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7 November 2024

The provincial working class is being abandoned by Labour

The Budget proved it – the Treasury can’t be trusted to reverse the inequality of poorer regions with London.

By Paul Collier

Rachel Reeves has used her power to increase tax revenues decisively. But her watchwords have been “stealth”  and “caution”. Stealth preserves the myth that taxes won’t hit “working people”, making them inefficient. They hit small, labour-intensive firms in sectors such as construction. A builder in the West Country with 30 employees faces National Insurance changes cutting their profits by 30 per cent. Response: fewer jobs and a wage squeeze. This sits uncomfortably with Keir Starmer’s new flagship of “the big build”, mark two of “the big society”. He will cut through the bureaucracy impeding construction, he says. But on specifics, caution clouds a standard, decades-old approach in Europe.

Meanwhile, the lobbying of the private equity mafia in the City of London and the bankers of Canary Wharf has scared Reeves off serious tax increases. The heralded increases in capital gains taxes are trivial, while inheritance taxes will be avoided by those able to afford tax lawyers. Net of these, the Resolution Foundation estimates that the poorer half of households face a 0.8 per cent cut in their annual income, while the richer half lose a bit less. We are stuck in Peter Mandelson mode: “intensely relaxed” about inequality while financiers pay a bit.

The biggest caution reflects the Treasury fear that increased public spending will scare off foreign purchases of government securities. Reeves’ future public spending is contingent, with control kept within the Treasury. The most dismal number in the Budget was on public investment, which in 2024 was the lowest in Europe at 2.5 per cent of GDP. The make-believe Budget bequeathed by the Tories would have cut it to 1.7 per cent. Reeves has rectified that, but the new average for the next five years is merely 2.6 per cent. That is Treasury caution in action: enough to protect it from mockery, but the extra 0.1 per cent not materially changing the prospects. Its business model continues to be managed decline of anywhere beyond London.

Judging the Budget by the “to-do list” in my previous article on 18 October, a Labour government facing the disaffection of poor communities must acknowledge that the underlying problem is one of blighted economic opportunities: the riots were a rollcall of despair. I cited the Thatcher government’s response to the riots of 1981 in Toxteth: the heavyweight Michael Heseltine was tasked with a huge programme of renewal. Starmer ceded this task to Reeves: she ducked it. Levelling up has disappeared, not just as a phrase but as a concept. The two stand by the flag in smart suits, but nationhood does not extend to genuine concern for the economic prospects of the provincial working class. Labour Party membership is now heavily skewed to young, middle-class Londoners whose priorities are elsewhere.

The poor towns are in poor regions, and the prolonged divergence of provincial England and Wales from the abundant economic opportunities of London is a brutal fact. The Treasury presided over this divergence and cannot be trusted to reverse it. Politically, the architecture for devolution is in place: the city-region mayors. Renewal depends on supporting place-focused public investments.

Transport infrastructure for England north of Birmingham has been dominated by the fiasco of HS2. The Treasury awarded a further £6bn to extend the line from Old Oak Common to Euston, this being 15 times what it ever approved for levelling up. Even for Birmingham this is not good news: outside its station is the rail advert “Work in Birmingham, play in London”. That will crush the city’s entertainment sector. North of Birmingham, HS2 will result in slower, more crowded carriages. Does the Treasury know any of this, or care? Two rail projects survived the Budget: the long-delayed Trans-Pennines Link and the revival of the Oxford-Cambridge line, closed by the Treasury in the 1960s. The former will probably happen because mayors will be screaming for it; the latter was a priority of George Osborne when chancellor. The link could be Britain’s equivalent to the Harvard-MIT research powerhouse in Boston, but wasn’t built because Treasury staff are unqualified to build common purpose among 22 local governments. So why will Reeves be different?

Alongside transport, training in vocational skills has waned. For decades, the Treasury has chosen to save money by cutting post-school vocational training through colleges of further education and apprenticeships. They are the sort of programmes that Whitehall and the political class think are for “other people’s children”. London abounds with role models of kids who have gone to university, but most provincial working-class kids want to leave school after A-levels and train for skilled work. There is an acute shortage of pathways into vocations. Reeves acknowledged the problem, awarding a paltry £300m for CFEs. It’s a start, albeit only one 20th of that useless Euston link. But who will manage that money, mayors or Treasury staff?

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The Treasury is awarding Andy Burnham in Greater Manchester and Richard Parker in the West Midlands “trailblazing devolution deals”. Each “extends their control” over skills, but Parker now controls only a tenth of his region’s skills budget. Are these “trailblazing” deals mere gestures to appease the pressure for change? Watch the Treasury stall, waiting to devolve to other mayors until it has evaluated these pilots. That should fend off change in this parliament.

[See also: The West will pay a steep price if it ignores Brics countries]

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This article appears in the 07 Nov 2024 issue of the New Statesman, Trump takes America