(Photo by Leon Neal/Getty Images)

Labour was elected in 2024 to rebuild Britain – not to steady the ship, but to remake it completely.  

After years of industrial decline, austerity, Brexit, the pandemic, and an energy crisis, nothing less than a full transformation will do. The current model simply does not allow that. Recent polling by More in Common shows why: 49 per cent of Britons think the cost-of-living crisis will never end, while 72 per cent feel life is getting worse. Worryingly for my Party, the same number feel like our Government is little different from the Tories who were kicked out of power in 2024.

I have said it before: we should be shouting from the rooftops about what we have achieved in just 14 months. Rising wages and major workplace reforms; Great British Energy; lower NHS waiting lists; record investment in infrastructure and national defence; breakfast clubs in every school. If we can do this much under today’s constraints, imagine what we could do with the real freedom to deliver.

But one year on, our mission of renewal is under threat.  Economic circumstances and excessive deference to independent institutions are frustrating the democratic demand for change. From the debt legacy left by the Conservatives to the rigid orthodoxy of the Office for Budget Responsibility (OBR), we are being forced to govern with one hand tied behind our back.

This isn’t just about debt. It’s about the rules, institutions, and market sensitivities that dictate what governments can do, regardless of their democratic mandate. It is imperative we as a Labour Government acknowledge and confront the economic straitjacket left behind by the Conservatives – especially the broken fiscal legacy and the unaccountable orthodoxy of the OBR.

We must first rewrite the rules if we are to renew the country.

The Real Tory Legacy: Debt Without Dividends

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There’s no denying the Conservatives did not leave the economy in sound health. They left it bloated with debt and stripped of resilience. In 2010, the UK’s debt-to-GDP ratio excluding public sector banks and the Bank of England was around 65 per cent. When the pandemic hit, it stood at 85 per cent – one of the sharpest peacetime rises in modern history.

That debt delivered neither world-class infrastructure, resilient public services, nor a productivity surge – only a decade of underinvestment, stagnant growth and weak demand. When Covid-19 and the energy crisis struck Britain was uniquely exposed. Public services were hollowed out so badly that our inheritance in 2024 was worse than in 1997: crumbling NHS buildings and schools, teacher shortages, and police forces unable to investigate thefts.

The first of the Tory Chancellors, George Osborne, inflicted crippling austerity but also failed to invest when money was cheap. He could have taken advantage of historically low interest rates to renew Britain’s infrastructure, especially outside of the South East. Instead, while claiming to be ‘fixing the roof while the sun was shining’, he increased the national debt by 13 per cent of GDP – equivalent to £400 billion in today’s money – and locked Britain into an inflation-sensitive debt trap by issuing far more inflation-linked gilts than any other major economy.

That decision, at a time of zero interest rates, now costs the country billions each year and will constrain future governments for years to come.

Conservative decisions left Britain with debt on a par with Italy’s, despite our higher tax take and better credit rating, but with nothing to show for it. The result is a public balance sheet so distorted that democratic choices are now catastrophically constrained by market sentiment.

How the OBR Locks in Decline

Yet the damage wasn’t just financial. It was institutional. The Conservatives embedded a model of governance where opaque watchdogs outrank democratic choice. Labour now runs the risk of exacerbating these issues.

Take the OBR. Originally created to provide an independent check on economic forecasts and help policymaking, it has morphed into a gatekeeper of orthodoxy. Its models often underestimate the long-term returns of public investment and ignore the wider benefits of progressive taxation or public ownership.

We now know that Sure Start centres, for example, delivered £2 of savings for every pound spent – yet their closure under Osborne was never flagged as a fiscal risk. Nor does the OBR’s sustainability report warn that childhood poverty today will mean higher costs tomorrow.

Worse, its forecasting cycle entrenches short-termism: two fiscal events a year, judged against a five-year horizon. We plan defence, housing, and climate investment in decades, yet the watchdog looks only five years ahead. In my view, the OBR should publish supplementary long-term assessments so markets can see the real savings from social investment. Without that, governments are forced into short-term fixes even though the bond market itself takes a longer view.

The recent welfare reform debacle is a case in point. Helping people who can work must be a moral mission for Labour. The Government is right that the Tories’ welfare system is a barrier to that and there are reforms which could both rebalance incentives and support people to live with dignity. Crucially, such reforms would deliver sustained savings – but most of those would fall beyond the OBR’s arbitrarily narrow five-year forecast window.

That short-sightedness distorts policymaking. With the average maturity of UK gilts at 14 years, markets already take a longer term view; governments should be able to do the same Well-designed welfare reform would not only save money but command support across the Parliamentary Party, and with time Ministers could have built a credible package.

Instead, pressure to align with the Spring forecast, compounded by a marginal downgrade, and the (correctly) self-imposed promise of one tax event per year, forced rushed proposals that quickly unravelled. It was a failure of process, as much as policy – and the brutal irony is that the process designed to reassure markets has made the prospect of long-term savings even more remote.

Then there’s the question of just how often OBR forecasts miss the mark. The Governor of the Bank of England Andrew Bailey recently made a similar point. The current framework enshrines caution over strategy. The Institute for Fiscal Studies’ new Director, Helen Miller, has called on the Government to focus on the big structural challenges, not short-term fiddling. But that’s near-impossible when every Budget becomes a high-wire act judged by markets within minutes.

And compounding these headaches for the Chancellor is yet another legacy of Osborne’s: the deal he struck on how Quantitative Tightening is managed. As the Bank of England actively sells down its QE portfolio, the Exchequer is making huge losses, as they subsidise the Bank for losses it makes on the sale of gilts. The OBR estimates a net loss of a staggering £21bn this year – almost the same amount as given to the NHS at the Budget last October – and £134bn over the lifetime of the programme.

A slower, more strategic unwind would help limit fiscal exposure to interest rate volatility. The US Federal Reserve and European Central Bank have actively halted sales of government bonds and if the Bank did the same, the Exchequer’s losses would be paused. At the very least, the Bank could be required to have regard to the public finance implications of the rate of unwinding. These technical reforms might sound niche, but they’re key to giving future governments space to govern.

And it is beyond comprehension that we have not already reformed our approach to the payment of interest on reserves held in the Bank of England reserves. Commercial banks are earning near-Bank Rate on hundreds of billions in deposits costing the taxpayer roughly £40bn a year. Other central banks, like the European Central Bank and Swiss National Bank, have introduced tiered interest payments on reserves, reducing this burden without compromising monetary policy. The idea that we must continue subsidising the banking sector at full interest while cutting investment or welfare spending is economically incoherent.

A review of QT’s pace and method, and a shift toward tiered reserve interest to match what other central banks already do, could save billions and ease pressure on spending. Alternatively, figures like Gordon Brown have suggested options like increasing the Bank Surcharge as a way of dealing with this rising problem. These aren’t fringe ideas – they are supported by former members of the Bank of England’s own Monetary Policy Committee, as well as economic commentators across the political spectrum. It’s because they are common sense reforms for a modern economy.

Time to Rethink the Toolkit

None of this is to undermine the importance of stability, but our rules and institutions must encourage boldness and long-term thinking. To her great credit, the Chancellor’s fiscal rules were reformed to allow for borrowing for investment unlocking over £100bn which will help transform cities like my own of Sheffield. But we should go further: one annual forecast, clearer headroom figures, and no corrective action for minimal misses. If it’s good enough for the International Monetary Fund then surely it should be enough for the OBR. This would give Ministers the space to design serious, long-term reforms – not scramble for short-term fixes to meet arbitrary fiscal targets.

This may sound technical, but its consequences are profoundly political. Unless Labour can govern with real fiscal freedom, the public will not feel the change they voted for. At the same time, we cannot continue to be hamstrung by the OBR simply because the Chancellor’s headroom has reduced or disappeared. No sensible policymaking is done at six-month intervals. There would be no point in even considering wealth taxes if the only thing they’d achieve was to placate the OBR for a few months.

There is a democratic argument at the heart of this as well. A Labour Government with a landslide majority in Parliament cannot – and should not – be stopped from delivering the change we clearly set out in our manifesto simply because of assumptions made by the OBR. If we let unelected institutions dictate the limits of change, we betray the people and communities who put their trust in us.

And if mainstream politics can’t deliver proper renewal, populists like Nigel Farage will fill the void. Britain’s economy is broken not just in outcomes but in architecture. Unless we rewrite the rules, we risk managed decline dressed up as moderation.

I am devastated by the departure of Angela Rayner last week, who consistently offered a challenge to the establishment orthodoxy. Her absence is a real loss to those of us who want to see bold, radical thinking at the heart of government. The reshuffle has been billed as a political reset, but if we are serious about delivering on our priorities, it must offer more than a change of personnel around the Cabinet table. What the country needs now is an economic reset: a decisive break with the fiscal rules and institutional constraints that hold back renewal. Only then can Labour turn its democratic mandate into the transformation Britain so urgently needs.

[See also: Max Caller: The man who tried to fix Birmingham]

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