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.

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I worked as a teacher – so I can tell you how regressive grammar schools are

The grammars and "comprehensives" of Kent make for an unequal system. So why does Theresa May consider the county a model for the future?

In 1959 my parents moved me from a Roman Catholic primary school to the junior branch of King Henry VIII, Coventry’s most high-profile grammar. The head teacher berated my mother for betraying the one true faith, but although she was born in Galway, my mum was as relaxed about her religion as she was about her native roots. Any strong feelings about the English Reformation had disappeared around the same time as her Irish accent. Her voice gave no clue to where she was from and – as a result of a wartime commission – the same was true of my father. Together, Mrs and Mr Smith embodied postwar Britain’s first-generation upwardly mobile middle class.

Their aspiration and ambition were so strong that my mother saw no problem in paying for me to attend a Protestant school. Why, you may ask, did my dad, a middle manager and by no means well off, agree to pay the fees? Quite simply, my parents were keen that I pass the eleven-plus.

King Henry VIII School benefited from the direct grant scheme, introduced after the Education Act 1944. In Coventry, the two direct grant schools were centuries old and were paid a fee by the government to educate the fifth or so of boys who passed the eleven-plus. When secondary education in Coventry became comprehensive in the mid-1970s, King Henry VIII went fully independent; today, it charges fees of more than £10,000 per year.

A few years ago, I returned to my old school for a memorial service. As I left, I saw a small group of smartly dressed men in their late seventies. They had strong Coventry accents and intended to “go down the club” after the service. It occurred to me that they represented the small number of working-class lads who, in the years immediately after the Second World War, were lucky enough to pass the eleven-plus and (no doubt with their parents making huge sacrifices) attend “the grammar”. But by the time I moved up to King Henry VIII’s senior school in 1963 there appeared to be no one in my A-stream class from a working-class background.

From the early 1950s, many of the newly affluent middle classes used their financial power to give their children an advantage in terms of selection. My parents paid for a privileged education that placed top importance on preparation for the eleven-plus. In my class, only one boy failed the life-determining test. Today, no less than 13 per cent of entrants to the 163 grammar schools still in the state system are privately educated. No wonder preparatory schools have responded enthusiastically to Theresa May’s plans to reverse the educational orthodoxy of the past five decades.

Nowhere has the rebranding of secondary moderns as “comprehensives” been more shameless than in Kent, where the Conservative-controlled council has zealously protected educational selection. Each secondary modern in east Kent, where I taught in the 1970s, has since been named and renamed in a fruitless attempt to convince students that failing to secure a place at grammar school makes no difference to their educational experience and prospects. That is a hard message to sell to the two-thirds of ten-year-olds who fail the Kent test.

Investment and academy status have transformed the teaching environment, which a generation ago was disgraceful (I recall the lower school of a secondary modern in Canterbury as almost literally Edwardian). Ofsted inspections confirm that teachers in non-grammar schools do an amazing job, against all the odds. Nevertheless, selection reinforces social deprivation and limited aspiration in the poorest parts of the south-east of England, notably Thanet and the north Kent coastline.

A third of children in Thanet live in poverty. According to local sources (including a cross-party report of Kent councillors in 2014), disadvantaged children make up less than 9 per cent of pupils in grammar schools but 30 per cent at secondary moderns. University admissions tutors confirm the low number of applications from areas such as Thanet relative to the UK average. Though many of Kent’s secondary moderns exceed expectations, the county has the most underperforming schools in the UK.

When I began my teaching career, I was appallingly ignorant of the harsh realities of a secondary education for children who are told at the age of 11 that they are failures. Spending the years from seven to 17 at King Henry VIII School had cocooned me. More than 40 years later, I can see how little has changed in Kent – and yet, perversely, the Prime Minister perceives the county’s education system as a model for the future.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times