What does a left-wing 'rebalancing' look like?

To stand apart from Cameron and Clegg, Miliband needs a radical agenda for the bottom half of the labour market.

With a little over two years until the next general election, Labour's objectives for economic reform feel ambitious yet vague. We can all sign up to the UK being a bit less reliant on the financial sector, but then what? When people on the left talk about rebalancing the economy we need to understand what it is we are trying to rebalance and how - and say loud and clear why the right's version of rebalancing will fail. This weekend Ed Miliband needs to respond to this challenge, when he addresses the Fabian New Year Conference on his plans for 'one nation' Britain.

In his recent speeches, Miliband has used words like "responsibility" and "rebalancing" a lot, but they raise as many questions as they answer. Economic rebalancing can’t be achieved by a few eye-catching attacks on gas companies or millionaires’ pension funds. Reforming capitalism so that it works in everyone’s interests, which is what ‘one nation’ must mean, implies the UK turning its back on its 30-year mid-Atlantic experiment and transforming itself into a mainstream north European economy.

The coalition loves to talk about our unbalanced public finances but every pound borrowed is a pound lent, so Miliband must retort that excessive saving by companies is the flip-side of excessive public borrowing. Labour should promise to unwind the economic forces which have led companies to accumulate and lend so much cash, by creating the conditions in which firms want to investment for the long-term. This will mean sweeping reforms to the financial system whose short-termism has incentivised corporate executives to deliver fast profits not long-term value.

Labour also needs to expose the coalition’s ill-disguised plot to turn temporary deficit reduction into a permanent contraction of the state. Rather than aiming for public spending to return to the long-term average of 42 to 43 per cent of GDP, the chancellor plans a retreat from the crisis peak of 47 per cent all the way down to 39 per cent. Miliband has little choice but to argue for a different path because he believes that public spending matters for economic growth as well as social justice. For George Osborne’s cuts make it almost impossible to spend decent amounts on infrastructure, housing, science or skills.

The coalition has set the terms of the debate so well that retaining public spending at more than 40 pence in the pound has become a controversial proposition. But with Obama-style tax rises for the rich, Labour can set out an alternative route to sound public finances that avoids ’overshooting’ Britain’s historic levels of spending.

This is not to say that Miliband should defend every corner of public spending. This week’s debate on benefit uprating focused on how many working families receive tax credits, but it dwelt little on why so much money needs to be spent topping up low pay in the first place. The truth is that Britain has the highest share of low paid workers in any EU country outside eastern Europe. The Treasury would save huge sums on in-work benefits if rather than having 21 per cent of workers on low pay we could match Finland’s eight per cent.

So Labour’s next priority for a rebalanced economy must be a radical agenda for the bottom half of the labour market. Jobs need to be designed and people trained so work is more productive and secure, which in turn can bring about better pay and progression. This is about culture not just economics, because there are huge disparities in the pay, status and value of low earning  ’women’s work’ across Europe.

Labour must accept that transforming the bottom of the labour market will take change within companies, including laws to require greater worker representation and ownership. And Miliband should say that if industrial sectors and supply-chains do not work together to improve conditions he will impose new public solutions like wage councils or training levies.

But he also needs to promise a decent floor on low pay for everyone. Miliband has talked a lot about the ‘living wage’ but has never quite embraced it as a national policy.  This week he should promise an ‘escalator’ to take the minimum wage, in small increments over five years, to the level of the living wage, which is £7.45 per hour today. Even for the worst hit sector, hospitality, this would mean an increase in payroll costs of a little more than one per cent per year.

If Labour’s ‘one nation’ version of economic rebalancing is to mean anything, it must be about reducing the entrenched inequality of the British labour market and making it harder for employers to make a profit through public subsidies on poverty pay. To stand apart from Cameron and Clegg, this should be Miliband’s first step in a concrete plan to change the character of British capitalism and take the country towards the mainstream of northern European economies.

Andrew Harrop is general secretary of the Fabian Society and editor of the Fabians’ new pamphlet The Great Rebalancing: how to fix the broken economy

"We can all sign up to the UK being a bit less reliant on the financial sector, but then what?" Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

Getty
Show Hide image

5 scenarios that will definitely happen in Ukip Britain

The Ukip general election 2017 manifesto is out. 

On 8 June 2017, Ukip defied expectations and pulled off a 392 majority in the general election. Prime Minister Paul Nuttall swiftly enacted his manifesto pledges – all 63 pages of them.

Now, thanks to Ukip, Britons no longer have to worry about silly things like the EU and multiculturalism. But not everyone has managed to adjust immediately to the Brexit paradise.

1. The beekeeper

Tommy knew right away his bees weren’t happy. They were swarming all over him, buzzing like a razor on a rampage, ready to sting. It was just as well he was wearing his beekeeping suit.

Except, wait a minute? Hadn’t the new Ukip government banned face coverings? Tommy was proud of being a law-abiding citizen. As he slowly removed his protective helmet, he shouted a parting message to his wife: “Enjoy our British honey when I’m gone.”

2. The job

“Thanks for coming,” Martin said to the three job applicants sitting in the glass-walled office. “I’m looking for someone who will be able to monitor the world’s FX markets, and identify any kind of insider trading.”

“I did my PhD in fraudulent FX and spent the last ten years tracking white collar criminals down,” said Gretchen.

“I’m a former trader who worked at three different central banks and makes my own beer on the side,” said Pierre.

“I’m young, unemployed, have no real qualifications to speak of and am under the age of 25,” said Stu. “I’m British.”

Martin shook Stu’s hand. “Welcome aboard,” he said.

3. The rescue

Stanley dodged the falling buildings as he made his way to the harbour, where a red-faced man in khaki was standing looking confused.

“Have you brought vital supplies?” Stanley shouted over the rumble of the earthquake.

“I’m from Britain and I’ve got nosh,” the man said.

“Nosh?” Stanley repeated. “What kind of country sends snacks to an impoverished country in the middle of an earthquake?”

“It’s the Naval Ocean-Going Surgical Hospital,” the man said. “We scrapped our foreign aid target.”

“Oh fuck off,” said Stanley.

4. The family

Helen knew something was different as soon as she stepped inside her parents’ house. “What have you changed this time?” she asked her octogenarian mother. “Is it the cushions? Did you give the door a fresh coat of paint?”

“No, darling,” her father said. “We just installed a sauna and hot tub complex along with an outdoor pool.”

Helen scratched her head. “I know Ukip has kept the triple lock pension guarantee,” she said. “But how can you possibly afford it?”

Her parents giggled so hard Helen began to worry they were having seizures. “Haven’t you heard of inheritable mortgages?” her mother managed to say. “One day, all this debt will be yours.”

5. The clouds

Ronald rubbed his eyes, and peered through the window again. No, he wasn’t seeing things. There was no sun. He stepped out of the house and stared at the sky. Where the bloody hell was it?

Then he remembered the referendum the month before. It had asked Gibraltarians if they wanted to be truly British, and he had ticked yes.

It began to rain.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

0800 7318496