Learning the right lessons from Labour's economic record

Neither Labour nor the Coalition is willing to ask why Britain's tax base was so fragile.

You might think the one thing the world doesn't need right now is yet another instant history about the Labour years. But here one comes -- this time, though, with a difference. The authors certainly won't be dining out on the royalties and there's no insider gossip or "he said, she said" revelations about rows in Downing St. Which is perhaps one reason why it's worth reading; it says something serious about what did and didn't happen to economic performance during the Labour years.

It is authored by John Van Reenen from the LSE -- one of Britain's leading economists, and something of a guru on productivity and growth; together with Dan Corry, a seasoned and respected economic advisor from the former Labour government, and someone not averse to being contrary and defying the conventional view of the day.

Their central argument is that the 2.8 per cent a year productivity growth achieved between 1997 and the start of the 2008 recession was impressive in both historical and international terms; rooted in substantive improvements in a number of sectors, rather than relying on the frothy gains from financial services; and arose in part due to policy choices -- particularly investment in research and science, strong competition policy, expansion of higher education and gains in skills. Their argument is as unfashionable as it is empirically substantiated.

Above all it is an attempt to rebalance the current economic debate about the Labour years, a first (and no doubt doomed) effort at taking on those who assert that there was little more to the Labour era than an attempt to surf the wave of public and private debt over which it presided. This puts the authors at odds with the swelling ranks on left and right who wish to portray Labour's economic strategy as little more than a Faustian pact with the City: light regulation in return for growing tax-revenues. The report, of course, concedes financial regulation was a failure, but contends that wider economic policy made a real and positive difference to a range of sectors -- a point that is currently in danger of being completely over-looked.

Nor do the authors just make an argument about the past -- they also seek to pick a fight about the future. Entering the fray of the current economic debate, they refute the "supply-side pessimists" who assert there is no scope for any further stimulus on the basis that the productive potential of the economy has already fallen (which if true would mean that further expansionary policy would be counter-productive). In contrast, the LSE report contends there is plenty of spare capacity, it just requires some form of Plan B to ensure it is utilised. In truth, however, the authors are most interested in advocating a Plan V, as they term it, for long term growth involving a more muscular and far-sighted industrial policy.

For all the cogency of their arguments on productivity -- and let's hope someone in Whitehall is taking note about the insights offered about the real sources of growth -- there are some puzzling omissions and assertions. Little is said about the UK's ongoing trade imbalances. There is no investigation of the weakening link between GDP growth and the gains going to low-to-middle income Britain, and the associated wage stagnation that took hold in the years preceding the recession -- a phenomena that Labour in office failed to grasp. When you reach the end of the report you don't have much of a sense of the policy agenda that would lift the prospects of the millions of low and modestly paid workers employed in Britain's vast low-skill, low-productivity sectors. The authors, like so many others, focus their attention on what can be done to improve the industrial vanguard, rather than the laggards.

And when it comes to the record on public finances, they choose to pin-point blame on Labour's record on overall public debt, saying it got too high pre-recession. This seems like an odd argument to select given that the UK's debt was relatively low compared to others. A better target would have been Labour's projections for tax receipts -- together with the wisdom of running modest deficits in the middle of the last decade, in a period of steady growth when modest surpluses would have been more prudent.

But even this criticism is dwarfed by the real argument which neither Labour nor the Coalition wants to make as it doesn't fit their favoured narratives -- which is to ask why Britain's tax base was so fragile, crumbling so dramatically, during the recent recession in a way that those in other countries didn't. Indeed, after several years of intense focus on the need to "stress test" banks to ensure their balance sheets could stand up to future financial shocks, it is remarkable that there is no equivalent debate about the sort of tax-base the modern British state needs if it is to better withstand global turbulence in the decades ahead (see this for an exception). Only when this issue is properly aired and addressed will we know that Labour, along with the Coalition, are intent on having a strategic discussion about Britain's long-term fiscal future.

Decades will pass before a full and fair account of Labour's economic record is formed. For now we need to recognise that, love them or loathe them, instant histories matter in politics: they frame today's media coverage and tomorrow's policy decisions. Here, unusually, is one that merits a wider readership than it will get.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Lord Empey: Northern Ireland likely to be without government for a year

The former UUP leader says Gerry Adams is now in "complete control" of Sinn Fein and no longer wants to be "trapped" by the Good Friday Agreement

The death of Martin McGuinness has made a devolution settlement in Northern Ireland even more unlikely and has left Gerry Adams in "complete control" of Sinn Fein, the former Ulster Unionist leader Reg Empey has said.

In a wide-ranging interview with the New Statesman on the day of McGuinness’ death, the UUP peer claimed his absence would leave a vacuum that would allow Adams, the Sinn Fein president, to consolidate his hold over the party and dictate the trajectory of the crucial negotiations to come. Sinn Fein have since pulled out of power-sharing talks, leaving Northern Ireland facing the prospect of direct rule from Westminster or a third election in the space of a year. 

Empey, who led the UUP between and 2005 and 2010 and was briefly acting first minister in 2001, went on to suggest that, “as things stand”, Northern Ireland is unlikely to see a return to fully devolved government before the inquiry into the Renewable Heat Incentive scheme is complete -  a process which could take up to a year to complete.

“Adams is now in complete control of Sinn Fein,” he said, adding that it remained unclear whether McGuinness’ successor Michelle O’Neill would be “allowed to plough an independent furrow”. “He has no equal within the organisation. He is in total command of Sinn Fein, and that is the way it is. I think he’s even more powerful today than he was before Martin died – by virtue of there just being nobody there.”

Asked what impact the passing of McGuinness, the former deputy first minister and leader of Sinn Fein in the north, would have on the chances of a devolution settlement, Empey, a member of the UUP’s Good Friday Agreement negotiating delegation, said: “I don’t think it’ll be positive – because, for all his faults, Martin was committed to making the institutions work. I don’t think Gerry Adams is as committed.

Empey added that he believed Adams did not want to work within the constitutional framework of the Good Friday Agreement. In a rebuke to nationalist claims that neither Northern Ireland secretary James Brokenshire nor Theresa May can act as honest or neutral brokers in power-sharing negotiations given their reliance on the DUP’s eight MPs, he said: “They’re not neutral. And they’re not supposed to be neutral.

“I don’t expect a prime minister or a secretary of state to be neutral. Brokenshire isn’t sitting wearing a hat with ostrich feathers – he’s not a governor, he’s a party politician who believes in the union. The language Sinn Fein uses makes it sound like they’re running a UN mandate... Gerry can go and shout at the British government all he likes. He doesn’t want to be trapped in the constitutional framework of the Belfast Agreement. He wants to move the debate outside those parameters, and he sees Brexit as a chance to mobilise opinion in the republic, and to be seen standing up for Irish interests.”

Empey went on to suggest that Adams, who he suggested exerted a “disruptive” influence on power-sharing talks, “might very well say” Sinn Fein were “’[taking a hard line] for Martin’s memory’” and added that he had been “hypocritical” in his approach.

“He’ll use all of that,” he said. “Republicans have always used people’s deaths to move the cause forward. The hunger strikers are the obvious example. They were effectively sacrificed to build up the base and energise people. But he still has to come to terms with the rest of us.”

Empey’s frank assessment of Sinn Fein’s likely approach to negotiations will cast yet more doubt on the prospect that devolved government might be salvaged before Monday’s deadline. Though he admitted Adams had demanded nothing unionists “should die in a ditch for”, he suggested neither party was likely to cede ground. “If Sinn Fein were to back down they would get hammered,” he said. “If Foster backs down the DUP would get hammered. So I think we’ve got ourselves a catch 22: they’ve both painted themselves into their respective corners.”

In addition, Empey accused DUP leader Arlene Foster of squandering the “dream scenario” unionist parties won at last year’s assembly election with a “disastrous” campaign, but added he did not believe she would resign despite repeated Sinn Fein demands for her to do so.

 “It’s very difficult to see how she’s turned that from being at the top of Mount Everest to being under five miles of water – because that’s where she is,” he said. “She no longer controls the institutions. Martin McGuinness effectively wrote her resignation letter for her. And it’s very difficult to see a way forward. The idea that she could stand down as first minister candidate and stay on as party leader is one option. But she could’ve done that for a few weeks before Christmas and we wouldn’t be here! She’s basically taken unionism from the top to the bottom – in less than a year”.

Though Foster has expressed regret over the tone of the DUP’s much-criticised election campaign and has been widely praised for her decision to attend Martin McGuinness’ funeral yesterday, she remains unlikely to step down, despite coded invitations for her to do so from several members of her own party.

The historically poor result for unionism she oversaw has led to calls from leading loyalists for the DUP and UUP – who lost 10 and eight seats respectively – to pursue a merger or electoral alliance, which Empey dismissed outright.

“The idea that you can weld all unionists together into a solid mass under a single leadership – I would struggle to see how that would actually work in practice. Can you cooperate at a certain level? I don’t doubt that that’s possible, especially with seats here. Trying to amalgamate everybody? I remain to be convinced that that should be the case.”

Accusing the DUP of having “led unionism into a valley”, and of “lashing out”, he added: “They’ll never absorb all of our votes. They can try as hard as they like, but they’d end up with fewer than they have now.”

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.