more state support (or enforced minimum wage rises) but the priority now has to be growth. Stagnating living standards and reduced prospects can in the current climate only drive people towards populism.
Increases in the minimum wage, especially an outsize rise for 18- to 20-year-olds, look like a win for the young and poorly paid. But, when added to last year’s employer national insurance rise and extra workplace rights, it has made them a less attractive option for employers. The Conservative CPS think-tank says that the cost of hiring an 18- to 20-year-old will rise by £4,095 by next year. The combined effect can be seen in rising youth unemployment.
Even those beginning to enjoy success at work are feeling the squeeze. The Tories began the freeze on income tax thresholds but Reeves’ continuation of it could cost someone on £50,000 more than £8,000 in extra tax over the three years. The proposed removal of tax perks around salary sacrifice will almost certainly reduce pension saving.
And while the triple lock on state pension uprating remains in place and pensioners are offered partial protection from the threshold freeze, graduates have been offered no similar protection. The point at which loan repayments start will not rise in line with inflation (even as fees are).
The long-term trends are no more cheering. The average age of a first-time buyer in England is now 34, up from 32 five years ago. Home ownership levels among working-age adults are far below those seen 25 years ago (though there has been a recent revival).
Younger citizens with access to the bank of mum and dad, a network of family contacts or the prospect of an inheritance to get them on the housing ladder, can still look forward with confidence. But the overall impression continues to be of a system loaded against younger workers, paying more to fund older citizens with assets.
It is not that Labour is doing nothing. But its supply side reforms feel slow and incremental and hobbled by moves that add cost and regulation.
Having spent the last month explaining the damage done by Brexit, the government now promises only minor tweaks. Many within Labour now believe it will have to go into the next election promising the steps to rejoin the EU customs union or single market. But by then voters may already have concluded Labour has had its chance. Unless the AI bet comes good, and at pace, it is hard to see the path to dynamic growth that dissuades voters from pursuing radical alternatives.
The challenge for this government — and for politics generally — is to convince voters the system works for them. A country that does not serve its working generations cannot be surprised if they look for answers elsewhere, however destructive the solutions on offer.