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21 March 2018

How Labour can replace Britain’s broken economic model

We must prioritise the things that really matter to people: decent work and wages, secure families and households, and prosperous local places to live.

By Rachel Reeves

As we leave the EU, the Labour Party must create its vision of a post-Brexit Britain. The neoliberal economic model is exhausted, but we do not yet have an alternative. Labour needs to develop a new political economy. National renewal must begin with the everyday economy of work, family and the places people live.

The everyday economy is the combination of private, public and social sectors in every region of the country whose services, production and social goods sustain all our daily lives. The foundation of our country is the taken for granted, hard work by underappreciated people earning an often meagre income. Without them our schools, nurseries, care homes, warehouses, food processing centres, supermarkets, hotels, cafes and restaurants, and hospitals would close. The utilities, broadband and our public service infrastructure would fall apart.

Forty years of globalisation have given us growth in trade and lower prices. But we went further in the liberalisation of our economy than our European neighbours. Privatisation and outsourcing created a crony capitalism, enabling companies like Carillion to avoid market competition while their directors enriched themselves on a steady flow of taxpayer-guaranteed revenue.

The balance of power between capital and labour shifted decisively away from working people. Wages suffered a 10 per cent fall from 2007-2015. Household debt is rising while the saving rate has fallen. We have become an economy of wealth extraction rather than wealth creation. It has been the monopolies of the new platform capitalism – Google, Facebook and Amazon – that have been the most voracious.

And in the old industrial regions, jobs have been exported to low wage economies or lost through new technologies. The pride and dignity of skilled work was lost to low paid jobs, unemployment and poverty. A hidden Britain grew up in the shadow of the new economy. A country of high levels of chronic physical and mental illness in which people work hard for their poverty, families live in cold and damp homes, and children go to school hungry.

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We are two nations, each unknown to the other. The elites and the professional middle class who voted Remain live in the globally connected places of the economic winners. The working class who voted Leave are trapped in the low-skill, low-wage economy. Schooling and the housing market reproduce this segregation. We are wealthier as a country but more divided and unfair, freer but lonelier, more plural but less sure of who we are.  

We need change to safeguard the good in our society. The first step is a national plan for improving the quality, pay and productivity of jobs in the everyday economy. Industrial policy in this country has had little or nothing to say about the everyday economy. Instead it has concentrated on the cities as engines of growth, in property development, technological innovation and the high productivity trading sectors. It neglects the middle and low paid in the low productivity, non-traded sectors. It neglects the civic infrastructure required to develop research and innovation across the whole economy, not just the high performing firms. And it tends to exclude rural areas and towns from the wealth creating activity it is promoting. 

We must prioritise the things that really matter to people: decent work and wages, secure families and households, and prosperous local places to live.

Workers need more control in their workplace. At least two elected employees should sit on company boards, with similar representation on remuneration committees. Stronger rights to collective bargaining are vital as are new models of labour solidarity to protect workers in the gig economy. New Royal Colleges in sectors such as social care and retail can improve standards and enhance their status. And we need to invest in a high quality national system of vocational education.

Stable family relationships are the foundation for a successful life. Labour needs to protect those services that support families and do much more to eradicate child poverty. The health and wellbeing of our citizens is a vital part of a national plan to improve the productivity of the everyday economy. 

We need to prioritise care both in the early years and in a properly-funded elder care system. A fully functioning mental health care service with talking therapies, and a long-term strategy to tackle the rise of chronic illnesses can start to tackle the scourges of depression, obesity and diabetes. It means improving funding to the NHS but also switching resources from the high cost of caring for symptoms, to the prevention, reduction and patient led management of their causes.

Labour must break with traditional top-down, command and control politics and devolve decision making, resources and tax raising powers to our English cities, towns and counties. Involving local communities and their insights will lead to better policy. Effective devolution demands a radical change in how central government works.

A Unit for Local Wealth Building based in No 10 could create a national economic plan to build local capacity, and organise the cross-departmental collaboration necessary for its implementation. We need to spread capital across the country with a British Investment Bank, or the partly-nationalised Royal Bank of Scotland or a decentralised Citizens’ Wealth Fund providing commercial loans on a long-term basis. “Anchor institutions” such as hospitals, universities, large businesses and schools can be used to help develop local economies through their procurement policy, by driving up wages through Living Wage deals, and by spreading innovation down the often poorly performing companies in their supply chains.

We must win the trust of the voters that we can manage their taxes in a responsible way. Over the next 30 years, the Office for Budget Responsibility forecasts a widening gap between expected public spending and tax receipts. And yet we must have more money for investment in transport, health, schools and housing. Half Britain’s wealth is owned by just ten per cent of adults. We need a radical overhaul of the tax system.

Labour values have always been family, work, equality and fairness. The labour movement built its political power around the everyday economy of work, clean water, utilities, housing, education, and social services. It grew its roots in local places protecting working people, their neighbourhoods and their family life. A politics of community and belonging was forged alongside workplace struggles.

Times have changed, we are living in a digital age, but the task remains the same. It is an undertaking for a generation.

Rachel Reeves is MP for Leeds West and the chair of the Business, Energy and Industrial Strategy Select Committee.

Her new pamphlet The Everyday Economy is published today

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