The Tories are hurting, not helping the working class

Behind the government's rhetoric, things aren't getting better for working people. They’re getting much, much worse.

I normally enjoy a good Fraser Nelson column. But last Friday’s, which argued the Tories are the party for working people, was frankly delusional. I thought it was a spoof. Reading it, I wish Mr Nelson had been out on the doorstep with me and Labour’s Victora Groulef in Reading East on Thursday.

After an excellent afternoon knocking on doors, we came to the last house in the street and met a lady who summed up the Tories’ problem. She was a teaching assistant and her husband ran a small building firm. She had never voted Labour before, but now she was all ears. She was profoundly disillusioned with David Cameron. Her husband’s building business had taken a hammering and the banks were proving a nightmare. And she was tired of reading about government attacks on teaching assistants like her who she knows make a huge difference to her school’s ability to personalise education for youngsters and transform standards.

Our friend’s story captured the truth that the Tories are now profoundly hurting, not helping Britain’s working classes. It didn’t get a lot of comment, but last week we saw figures showing that in the first full year of this government, inequality has begun to spiral up – and this before the new bank bonus round Ed Miliband raised in the Commons, or this year’s huge cuts to tax credits, or this year’s whopping tax cut for Britain’s richest citizens. The reality is Britain’s aspirational classes have been left high and dry by the Tories. 

Let’s start with the engine room of aspirational Britain: our small business community. I’ve started a small business. I know what a roller coaster it is. And I know just how critical a friendly bank can be. Small business is the key to reducing unemployment. In fact, as Labour’s Toby Perkins recently pointed out, 90 per cent of people moving from unemployment into private sector employment do so with small businesses. But right now, the government’s comprehensive failure to tackle the bank lending crisis is suffocating enterprise. Business lending has fallen in every quarter of the last two years not least because our banking sector is so uncompetitive; 89 per cent of all our businesses are locked into the five big banks. That’s why Ed Miliband and Chuka Umunna launched the report of our small business taskforce with a commitment to introduce a new system of regional banks - banks that only lend to businesses within a defined community - to support small business, modelled on Germany’s successful Sparkassen.

Or let’s take education. Alan Milburn, the government’s social mobility tsar, last week published figures revealing the shockingly low levels of state school students admitted by Russell Group universities. The head of Ofsted, Sir Michael Wilshaw, has attacked the reality that "unseen" pupils from poor backgrounds are being let down. The clock is going backwards.

Yet for all his bluster, Michael Gove is focusing his attention elsewhere. He is presiding over a system that is radically centralising and radically fragmenting our school system. That’s why we need a very different kind of reform. As Stephen Twigg argued last week, the success of the schools in Shanghai shows strong oversight at local level is vital to sharing best practice. And as Andreas Schleicher of the OECD has pointed out, there is a strong correlation between collaborative culture and system success. Sir Michael Wilshaw made much the same point, signalling strong support for the plan set out by Stephen last Monday.

Stephen made a powerful case: wherever school freedom promotes higher standards we will extend those freedoms to all schools. We must make sure "no school is left behind." A school should not have to change its status to earn the permission to innovate. There needs to be stronger oversight of local standards – and a proper effort to foster collaboration. That adds up to a radical devolution of power, rather than the centralisation now underway in Whitehall. And to this we have to add radical change to the curriculum with a technical baccalaureate to provide a bridge from school to high-quality apprenticeships and into work for the 50 per cent of our children who don’t chose to go to university.

Or let’s take welfare reform. The challenge for welfare reformers is not whether you can dream a dream. It’s whether you can deliver. For all their tough talk about "welfare reform", the reality is that the benefits bill is rising by £20bn more than planned because David Cameron is doing nothing to address the long-term drivers of social security spending. And right now the welfare revolution we were promised is simply falling apart.

Just last Thursday, we heard stories that the National Audit Office is profoundly troubled by the state of Universal Credit. There are supposed to be a million people on the system in 10 months' time. But right now, the virtues of Universal Credit are enjoyed by just a few people in Tameside. Or take the work programme. Nice idea in theory. Failing in practice. The latest figures show nearly a million people have flowed though the programme and not even started a job, never mind kept one. Worse, for those in their 50s, who have paid a fortune in National Insurance, there is no additional support available when they become unemployed. They’re lumped in with everyone else. Result? Long-term unemployment is higher among those who have paid in the most. That isn’t fair.

Labour is proposing a radical alternative. A 'triple lock' on welfare spending with an overall cap on the budget, a household benefit cap and a limit of two years to the time you can spend on the dole. But we’ll back this with a jobs guarantee that will channel investment into support for private sector jobs for young people and the long-term unemployed. Labour councils all over Britain are trialling the idea and it’s proving an incredible success. And we’ll move to put the something for something back into social security with extra help to find work for those who’ve cared for others or paid in for a lifetime.

Last year, Norman Tebbit attacked the government’s "abiding sin" of simply seeming "unable to manage its affairs competently". A year on, things aren't getting better for working people. They’re getting much, much worse. I fear Mr Nelson has fallen for the oldest con trick in politics: the rhetoric-reality gap. He might like the government’s rhetoric, but the reality is it's now Labour which has the plan to be realistic with money – but radical with reform. 

Michael Gove speaks at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Liam Byrne is shadow work and pensions secretary and Labour MP for Birmingham Hodge Hill.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR