The task ahead for Labour if it came to power

Abstract

Any Labour government coming to power in the next few years will face a severe test. We do not know where the economy will be. What we do know is the economy has deep-seated long-term problems. These will need to be addressed while social aspirations will be harder to achieve. Neglect of our ecology will be taking an increasing toll. Moreover, the state of public services will be appalling.

Previous Labour governments have come to power in difficult circumstances. Are there lessons to be learned? The Attlee government inherited a country exhausted by war and very deeply in debt. The Wilson government inherited a bursting bubble with incipient inflation and a chronic balance of payments crisis. Only the Blair government inherited a relatively tranquil economic situation and was more easily able to tackle underspending on public services. Not coincidentally, the Blair government was the most electorally successful. Clement Attlee survived a single term and one year before losing office. Harold Wilson won two elections and survived six years before losing. He returned for another four years of effectively minority government in the turbulent 1970s. Tony Blair won three elections and he and Gordon Brown between them had 13 years in office.

Yet there is no correlation between time in office and the scale of the legacy that each government was able to leave. The Attlee government implemented the Beveridge plan for the welfare state,3 founded the National Health Service and nationalised the main utilities, while maintaining defence expenditures at over double current levels in relation to Gross Domestic Product (GDP).4 The Wilson government's effort to cure the UK's economic problems with indicative planning à la française was a failure but the government reformed laws on divorce and abortion, legalised homosexuality and abolished capital punishment. Attempts to reform trade union law also foundered but the government founded ACAS to mediate industrial disputes and passed laws against racial discrimination and legislation to promote health and safety at work. It also founded The Open University – Wilson's favourite accomplishment.

What explains this relative failure to leave a mark? It is partly to do with the zeitgeist, which is not under party-political control. The Attlee government rode a wave of belief in the power of government to improve people's lives. After all, complete mobilisation and planning had won a world war. Socialism was fashionable and the military and industrial successes of the Soviet Union, though not its political repression, were admired. Though the electorate tired of post-war hardships, the Conservatives bowed to the temper of the times and maintained Labour's innovations, reversing only the nationalisation of the steel industry.

Blair, by contrast, came to power when the neoliberal ideological wave was at the flood. Academic macroeconomics, often swept by fashion, had taken a reactionary turn to laissez-faire. Globalisation was seen as inevitable and all-powerful. The only answer to problems of efficiency was competition. Outsourcing public services and creating ersatz markets were generally seen as the solution. Schools underperforming? Private academies, free from local government ‘control’ and competing for pupils, must be the answer.

After four Conservative general election victories, the British public was perceived as being inherently conservative and persuaded of Thatcherite doctrines. The public and the Conservative media were not to be persuaded otherwise but propitiated. Any increased taxes had to be ‘stealth’ taxes to permit re-election.

Now we know better. The financial crisis of 2008 exposed flaws in the international financial system and the limitations of financial market idolatry. But the British economy has problems all of its own. British economic performance lagged that of continental Europe in the 1950s and 1960s, for good reasons. Other countries were rebuilding from a low base after wartime destruction. Their capital equipment was the newest and they mobilised agricultural populations for the rapid growth of industry. It was natural that they grew faster than Britain. By the 1980s, that surge was spent and most countries grew no faster than Britain. Thatcher's acolytes ascribed this relative change to a British renaissance, not noticing that British growth was actually slower than it had been in the 1960s.6 Excessive financialisation caught up with the UK after 2008 when it was hardest hit by retrenchment after the great recession and has underperformed its neighbours subsequently. That trend was exacerbated by a masochistically hard Brexit.

The UK is still one of the world's most developed countries economically, although it has slipped to 18th in terms of income per head. In the complexity league table it has slid from number 4 in 2000 to number 10 now, behind Japan, Switzerland and Germany and even Hungary and the Czech Republic.8 A country that built the world's first civilian nuclear power station, now relies on France, Japan or China for replacements. From having the world's second largest automotive industry and third largest aeronautical industry, the UK has gone to also-ran in both. And what remains is largely foreign-owned. Pharmaceuticals are still a strength but can we be confident they will not go the same way? We cling on to a steel industry but when the military, for example, wants specialist steels it gets them from Sweden. Still, there are sunrise industries and there is always finance.

Those implications will no doubt require substantial reform of the UK tax system. Since the 1980s, profits have grown as a share of GDP at the expense of wages. That has not triggered a noticeable boom in business investment. Moreover, wage payments have become much more unequal, with chief executives earning not tens of times the average wage of their employees but hundreds of times. A reformed tax system has to tackle that imbalance without destroying incentives to work and enterprise. Some tax bases – motor fuel duty for example – will be lost to technical change and replacements must be found. A carbon tax will be essential, preferably as part of an international settlement but going it alone if necessary. The last Labour government, following work by Stephen Tindale at the IPPR, looked to introduce an energy tax and to reduce payroll taxes but their design and purpose were subverted by the Treasury for mere revenue-raising.

Blair was a brilliant politician, fortunate in his timing, who might have achieved more. Attlee was a less brilliant politician who could scarcely have had a harder hand to play but got out of it as much as he could. His secret was a determination to do the right thing as he saw it and let the dice fall as they may. In the eye of history, who cares that one had six years in power and the other 13?”

Georges Danton told the French: “L'audace, encore l'audace et toujours l'audace at la révolution sera sauvée.” To save our ecology, to secure our economic future and to nurture a fairer society that affords more hope to the less advantaged, Britain needs extraordinary boldness now. If Labour is to obtain power and achieve real change, it must not falter and fail and it must embark on a programme of ambitious government.