As Tube strikes bring London to a halt, Labour must realise its pushover relations with trade unions have been to no avail, writes Paul Ormerod
Keir Starmer has tried to signal a major reset of his government by his reshuffle of the Cabinet and the promotion of a batch of the new intake of MPs.
A different approach is certainly needed. Since the election, at times it has been as if the government believed they were still in opposition. Their job was simply to mouth the phrases. It was for someone else to actually do anything.
Hardly a statement went by on anything connected to the economy without the use of the phrase “£22bn black hole”. It acquired almost the status of an epithet in the works of Homer, a sort of shorthand which enables immediate identification of the thing being described. For Labour, the phrase “£22bn black hole” encapsulated a whole litany of Conservative mistakes and plain mismanagement of the economy.
In reality, the government has created a much larger black hole in the public finances.
Strikes have shown Labour they must change course
They started to dig the hole straight after the July election when they approved substantial pay rises for the train drivers and what were then called the junior doctors (since elevated to “resident doctors”).
These pay increases were presented as a triumph of common sense, of a signal that the grown-ups were back in charge. But anyone can settle a dispute by conceding every single demand made by the other side with no concessions given in return.
The public sector unions perceived immediately that the government seemed a bit of a pushover. A whole string of demands and strikes have followed: doctors, dentists, teachers, prison officers.
The government has felt obliged to meet many of these. Even so, the recipients are hardly grateful. The resident doctors are back in dispute, the train drivers are flexing their muscles and, of course, we all experience the current Tube strike.
To be fair, there were already signs before the reshuffle that Cabinet members realised that they are in government and cannot simply wave these demands through. Wes Streeting in particular has opposed the further demands of the resident doctors.
But if the reset in the government is to be more than a superficial reshuffling of personnel, a more general shift in mindset is needed.
Public sector productivity must be addressed
One of the most fundamental problems facing the British economy is the productivity of the public sector. Wage increases cannot simply be handed out without tackling the issue.
It cannot be stated too often that, overall, the public sector has shown no increase in productivity since 1997, a period of almost 30 years. There are good reasons why productivity growth will be lower in the public than private sectors, but over the same time, private sector productivity has risen by almost 30 per cent.
Imagine if the public sector had delivered a mere third of this, so that its overall efficiency had increased by 10 per cent since the late 1990s. This would by now have made at least £50bn a year more available to the government. It could be used to provide more services, to cut taxes or to reduce borrowing.
A key point about productivity in the private sector is that by far the most important way in which it is increased is by adopting better working practices which already exist in other companies.
Even within narrowly defined industries, the most efficient companies often have productivity levels three or four times those of the least efficient. The same point applies in the public sector. An everyday example is that some GP surgeries allow appointments to be booked online, others still require the 8am phone call.
This is a project which requires very clear and firm political guidance. But it is one which, if adopted, could transform Labour’s prospects.
As published in City AM Tuesday 9th September 2025
Paul Ormerod is an honorary professor at the Alliance Business School at the University of Manchester and an economist at Volterra Partners LLP
