"Where is the economy heading?"—it's a question Britons have been asking for quite some time, and with Labour’s return to power, many were hopeful for a clear and positive shift. Yet, ten months into the new government, doubts have begun to surface about whether Labour’s economic plan is truly delivering.
According to Professor Abhinay Muthoo—Research Lead and Fellow at the National Institute of Economic and Social Research (NIESR), Visiting Professor at the Meghnad Desai Academy of Economics (MDAE), and Lead Academic of the UK Cross-Party Youth Violence Commission—progress may take time, but the direction is promising.
Here’s what he had to say as he spoke to Asian Voice.
How would you describe the key economic traits of Labour’s first 10 months? Has their strategy matched election promises, or was Rishi Sunak right to call PM Starmer’s goals unrealistic?
The first 10 months of Labour government under Keir Starmer and Rachel Reeves have been defined by a clear pivot towards economic stability, investment-driven growth, and structural reform. Their strategy - what Reeves calls “securonomics” - focuses on boosting infrastructure, skills, and clean energy while maintaining fiscal responsibility.
Key steps, like establishing Great British Energy, reforming planning laws, and enhancing workers' rights, show Labour is delivering on its growth-focused manifesto. However, persistent global pressures and higher-than-expected borrowing have slowed short-term progress, and public confidence remains fragile.
That said, many of these challenges are inherited, not created. Far from being farfetched, Labour’s ambitions are grounded in a pragmatic, long-term rebuilding of the economy - but patience will be essential before the full effects are seen.
Labour’s budget brought major tax hikes—on businesses, inheritance, non-doms, and National Insurance. How have these changes impacted business investment and economic confidence?
The October 2024 Budget marked the most substantial tax increase since 1993, with £40 billion in new levies primarily targeting businesses and high-net-worth individuals. Key measures included raising employer National Insurance contributions from 13.8% to 15% and lowering the threshold to £5,000, alongside higher capital gains and inheritance taxes, and the abolition of the non-domiciled tax regime.
These tax changes have notably impacted business sentiment. Business confidence has declined to a two-year low, with 56% of firms citing the tax burden as a growing challenge. Additionally, capital gains tax receipts fell by over £1 billion, attributed to the departure of wealthy individuals following the abolition of the non-dom regime.
While these fiscal measures aim to fund critical investments in public services and infrastructure, their immediate effect has been a dampening of business investment and economic confidence. The long-term success of this strategy will depend on the government's ability to balance fiscal responsibility with policies that foster a conducive environment for business growth.
With all the reforms planned for the NHS, social care, housing, etc., do you think that the government has enough money to make it all happen, especially the complete overhaul of the NHS?
The Labour government has committed to significant reforms across the NHS, social care, and housing sectors, backed by substantial funding allocations. Notably, the October 2024 budget introduced a £22.6 billion increase in NHS funding over two years, alongside a £3.1 billion boost in capital investment, including £1 billion earmarked for hospital repairs and rebuilding projects.
However, experts caution that these investments may still fall short of what's needed for a comprehensive overhaul. For instance, NHS leaders have indicated that an additional £6.4 billion annually is required to enhance productivity and address long-standing infrastructure deficits.
In social care, the government announced up to £3.7 billion of additional funding for local authorities in 2025-26. Yet, the sector faces a financial crisis, with nearly one in five supported housing units at risk of closure due to funding cuts and rising costs, potentially leaving tens of thousands homeless.
While the government's funding commitments are substantial, the scale of the challenges suggests that further investment and strategic planning will be essential to fully realise the envisioned reforms.
What long-term strategies should Labour adopt to ensure sustainable growth and better living standards?
Labour has laid strong foundations with its emphasis on investment in infrastructure, skills, and clean energy. But to deliver sustainable growth and improved living standards, a few key strategies are essential:
First, productivity must be the core focus. That means accelerating planning reform, sustaining major infrastructure investment, and creating stronger incentives for private sector R&D. Raising productivity remains the most powerful route to higher wages and living standards.
Second, Labour should build a full-scale green industrial strategy. Great British Energy is an important start, but the UK must lead in areas like green manufacturing, energy storage, and carbon capture - creating skilled jobs across all regions.
Third, human capital investment must go deeper. The New Skills England initiative is important, but success depends on a major, long-term transformation of vocational education, lifelong learning - and crucially, renewed investment in our universities, which are world-class assets for innovation, skills development, and economic dynamism.
Fourth, regional inequality must be addressed with real devolution of fiscal powers to cities and regions, empowering local leaders to drive place-based economic growth.
Finally, financial stability remains important - but the current fiscal rules need to be adjusted to better support the growth agenda. While maintaining credibility with markets, Labour should allow more flexibility for productive investment that strengthens the UK's economic capacity over the long term.
