Same Old Labour

Year in Review 2025, Part 1: Labour and the Economy

Shortly after Labour won their landslide victory in July 2024, Rachel Reeves declared increasing economic growth to be a ‘national mission’. No more were Labour just a party of tax and spend. No: Labour, conjuring up the spirit of Harold Wilson and his ‘White Heat’, were now a party of housing. Of infrastructure. And, indeed, of the private sector. Of — where appropriate — deregulation and reform. Science. Clean energy. Investment. The mobilisation of savings. ‘Build Baby Build.’ An active, but not an obstructive, state. No major tax rises. Fiscal rules. Kinder, but not soft-headed. Strong public services through greater efficiency, not more cash.

It was probably not on this promise that Labour won their landslide — the general hatred of the Conservative Party did that for them. But plenty of people, especially young professionals, and above all the ‘YIMBY’ sphere, did somewhat take Labour at their word. (Naming no names: at Pimlico Journal, we do not like to gloat.)

Eighteen months on, where does Labour’s growth mission stand?

Economic growth: resolving a ‘paradox’

There is, so it seems, some good news for Rachel Reeves when it comes to growth: she has trumpeted the fact that Britain is forecast to be the second-fastest growing economy in the G7, at 1.5%, with only the US growing faster. This compares to 0.4% in 2023 and 1.1% in 2024, and is significantly up from the OBR’s projection of 1% in Spring 2025. In November, the OBR also forecast that real GDP per capita would increase by 1% in 2025, meaning that this performance cannot purely be dismissed as an artefact of growing the population. This compares to a decline in real GDP per capita in 2023, and zero growth in 2024.

All of this may sound rather surprising, given the extremely negative economic sentiment in Britain. So why are people so downbeat? Despite the small but perceptible increase in real GDP per capita, real household disposable income is projected to increase by just 0.5% in 2025/26, 0.25% in 2026/27, and again 0.25% in 2027/28, principally due to tax increases. This, the OBR notes, is well below the average of 1% over the previous decade. Nor does it take much account of the distributional effects at play among working versus non-working people, or public sector versus private sector.

The labour market: freezing cold

Among the main economic indicators, perhaps the most alarming is the increase in unemployment, which reached 5.1% in October — up from 4.3% in the same period last year. If we exclude the COVID Pandemic, which was something of an aberration, this is the highest figure recorded in just over a decade. Unemployment rates have been ticking up steadily since July 2022, but over the last year we have seen a marked acceleration in this existing trend.

What happened? Most obviously, the Labour Government has increased labour costs for employers; as would be expected, this has increased unemployment. The increase in employers’ national insurance has started to bite, both in terms of reduced pay and in terms of reduced hiring. Simultaneously, the Government has imposed a rapid increase in the minimum wage: in the 2024 Budget, a huge 6.7% increase was announced; this was followed by an increase of 4.1% (to £12.71) in the 2025 Budget, coming into effect in April, distorting the labour market through wage compression. For a full-time minimum wage employee working 37.5 hours per week, yearly income under the previous Conservative Government was £22,308; the total cost to the employer, i.e., including employers’ national insurance contributions, was £24,131. From April 2026, yearly income will be £24,784; total cost to the employer will be £27,752 — a 15% increase in nominal labour costs for employers.

Additionally, there has also been the Employment Rights Act, which finally became law in December, looming over those who may be interested in hiring. The Employment Rights Act has been somewhat watered down from its original form — it only grants protection against ‘unfair dismissal’ after six months rather than from day one, for instance — and, being obscenely long (at nearly 300 pages), exceedingly complex, and reliant upon as-yet-unwritten secondary legislation to boot, is admittedly unclear in its actual effects. But what is clear is that it has bolstered trade unionism, increased legal risk, reduced labour market flexibility, and generally imposed additional costs on employers — all of which will, naturally, reduce appetite for hiring. It will also reduce economic growth: it partially unwinds our relatively liberal labour laws, which are one of Britain’s few remaining advantages over its peers (although even this is fading, with how tribunal case law is spiralling out of control, such as through the Next equal pay case; also on the horizon is the Renters’ Rights Act, which similarly gums up markets by restraining freedom of contract).

These changes have been superimposed onto a labour market that was already visibly cooling from the extremely hot period in the immediate aftermath of the COVID Pandemic, in which many companies over-hired (and are now correcting for this), plus a flood of immigrants to fill roles. The result? Rapidly rising unemployment, especially among younger cohorts, with the unemployment rate among people aged 16 to 24 reaching 16% in October, up from 14% last year. This, of course, is an understatement: it only shows us those who are actively seeking work. Since the COVID Pandemic, many people have simply disappeared from the labour market, instead claiming disability benefits or receiving support from family.

The bulk of the increase in unemployment has not been in job losses per se, but from people leaving education and finding themselves without a job. Rightly, much has been made of the so-called ‘graduate jobpocalypse’: the website Indeed reports that graduate hiring fell by as much as 33% in the last year and, anecdotally, this may be an underestimate. The mainstream interpretation of this event is that ‘AI’ has decreased the appetite for hiring. But as of yet, per surveys, there is little evidence that AI has had much tangible effect on the demand for labour in most sectors (it is possible that some companies have reduced hiring in the expectation of future productivity gains, though this is highly speculative). It is much more likely that the numerous factors explored in this section are the main culprit.

This has interacted with decreased hiring in low-wage jobs, such as hospitality, which were often used as stop-gap jobs by new graduates; now, they are simply unemployed rather than underemployed. Less discussed than the job market for recent graduates has been the impact that the fall in hiring in these sectors has had on less well-educated young people, who are looking for these jobs not merely as a stop-gap, but as a means of supporting themselves in the long term. Apprenticeships have also been declining for many years, and while the Government plans to expand these schemes, this will likely not have much of an effect for a while (and, given Britain’s history with apprenticeships, there is good reason to be sceptical much will happen on this front). Looking around the labour market, then, there is little but gloom.

Tax: surprisingly broad-based pain

Both the 2024 and 2025 budgets were major tax-raising budgets: the 2024 Budget increased taxes by £36bn; the 2025 Budget increased taxes by £26bn. The result has been historically high receipts, with the OBR projecting that tax-to-GDP will reach 38.3% of GDP by 2030/31, the highest level since 1945.

Labour inherited a tax system which, despite fourteen years of ‘Conservative’ rule, was among the most progressive in the world. The British tax system has always relied less upon taxes that are, classically, less progressive or even regressive — in particular payroll taxes and social security contributions. Historically, this was partially offset by exceptionally high excise duties (which are regressive), but this is no longer the case. It also has a tendency to heavily means-test fiscal transfers, concentrating them on the very poorest. The progressivity of this system was further increased by the rapid rise in the value of the personal allowance and the introduction of the personal allowance taper. The final result has been that the average earner in Britain is taxed little by historical standards; the top deciles are taxed heavily.

As a consequence, there seems to have been a widespread view in Labour policy circles prior to the General Election that it would not be possible to raise income taxes on ‘high-earners’ much further. (Wealth taxes were also ruled out as both undesirable and unworkable, despite much fanfare this year.) In their manifesto, Labour pledged to not increase income tax, national insurance, corporation tax, or VAT. This does not appear to have been purely mendacious or naïve: senior Labour Party politicians genuinely believed that there was very little economic space to seriously increase taxes on the wealthy, and that there was no political space to increase taxes on anyone else. Through this commitment, the Shadow Cabinet were clearly signalling to their backbenchers an intention to keep day-to-day government spending on a relatively austere path, given how restrictive a fiscal position this seemed to lock Labour into. Of course, there would be some changes: capital spending would be ‘unlocked’; certain ‘injustices’ redressed; allegedly ‘counterproductive’ cuts avoided. But there would be no orgy of spending. Departments would mostly have to make do by making efficiency gains and from the proceeds of economic growth.

For various reasons, Labour found themselves unable to stick to this plan when in Government. There was a black hole to fill; and, most importantly, there was pork-barrelling to get done — welfare and the public sector don’t pay for themselves! Spending would have to increase; as a result, so too would taxes. But their response has not been to depart from their original analysis of the economic situation — at least not entirely. Backbenchers would have to be placated by symbolic changes attacking ‘the rich’; voters would have to be deceived by avoiding any changes to headline tax rates. But the core of the increased revenue would have to come from ‘working people’.

It’s worth reminding readers of by far the two most important fiscal measures taken by Rachel Reeves in her first two budgets: an increase to employers’ national insurance contributions (from 13.8% to 15%) and a cut in the secondary threshold (from £9,100 to £5,000), which raised an estimated two-thirds of the tax increase in the 2024 Budget; and the three-year freeze on personal tax and national insurance thresholds, which raised an estimated one-third of the total tax increase in the 2025 Budget. The second of these is progressive in incidence, but only modestly so if we exclude the very lowest earners; the first is straightforwardly regressive in incidence for anyone in employment. Some other taxes of choice have included ‘sin taxes’ on gambling, tobacco, vaping, alcohol, and sugar (which are all regressive in incidence). Put together, it is likely that around two-thirds of the total tax increase in tax revenues under Rachel Reeves has been achieved by means that are regressive, flat, or only weakly progressive.

That is not to say that there have been no taxes that seek to ‘soak the rich’. In fact, we can fill a whole paragraph with these tax changes: SDLT increased on second homes (2024), ‘nom-dom’ status abolished (2024), an increase in capital gains tax and a reduction of reliefs (2024, 2025), changes to carried interest for private equity (2024), VAT imposed on private school fees (2024), changes to agricultural land and pensions in inheritance tax (2024, partial u-turn in 2025), changes to salary-sacrifice schemes (2025), increased taxes on dividend, saving, and property income (2025), and a so-called ‘mansion tax’ (2025). Yet these changes, however much fanfare they might receive both from The Guardian and The Telegraph, have not been at the core of either of the two budgets. (Only the changes to capital gains tax in 2024 and salary-sacrifice schemes in 2025 come close, the latter being particularly egregious in how it directly hits Britain’s most productive people.) A number are also changes that principally affect the very rich, rather than the merely relatively rich, and so are of less political significance — but also, therefore, of less revenue significance.

The overall result of this has been that in order to pay for their extravagant spending plans on welfare and public sector pay, Labour have spread the pain surprisingly widely, most of it by stealth, hitting virtually everyone in full-time employment. Neither of the two main measures are immediately obvious to voters, despite their broad-based effects: employers’ national insurance contributions do not appear on payslips, and fiscal drag is notorious for going unnoticed. Yet we can be quite confident that both will eventually be felt, if not understood — with predictable effects on Labour’s popularity, which is already deep underwater. The recent forcing down of Britain’s stubbornly high post-COVID savings rate may well be some early evidence of tax increases feeding through into the broader economy.

Spending: bungs to client voters

Set against planned capital spending as outlined in the 2024 Budget, there has been systematic underspending in the financial year 2024/25. It is virtually entirely in day-to-day (resource) spending and annually managed expenditure (AME), not ‘investment’, where there has been pressure on the public finances. To illustrate, consider the following departments:

• Health and Social Care overshot day-to-day spending by a massive £5-10bn, mostly driven by NHS pay settlements after the Budget, higher activity and backlog recovery costs, demand pressures, and knock-on pressures from social care funding via local authorities; it undershot capital spending by £300m.

• The Home Office overspent day-to-day spending by £1-2bn, mostly due to asylum accommodation, enforcement, and legal costs; it undershot capital spending by £200m.

• Housing, Communities and Local Government undershot day-to-day spending by £120m; it undershot capital spending by a huge £2.2bn, thanks to lower than expected uptake of housing and planning programmes by local authorities.

• Transport and Energy both significantly underspent their capital budgets thanks to project delays.

• Work and Pensions spent approximately £10bn more than expected on annually managed expenditure (AME), i.e., expenditure on benefits, thanks to policy u-turns and higher than expected payments.

• The OBR expected £105bn in debt servicing costs in March 2025 (also AME expenditure); the actual cost was nearer to £120bn.

We will explore Labour’s broader ‘investment’ agenda further below. For now, it is sufficient for us to say that, however wrong-headed taxing people to pay for more state-led ‘investment’ may be, this is not the reason for Rachel Reeves significantly increasing taxes again in the 2025 Budget.

So where did all the money go? No doubt, a reasonable chunk of this overshoot in spending — debt servicing costs — was mostly unavoidable (although the lack of market trust in Labour certainly did not help). But much of the rest was not.

Firstly, pay deals for public sector workers have been systematically above plan. In March 2024, before the General Election, Ministers were operating on the assumption that public sector pay would rise by 2% in 2024/25. In reality, after the General Election in July:

• A 5.5% pay rise was announced for teachers (3.5pp above plan).

• A 5.5% pay rise was announced for AfC staff (nurses, administrators, etc.) in the NHS (3.5pp above plan).

• The Treasury permitted departments to give ‘delegated grades’ (i.e., core civil service) pay rises of up to 5% (up to 3pp above plan).

• A 6% pay rise was announced for consultants, dentists, GPs, etc. (4pp above plan).

• Junior doctors, seeking for a 35% pay rise over two years, eventually accepted a 22% pay rise over two years in a complex pay deal (exact figure somewhat unclear from sources, but massively above plan).

It is likely that in some of these cases, 2% would not have been held by a Conservative Government either: many of these awards were recommended by pay review bodies, which would have been hard to reject. Yet the general tone — strong political inclination to generosity, immediate acceptance of demands, no real conditionality, etc. — was set for the following year. 2024/25 could be defended as a year of ‘reset’, but it is difficult to say the same of 2025/26. This year, it has become even more obvious that this Government is thought to be easy pickings for trade unions. In December 2024, Ministers were operating on the assumption that public sector pay would rise by 2.8% in 2025/26. In reality:

• Ministers accepted the pay review body’s recommendation of a 4% pay increase for teachers (1.2pp above plan).

• In May 2025, Ministers accepted the pay review body’s recommendation of a 3.6% pay increase for nurses and NHS administrators (0.8pp above plan); 4% plus £750 for junior doctors, or roughly 5.4% (equivalent to 2.6pp above plan); 4% for consultants, GPs, etc. (1.2pp above plan).

• In May 2025, the Treasury permitted departments to give ‘delegated grades’ pay rises of up to 3.25% (0.45pp above plan).

• Despite this, nine-tenths of nurses rejected the 3.6% pay offer in a consultative ballot, though no clear demands have yet been made; nine-tenths of junior doctors rejected the 5.4% pay offer (2.6pp above plan), instead seeking another 29% (26.2pp above plan) on top of the previous year’s deal, which resulted in industrial action in November. These demands were denounced as ‘unreasonable and irresponsible’. Further strikes are expected in 2026.

The result has been that public sector pay has been systematically higher than (a) inflation, (b) GDP growth, (c) GDP per capita growth, and (d) private sector wage growth. Productive private sector taxpayers are being squeezed for payrises to Labour Party client voters. Annual average total earnings growth for the public sector was 7.7% from August to October 2025; for the private sector, it was 4.0%.

Secondly, the Government has failed to constrain benefits spending, both due to u-turns and due to systematically uprating benefits. The Financial Times notes that

…the welfare bill is due to increase by £16bn by 2029-30, including £6.5bn to cover the government’s u-turns on plans to cut disability benefits and winter fuel payments, and £3bn earmarked for the abolition of the two-child benefit cap.

Disability benefits, for instance, are expected to continue their remorseless increase over the rest of this Parliament, reaching 2.25% of GDP by 2029. Again: not to do with investing in infrastructure or public services.

By contrast, there was virtually nothing whatsoever on growth in the 2025 Budget, despite this supposedly being Labour’s ‘top priority’. Nor was there much at all on investment. Instead, Rachel Reeves and Keir Starmer, under pressure from backbenchers and in the polls, have retreated back to classic Labour tax-and-spend.

Debt and the deficit: short-term stability, medium-term risks

In line with other developed countries, since 2021 UK gilts have had increased yields, putting serious, non-discretionary pressure on the public finances. Worse still, bond yields have in fact been elevated above and beyond the yields of Britain’s peers by an added so-called ‘idiot premium’ after Liz Truss’ disastrous mini-budget in 2022. In 2019/20, debt servicing costs were around £40bn, representing 1.8% of GDP and 4.4% of government spending; in 2024/25, debt servicing costs were around £110bn, representing 3.7% of GDP and 8.3% of government spending.

Bond yields have seen a further increase since the 2024 General Election, rising from around 4% on 10-year gilts to 4.5% today. Within this time period have been a number of somewhat alarming peaks: 4.9% in January, and 4.8% in March, May, September, and October. Yet it is fair to say that the situation has somewhat stabilised — for now. The bond markets were ultimately satiated by Rachel Reeves’ two aggressive tax-raising budgets. (Indeed, rather perversely from our perspective, bond markets are usually more impressed by tax increases than spending cuts because tax increases are usually more politically defensible and, most importantly of all, more locked in.) Her headroom for meeting her fiscal rules, as judged by the OBR, increased from £9.9bn in 2024 to £21.7bn in 2025.

It is no longer quite so obvious that Britain is the worst basket-case out there in terms of the public finances. The deficit fell from 5.2% of GDP in 2024/25 to 4.5% of GDP in 2025/26, and is projected to fall further to 3.5% of GDP in 2026/27. It is a cliché to say that Britain suffers from something of a mismatch between our supposedly ‘Scandinavian’ ambitions for public services and welfare and our ‘American’ expectations on tax. Is this becoming out of date? Rachel Reeves has, in her own way, genuinely attempted to resolve this: she has stuck to her fiscal rules; government spending has substantially increased, but the deficit fallen; as such, Britain is now unambiguously a high-tax country. True, much of this was achieved by stealth. True, there is little sign that public services are improving. True, most of this spending has been spent on pork-barrelling. But even this very modest fiscal retrenchment is more than can be said of many other developed countries: the United States has made no effort whatsoever to cut its deficit; France appears to be quite literally ungovernable for the foreseeable future; and, while not really comparable (thanks to its currently low debt and borrowing costs), Germany has just embarked on a major spending spree. It is true that the United States has the world reserve currency, France is implicitly backed by European institutions, and Germany is only just moving away from very strong foundations – but on this score at least, Rachel Reeves seems to come out relatively clean. There has even been a very modest narrowing of spreads under her watch.

There are, however, still a number of looming risks under the surface.

Firstly, a number of major, effectively off-balance sheet financial risks remain unresolved. Local government remains under severe pressure: demand from special educational needs, children’s social care, and adult social care have been relentless. In order to pay for this, some councils borrowed heavily from the Public Works Loan Board in an effort to fund themselves through investments; this has generally backfired, as amateurish administrators saddled councils with massive debts and, now that interest rates have increased, debt servicing costs. Nothing has been done to relieve local government of the burdens of their ever-increasing statutory duties; the only solution, then, is more money. A new financial settlement for the next three years was published this December. The headline figure is that funding will increase 5.8% in 2026/27, but this is only if council tax increases by the maximum amount without a referendum, 4.99% (yet another fundamentally regressive tax change under Labour’s watch). 43% of councils, and an especially high proportion of Tory-run councils, will still see their funding fall in real terms over the next three years.

In August, the BBC reported that local government held £122bn of debt, a rise of 7% from the previous year. On top of this £122bn figure, councils have also accumulated multi-billion pound debts from SEND which, under a temporary provision, are currently kept off-balance sheet; if moved into regular accounts, as is supposed to happen in 2028 (itself pushed back from 2026), this threatens to bankrupt many more councils.

The financial crisis in higher education has also continued, and the Government has done even less to alleviate matters than with local government. Consent was given for tuition fees for home students to rise in line with inflation from 2026, after being frozen at £9,250 since 2017. Yet there is no reason to believe that this will be even close to sufficient to offset the many financial pressures that the sector is facing. Labour is now strongly politically committed to reducing immigration, so there is little reason to believe that rules will be sufficiently loosened again to greatly help the sector; even if they were, there is substantial evidence that international student demand was already falling, especially from China. While universities are not especially indebted, at least when compared to local government, 40% of universities are currently running deficits — some very large, such as Edinburgh’s £140m deficit. Next year, 75% of universities are expected to run deficits.

Alongside local government and higher education, which are probably the most serious medium-term risks, we can also perhaps add financial risk from social housing providers and heavily-indebted utilities (especially Southern Water, South East Water, and Thames Water).

But even more serious is the character of the spending plans of the 2024 Budget and the tax plans of the 2025 Budget. Whereas the 2024 Budget frontloaded the fiscal pain on the tax side, introducing the changes to employers’ national insurance from April 2025, the 2025 Budget heavily backloaded it: for instance, changes to salary-sacrifice schemes are not taking place until April 2029, the ‘mansion tax’ will only be introduced in April 2028, and fiscal drag is backloaded by its very nature (as it takes effect over multiple years and becomes more intense over time through successive freezes compounding).

Meanwhile, very optimistic assumptions are being made about the capacity for departments to make savings, almost all of which are pencilled in for the latter years of this parliament. The Financial Times writes:

The second assumption is that the government will follow through on plans to squeeze day-to-day spending on public services in 2029-30, pencilling in £4bn less than it had previously budgeted for… Overall spending on public services would still rise by 0.5 per cent in real terms in 2029-30, but if the government continued to prioritise the NHS, education and defence, this would imply real-terms cuts of £6.4bn to other departments between 2028-29 and 2029-30, the Resolution Foundation said. This would be close to the scale of cuts made during the “peak austerity years” in the decade preceding the pandemic, it added.

This seems implausible for an unpopular government as it goes into an election.

Public and private investment: a big fib?

Upon their election in July 2024, central rhetoric to the Labour Government was ‘investment, investment, investment’. Whether it was private sector investment, public sector investment, or some mixture of the two, the diagnosis was clear: Britain wasn’t investing enough; this had led to low productivity growth, and therefore economic growth also. Investment, in this analysis, was the wellspring of economic growth — a position that has a long history in Labour Party circles, all the way back to 1945. This idea was revived during the years of ‘austerity’ in which, so it seemed to many analysts, even many right-wing analysts, the Conservatives allegedly failed to take advantage of low interest rates. They had also failed to mobilise the resources and organisational capacities of the state properly (hence the popularity of economists like Mariana Mazzucato and her notion of an ‘entrepreneurial state’).

This entire analysis became somewhat out of date even before Labour entered Government: interest rates and debt servicing costs had increased; gilt markets were jittery; there seemed to be no room for any dramatic expansion of borrowing after Truss. Yet the basic sentiment around the importance of investment remained. Where do we stand today?

Since 2008, investment in Britain has been extremely low. There is no sign that this has turned around. The most recent data release suggests that total investment (both public and private sector) was 18.6% of GDP, broadly unchanged from the previous two years and still by far the lowest in the G7. With falling business profits, business investment is expected to decline as a proportion of GDP, from 10.75% forecast in 2025 to under 10.5% by 2030. As such, there is no evidence that the drive for increased investment outside of the public sector has succeeded. And why would it have succeeded? On balance, nothing much was offered in the way of incentives for businesses to invest: Reeves gave with one hand (new first year allowance) but took with the other (lower write-down allowance on plant and machinery). Much of what else was on offer at the 2025 Budget would have the effect of reducing profits and increasing costs. Labour still have little conception of why the private sector is not investing, aside from a vague idea that they’re just too short-sighted to do it.

The story is a little more complex when it comes to public sector (and other state-backed) investment, but it is still fair to say that this is not a government that has overseen a genuine boom in public sector investment, thus helping justify tax rises from the perspective of a growth-orientated statist. In a number of cases, existing commitments inherited from the Conservative Government were simply continued: Hinkley Point C would be built; HS2 would indeed reach Euston; existing commitments to East West Rail were reaffirmed. Generally, Labour acted to protect existing commitments (such as through modifying the fiscal rules to be more friendly to capital expenditure), some of which were in doubt, but did not greatly expand them. There is little sign that any of the Labour Government’s new vehicles, such as the National Wealth Fund, are poised to do much of significance. Heathrow’s expansion looks more likely to go ahead, but progress remains glacial. More money will be thrown down the drain on windmills. Overall, under Labour we’ve seen much talk, a lot of consultations, a few new frameworks — but we haven’t seen much that is genuinely new.

Two exceptions to this rule stand out. First, the development consent order (DCO) for the Lower Thames Crossing was approved in March 2025 (though this request from Highways England predated the 2024 General Election); around £3.1bn of taxpayer funds are now expected to be committed to the project. Second, the final investment decision (FID) for Sizewell C was made in July 2025; this came after widespread speculation that the project would be cancelled after China’s CGN was forced off of the project and construction costs spiralled. The funding model for Sizewell C is very complex, but if we have to give a single figure, the easiest would be the £14.2bn of capital financing it was allocated in this year’s Spending Review (though we should note that ‘more investment’ is not a good in itself; it is only good if it actually delivers value for money, which is certainly up for question with Sizewell C).

Another area of serious disappointment for many younger Labour Party activists has been the Government’s record on housebuilding and planning reform. Before the election, Labour pledged to build 1.5 million houses over five years. Also pledged were a number of ‘new towns’. It wasn’t just naïve think-tankers who bought this: housebuilding stocks rallied after Labour’s landslide victory, despite many housebuilders immediately warning that high interest rates meant there was insufficient demand to incentivise more building in any case.

Tory housebuilding targets were modified, with the North seeing big increases in their targets, and London seeing big reductions – thus shifting building away from areas of highest demand. This spring, the OBR forecast that Britain would only manage to build 300,000 houses per year by 2029 — by definition well short of the 1,500,000 target over five years. There were also continued murmurs about a continued shortage of town planners, leading to bureaucratic delays, despite a Labour pledge to tackle this. Some consultations for minor (though useful) planning reforms were announced in December to much fanfare — a new presumption in favour of development near train stations, for instance — but there is little reason to believe that it will be sufficient to kickstart a housebuilding boom (if indeed they even end up happening).

There is very strong evidence that there has been a severe slump in the construction market: in November 2025, the S&P Global UK Construction Purchasing Mangers’ index fell to 39.4 (50.0 represents no increase or decrease in activity), the eleventh consecutive month with a contraction of activity; within the index, residential building has been among the weakest-performing areas of construction — even within a generally heavily contracting construction market, which has had some of this contraction offset by strong growth in private industrial work (e.g., data centres). This probably still underestimates the decline for the sector as new orders have collapsed and much of the continued activity can easily be attributed to orders from 2021 and 2022 that have not yet been completed. Housebuilding was especially low in London, the area with, prima facie, the highest demand (and the highest prices), with just 2,040 housing starts in the first half of 2025 (the Labour Government’s target is 88,000 home completions per year in London).

Conclusion: Same Old Labour

So where does this all leave Labour — and indeed the British people — as we begin 2026? It leaves us a country with low growth and rising unemployment. It leaves us in a country which is not just avoiding serious regulatory reform, but actively piling on red tape through new legislation. And, perhaps most importantly, it leaves us in a country where taxes will remorselessly increase in order to pay for the transfer of wealth from the productive towards Labour Party client voters in the public sector and welfare claimants. There was, as we noted, even less in Rachel Reeves’ second budget on growth than there was in her first. It is, in three words, ‘Same Old Labour’.

It may have been true that when they entered office, ‘growth’ was Labour’s first priority. Eighteen months on, however, and this mission is nowhere to be seen — even by Labour’s own (dubious) metrics of what achieving this growth mission would mean. Labour have, predictably, devolved into a classic party of tax-and-spend, and, worse still, tax-and-spend orientated in the least productive direction possible. It is now evident (even though it should have always been evident) that no serious economic growth will ever be achieved by a left-wing government in this country. State-led, social democratic economic development is a fantasy. Even when Labour know what needs to be done — and, to a certain extent, some Labour figures do know what needs to be done — their idiotic fellow-travellers will simply not permit it. Politics dictates keeping the public sector happy; ideology dictates keeping Britain’s growing host of parasites happy. The result is that the private sector will be squeezed — if not out of enthusiasm, then out of necessity — and, unsurprisingly so too will growth, productivity, and disposable incomes.

There is little to be optimistic about in the year ahead. We can only hope that those naïve enough to believe in Labour’s growth mission in July 2024 have now learned their lesson.

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This article was written by Nigel Forrester, our editor-in-chief, and Francis Gaultier, a Pimlico Journal Contributor. Have a pitch? Send it to submissions@pimlicojournal.co.uk.

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