Labour has to decide whether to be compensatory, not confiscatory

Starmer’s instincts are the right ones – his challenge now is to turn them into an appealing policy offer

To win an overall majority at the next general election, Labour needs to gain Conservative-held seats in the south of England as well as regaining the red wall in the north and Midlands. Like Labour, the Liberal Democrats did well at this month’s local elections in England, and Ed Davey’s party is causing jitters for some Tory MPs in the party’s southern blue wall. But Starmer knows that Lib Dem local election gains do not always translate to parliamentary seats.

In a speech to the Progressive Britain think tank on Saturday, the Labour leader repeatedly promised his party would champion "working people”, but also pitched for the votes of Middle England, which Tony Blair hoovered up in 1997. Starmer argued that his values – such as service, respect and stability – could fill the gap left by a Conservative Party, which “can no longer claim to be conservative”.

It was an appeal to the many “don’t knows” who are disenchanted with the Tories but have not yet crossed over to Labour. One message for this group is that Labour will reform public services, and that pumping in more money is not the only prescription. Just as well, when an incoming Labour government will not have much.

A key litmus test for such voters is whether Labour would run a “compensatory or confiscatory” government. I’m told that Starmer wants it to be the former. This helps to explain his decision to drop his Labour leadership election pledge to raise income tax for the top five per cent of earners.

Some Labour figures want to pledge a tax rise for high earners, with the revenue earmarked for the NHS, but they do not appear to be winning the argument. When Angela Rayner hinted that capital gains might be taxed like income, Rachel Reeves, the shadow chancellor, ruled out the idea. Starmer has also ditched his 2020 promise of “common ownership of rail, mail, energy and water”, although tougher regulation of the utilities would cost taxpayers nothing and could be more effective.

What would a “compensatory” approach mean? Starmer still has to flesh it out. Close allies insist he is deadly serious about a strong partnership with business. So is Reeves, who impresses company bosses she meets during Labour’s “smoked salmon and scrambled eggs offensive”.

The partnership would see a more active industrial strategy, but the government would complement rather than dictate to business. It’s a pragmatic choice: Labour would need to incentivise and lever in private investment for its “green prosperity plan” and to hit net zero targets.

Not for Starmer, then, would be Ed Miliband’s division of business into “predators or producers”. One close Starmer ally told me: “A partnership with business is at the heart of Keir’s being. The idea of being confiscatory would never enter his head.”

A compensatory approach might also mean tackling the scourge of in-work poverty to “make work pay” rather than raising benefits for the jobless. Starmer has dropped his 2020 pledge to abolish universal credit. He offered some clues in yesterday’s speech, saying that “respect” would be his guide and “unlocking aspiration” his “cause” – values the Tories would like to claim as their own.

However, a Labour government would intervene in some areas. “There’s no hope in these times for a stand-aside state,” Starmer said. For left-wingers who accuse him of swallowing the Blair playbook, he can point to his plan to levy VAT on private school fees, which critics regard as a confiscatory relic of the class war.

Despite that policy, the left is dismayed that Starmer has abandoned the “Corbynism without Corbyn” platform on which he won the leadership. This matters: the Tories will relentlessly attack Starmer as “Sir Slippery”, claiming he cannot be trusted because he will say one thing to win and then do another afterwards.

The Labour leader is also under internal pressure to define himself. Some senior party figures worry he has not yet put down ideological roots in the way that Blair and Gordon Brown did before the 1997 election. One reason why is that Starmer, like Rishi Sunak, has been an MP only since 2015, so he is relatively new to politics. Many Labour figures bend his ear with advice on what he should do and stand for. One party insider describes the former director of public prosecutions as “basically a highly politicised permanent secretary”.

Starmer is more than that, but needs to prove it; he does not want the election to be seen as a choice between two technocrats, which would suit Sunak. With many voters giving up on the Tories, Labour needs to inspire them and offer hope. Starmer’s instincts are the right ones. His challenge now is to turn them into an appealing policy offer.