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8 December 2023

Labour is breaking with a failed economic consensus

Far from lacking ambition, the party’s challenge will be to align a series of mini-revolutions.

By Claire Ainsley

The furore over Keir Starmer citing Margaret Thatcher as one of the defining prime ministers of the 20th century has somewhat obscured the question of the “meaningful change” a Labour government would deliver. The purpose of referencing prime ministers who delivered transformative change – whether we agree or disagree with their means and ends – is surely to position the next Labour government in the tradition of great reforming administrations. Ultimately, history will be the judge, but as we look towards a possible Labour government for the first time in 14 years, what meaningful change is the party arguing for?

The scale of the challenge facing Labour is daunting. Only this week, the Resolution Foundation’s Economy 2030 inquiry powerfully demonstrated that the British economy faces continued relative decline unless we urgently correct our course. Some of our malaise dates from the post-financial crisis era and the political and policy choices made in its aftermath, most notably austerity and a botched Brexit. But, depressingly, much of it is attributable to long-running structural weaknesses in the UK economy which predate the 2008 financial crisis, such as the lowest investment in the G7 over the past 40 years and high inequality between people and places. 

The consequence of all this is that our middle and lower earners are far worse off than their counterparts in similar-sized economies. As the Resolution Foundation charted, typical households in Britain are 9 per cent poorer than their French equivalents, while low-income families are 27 per cent poorer.

Perhaps even more profoundly, Britain’s workers feel that the deal by which hard work is rewarded is broken, according to research by the Progressive Policy Institute. They feel they get less in return for their labour than they did a decade ago, and that young people today will be worse off than their parents’ generation. As the 2030 Inquiry spelt out, their perception is reality. 

In every substantive speech he makes, Starmer is telling us that Labour understands the depth of the problems Britain faces and the need to address their root causes. The shadow cabinet rightly avoids criticism of the previous Labour government, which did so much to improve people’s living standards. But there are marked differences in the political economy being espoused by this party leadership and that of 20 years ago. To borrow historian Phil Tinline’s phrase, the old consensus is dead, and the economic “nightmare” that precipitated it has been defined. But the new consensus has not yet been fully formed, even among the economists and politicians with a shared analysis. It is in that context that Labour must create a programme for meaningful change. 

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[See also: How Starmer seized the moral advantage]

It is to the party’s credit, therefore, that it is laying the foundations for a new approach to securing Britain’s future prosperity. The question is not if, but how. Of course the dominant message from Labour is that more public spending isn’t the answer to every problem. If by now you are fed up of hearing that, then it may just be getting through to the public, who have to be reassured that the party will spend every penny of their hard-earned taxes wisely. But the cautious message on fiscal discipline is not the only signal Labour is giving on its future programme: it goes hand-in-hand with a series of major structural reforms to the economy and public services that are designed to tackle the root causes of Britain’s relative decline and to deliver sustainable growth.

The targets Labour has picked are strategic and ambitious. First and foremost, to transform the UK’s woeful record on business investment through the creation of a new national wealth fund and a green prosperity plan to attract £3 of private sector investment for every £1 of public investment. This is far removed from picking winners or subsidising losers; it is about unleashing innovation and removing barriers such as outdated planning laws to drive stronger growth and higher productivity from commercially-successful ventures. Reforming the planning system and phasing in £28bn-a-year of investment shows Labour is learning from the obstacles the Biden administration has faced in the US. 

Rebuilding public services is firmly back on Labour’s agenda: not just restoring them to their previous condition, but nurturing the healthy, skilled population our future depends on. That starts with reforms to education to modernise learning and assessment, so that children are better prepared for life and the changing world of work; and the creation of new employer-led technical colleges to up-skill adult workers so they can train while working. Investing in people as well as the hard infrastructure we need to drive growth means modernising employment rights so they are fit for the 21st-century world of work, including fair pay agreements in sectors such as social care.

Central to these structural reforms are Labour’s plans to localise and regionalise decision-making, so that economic growth can be driven from every part of the country. This is a fundamental reshaping of the state and its relationship to business and citizens. Labour’s proposed Take Back Control Act will mean local areas have the power and responsibility to drive growth alongside an active national government, such as through devolving employment support, so it is better matched to the needs of employers and people in their locality.

It is not a programme that lacks meaning or ambition: if anything, the challenge is to align a series of mini-revolutions in practice, so they become a coherent project that delivers results. 

Great reforming governments have an analysis of the country’s deficits, a vision of what it could be, and a roadmap for how to get there. As we discard the old, work is underway on the new. Important decisions must be made on the pace and scale of investment and on the range and level of taxation. But the desire, and the need, for meaningful change from the next Labour government is certain. 

[See also: Why Labour may be forced to rejoin the European single market]

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