Britain’s Economic Model Is Crumbling, but Its Politicians Don’t Want to Face Reality

In a recent article for Foreign Policy, economist Simon Tilford noted that the situation today is far worse than it was in the 1970s — a decade that has gone down in legend as the low point for postwar Britain:

Although the UK was a relative growth laggard during the 1970s, this was nothing in comparison to today’s current collapse in living standards. Average UK real wages are now lower than 18 years ago, which is unprecedented in the country’s peacetime economic history. On most measures, the country has the most limited welfare state of any developed country, including the United States . . .

There is also an unprecedented housing crisis, with young people increasingly excluded from home ownership if they cannot access family wealth. Public services are under unprecedented pressure, especially health care. Excess deaths have risen while Britain is the only country in Europe suffering from declining life expectancy.

Tilford is no left-wing radical: before taking up his current post at the Oracle Partnership, he worked as an advisor for the European Commission and chief economist for the Tony Blair Institute. He highlighted Britain’s structural trade deficit — largely unknown during the 1970s — as another key problem:

Were its economy growing rapidly, driven by high rates of capital investment, this would be less of a concern. However, it is not. Britain faces a deepening economic growth crisis, not least because business investment is running at the lowest level in the G-7. The trade deficit matters: the trajectory is unsustainable, implying as it does a rapid increase in liabilities to the rest of the world.

Writing in the Financial Times at the end of last year, John Burn-Murdoch drew up a similar indictment: “Twelve years on from the start of austerity, the data paint a damning picture, from stagnant wages and frozen productivity to rising chronic illness and a health service on its knees.”

Tilford observed that there was “little sense of this crisis among the country’s elite, not least its politicians.” He attributed this complacency to the power of media narratives and the social interests that underpin them:

In a very unequal society, people with the influence to sustain narratives tend to be insulated from what is happening to most of the population. Many individuals genuinely think the country’s economic situation is better than it is because their personal circumstances are strong. They are among the higher earners and have wealth to cushion themselves against risk. In the UK, they also tend to have generous private pensions and usually bought their houses before prices rose dramatically relative to earnings.

In the absence of an honest reckoning with the realities facing Britain, Tilford predicted “social unrest, a loss of respect for political institutions, and growing ungovernability.”

A report in the Observer earlier this month reminded us of where the British political class had directed much of its surplus energy while this calamity was unfolding.

The newspaper’s political editor Toby Helm described an “extraordinary cross-party summit bringing together leading Leavers and Remainers” to discuss “the failings of Brexit and how to remedy them in the national interest.” Those in attendance included senior Conservative and Labour politicians such as Michael Gove and David Lammy, as well as leading diplomats and civil servants.

According to Helm, this “highly unusual” cross-party gathering reflected “a growing acceptance among politicians in the two main parties, as well as business leaders and civil servants, that Brexit in its current form is damaging the UK economy and reducing its strategic influence in the world.” The summit papers stressed that “rejoining the EU will not be on the agenda” but raised the prospect that a future government, whether Labour or Conservative, might use a scheduled review of the Brexit agreement in 2025 to reduce trade frictions with the EU.

Brexit is not responsible for the current social crisis. David Cameron and George Osborne started hacking away at public services long before they called a referendum on Britain’s EU membership in 2016. But the terms on which Boris Johnson took his country out of the EU have exacerbated the problems facing the British economy.

The chairman of this high-powered summit was Peter Mandelson, a Labour peer and former EU commissioner who is one of Tony Blair’s closest political allies. His involvement cast an unflattering light on the proceedings, since he was attempting to help mitigate a problem that he did his very best to create.

In December 2020, as Boris Johnson’s government was concluding its negotiations with the EU, Mandelson warned that it would be “a very hard Brexit, mitigated only by a barebones deal that will help us over tariffs but keep all the customs and other frictions that will impede Britain’s trade and supply chains.” As one of the leading architects of the anti-Brexit People’s Vote campaign, he took partial responsibility for the outcome:

This is the price we will pay for the triumph of hardline Tory Brexiters over those with a stronger sense of national interest in their party. It is also the price the rest of us in the pro-EU camp will pay for trying, in the years following 2016, to reverse the referendum decision rather than achieve the least damaging form of Brexit.

However, Mandelson insisted that he had no regrets about pursuing a maximalist anti-Brexit line:

If I could turn the clock back, I have little doubt I would do the same again. In such a narrow referendum result, and on an issue of such fundamental national importance, holding a second referendum on the terms of our Brexit departure, with all the hard facts available, was right to campaign for.

Those who have followed Mandelson’s career since the 1990s may find it hard to believe that he suffers from an excess of political idealism. In fact, his principal objective during the crisis of 2018–19 was not to prevent Brexit from happening. It was to block the election of a left-wing Labour government with a policy agenda that would overturn the legacy of Thatcherism.

In their book Left Out: The Inside Story of Labour Under Corbyn, Sunday Times journalists Gabriel Pogrund and Patrick Maguire describe a meeting of Labour MPs that Mandelson convened in the summer of 2018. The MPs, who included Labour’s deputy leader Tom Watson, had different views about what the party’s Brexit policy should be — some represented constituencies with a large pro-Remain majority, while others had their base in Leave-voting strongholds:

What they did agree on made that difference in opinion seem much less fundamental. All of Mandelson’s guests longed for the day [Jeremy] Corbyn was no longer leader of the Labour Party, regardless of whether that sweet release came inside of the EU or out. To Mandelson, no stranger to a schism for schism’s sake, that is what really mattered. It pained him to see the anti-Corbynistas blinded by questions of customs unions and single-market alignment.

In pursuit of this “sweet release,” Mandelson formed a close partnership with Tom Watson, with whom he had previously been on poor terms. Pogrund and Maguire offer a verbatim transcript of their private discussions that presumably came from one or both of the two men:

“I’m never going to let you down,” Mandelson told Watson. “I’ll always help you. I’ll always be there.”

“We will go on this journey together,” Watson said. “Everything that we decide to do, we’ll decide to do together.”

This account suggests a far more plausible motivation for Mandelson’s approach to the Brexit crisis than a passionate belief in doing what he considered right.

Quite simply, the Labour right is much less hostile to the Conservative Party than it is to the Labour left, which took over the party leadership for the first time between 2015 and 2019. Mandelson has far more in common with Michael Gove than with Jeremy Corbyn, just as the current Labour shadow chancellor Rachel Reeves has far more in common with George Osborne than with Corbyn’s ally John McDonnell.

This is not simply a question of ideology: material interest also plays an important role in shaping these affinities. Mandelson has become a wealthy man from his involvement in politics and evidently enjoys the company of the very rich, from Russian billionaire Oleg Deripaska to the late financier Jeffrey Epstein. His firm Global Counsel works tirelessly on behalf of major corporations like Centrica and Uber — in return for the right fee, of course.

Labour’s plan to take a cluster of privatized utilities back into public ownership threatened Mandelson’s interests in a way that Brexit never could. Other politicians from the Labour right may be less diligent in feathering their own nests but have still managed to do rather well out of their political careers. After stepping down as an MP, Tom Watson took up a job working for Flutter Entertainment, the world’s largest online gambling firm.

Labour’s policy after the Brexit referendum was to accept the principle that Britain was going to leave the EU and focus on the terms of the exit. That left a wide range of possible outcomes, from a so-called soft-Brexit deal — “the least damaging form of Brexit,” as Mandelson would put it — to the diamond-hard model that eventually materialized under Boris Johnson’s stewardship.

The electoral logic behind the policy was clear: Labour’s voting base broke down approximately two-thirds to one-third between Remain and Leave, with the Leave supporters heavily concentrated in marginal constituencies that Labour might easily lose if these voters defected to the Conservatives or stayed at home. A softer version of Brexit would be more acceptable to Leave voters while avoiding most of the problems that Remain voters feared would arise if Britain left the EU.

Before the 2017 general election, staunch opponents of Jeremy Corbyn from Labour’s right-wing tendency such as Tom Watson and Chuka Umunna were vocal in their support for this line. After the unexpected breakthrough for Labour in that election, with a 10 percent increase in the party’s vote share, they changed direction and began insisting on a maximalist anti-Brexit line. For all the turbocharged rhetoric deployed by Watson and his allies, their goal was not to achieve any particular outcome in relation to Brexit but rather to use it as a wedge issue that could damage their own party.

The same all-or-nothing approach guided the strategy of the People’s Vote campaign, which was dominated by figures from the Labour right such as Mandelson and Alastair Campbell. The campaign’s director of communications Tom Baldwin later described the arguments that raged behind closed doors:

There was always an issue about how much the People’s Vote campaign should be a stick with which to beat the Labour Party rather than a neutral instrument for just winning a People’s Vote. I was trying to maintain some strategic discipline around the latter but there were constantly people who wanted it to be an anti-Labour thing, an anti-Corbyn thing . . .

If Baldwin was indeed “trying to maintain some strategic discipline,” his efforts were crowned with failure. Those who wanted People’s Vote to be “an anti-Labour thing, an anti-Corbyn thing” prevailed all down the line. During the winter of 2018–19, when Theresa May returned from the Brexit negotiations with a deal she was unable to push through parliament, the avowed goal of the People’s Vote campaign was to eliminate the possibility of a soft-Brexit deal along the lines proposed by Labour as an alternative.

Having insisted that nothing less than a new plebiscite on Brexit would do, the erstwhile anti-Brexit campaigners immediately moved the goalposts as soon as Labour did commit to holding a second referendum. Instead of seizing the opportunity to achieve their self-proclaimed goal, they put up new obstacles to unity against Boris Johnson’s drive to “get Brexit done” on the hardest possible terms.

Pogrund and Maguire describe Watson’s behavior in this period as an exercise in deliberate wrecking, “pushing the limits of Labour’s Brexit policy beyond the realms of political possibility” — a comment that could just as easily be applied to his fellow travelers.

They got what they wanted at the end of 2019: an election polarized around the issue of Brexit, with Labour perilously exposed in constituencies across northern England, Wales, and the Midlands because of its second-referendum policy. The predictable result was a Conservative landslide.

So far as Mandelson and his allies were concerned, that was the ideal outcome, since it enabled them to regain control of the Labour Party in the leadership contest that followed. Britain’s relationship with the EU was collateral damage along the way.

We can’t say for sure what the outcome of the Brexit crisis would have been if they had acted differently. The Conservative Party and its press allies stood in the way of anyone trying to contain the fallout from David Cameron’s referendum. A powerful bloc of interests was determined to maintain the Tories as a viable political force, no matter what the consequences might be.

However, one thing is beyond dispute: throughout the Brexit crisis, the main strategists of the Labour right prioritized the struggle against their inner-party opponents above all other considerations. If they could only prevail in that struggle after a shattering electoral defeat that cleared the way for a chaotic hard-Brexit deal, that was a price they were more than willing to pay.

This assessment of their motives relies upon their own statements in a series of articles, speeches, and interviews, both on and off the record. Labour’s right-wing tendency was much more vehemently opposed to the policies that Corbyn and McDonnell put forward between 2015 and 2019 than it was to any Conservative manifesto of the last decade. Few subjects in British public life receive such poor reporting as the internal politics of the Labour Party, but the evidence is there for anyone who cares to examine it, in books like Pogrund and Maguire’s Left Out and many other sources.

We do not have to credit Mandelson, Watson, or any other figure from the Labour right with extraordinary powers. Mandelson in particular has developed a quasi-mystical image as a master of the dark arts — “a man who can change the game, a lucky general, an infinitely wily opponent,” as Martin Kettle once put it in a breathlessly sycophantic article that compared him to Winston Churchill and Erwin Rommel in the space of two paragraphs. In reality, Mandelson is only formidable to the extent that he acts on behalf of Britain’s power elite.

The period in which the Labour right defined Brexit as a matter of existential significance on which no compromise was possible began the day after the 2017 election and ended as soon as Keir Starmer became the new party leader. By the end of 2020, Starmer was whipping Labour MPs to vote in favor of Johnson’s Brexit deal, without facing any backlash from the self-styled anti-Brexit ultras of the liberal broadsheets.

Seeking to repair the electoral damage that was so carelessly inflicted in constituencies with a majority of Leave voters, Starmer has ruled out rejoining the European single market or customs union, let alone the EU as a whole. Mandelson’s exercise in post-Brexit damage limitation must now operate within these parameters. But the companies that run Britain’s privatized utilities need not worry about the threat of nationalization, so it’s not all bad news.