Tag Archives: Economy

My Manifesto for Labour – Part One, the Economy

In this series of posts, I will lay out the headline vision I think Labour should adopt as its manifesto going forward. It is not a line by line spending strategy (which would be impossible to create from a home office in Wiltshire) but it will explain some fundamental themes the party should adopt to regain support, differentiate itself and gradually become a government in waiting. It is not intended to cover every aspect of every policy area, but instead to give some vital focus to the Labour approach.

Part One – The Economy, Business and Growth

The coalition plan isn’t working. The only rebalancing going on in the economy is the transfer of debt from the public sector into the private. Personal debt is predicted to rise by £566bn over the life of the parliament as the public deficit falls. This transfer will simply squeeze household spending and cause the economy to grind to a halt. Growth is flatlining, making it much harder to bring down the deficit, youth employment is running at 20% (again adding millions to government spending) and inflation is taking chunks out of the monthly income of workers whose pay is frozen. All this why executive pay rose 45% last year. Whatever the coalition may claim, we are clearly not “all in this together”.

Labour must address this. First, the reduction of the deficit must not come at the expense of jobs and personal debt. Growing our way out of the deficit is preferable to attempting to cut our way out of it. It’s a tested, logical and positive way to tackle our budget situation. To this end, Labour should support major infrastructure projects which will help bring us up to the levels of Europe and the US in terms of rail, road and broadband. It should also champion a huge housebuilding drive (more of which in a later post). In addition, the government should be investing in the development and implementation of green energy technologies. This spending, shared with private sector investors (not on a PFI basis), will help create jobs, apprenticeships and skills. These skills will then reside within the economy and can be exported – a genuine rebalancing can begin to take place. Without government support, the only shift towards manufacturing will be dependent on a weak pound and will be not driven by world-class skills and technology we need. The coalition plans for growth are feeble – expecting a corporation tax cut to filter down to more jobs and investment and hoping that low interest rates will encourage lending and investment, while in reality, none of this is happening.

In return for this government investment, industry must accept some fundamental changes to the way it supports its workers. A living wage should be introduced. Instead of providing tax cuts to large corporations, as the government is now doing, these will only be offered to organisations which accept the living wage strategy. The policy will then be rolled out on a mandatory basis. This allows Labour to support the enterprise culture the country needs while protecting workers from an increasingly insecure “flexible labour market”. The living wage will have additional benefits in reducing the need for tax credits, housing benefit and other “top-ups” to subsidise the poor salary levels offered by many employers, thus reducing the benefit bill and helping lower government spending. It is time that businesses took more responsibility for their workforce and relied less on government to keep them properly remunerated.

To better reflect workers contributions to businesses, every public company will be required to have worker representation on its remuneration committee and to adopt pay structures which ensure that if the CEO receives huge pay rises and bonuses, these are mirrored in the pay and bonuses of everyone throughout the business, at the appropriate level, of course. So board executives will only be able to grant themselves huge rises if they also allocate a similar proportion of profits to the people actually bringing in the revenue.

On tax, the burden needs to be shifted away from the poorest, but this means across the board, not simply through income tax. VAT is a regressive tax which hits the poor hardest. The balance of the coalition’s tax plans does not spread the burden equitably – despite its plans on raising income tax thresholds, the overall impact of tax credit and benefit cuts, plus VAT, leaves most families at the lower end worse off. The 50% rate should remain and serious investigation into the best way of implementing a wealth tax should be undertaken. It should be Labour’s stated aim to tax wealth while increasing the incentives for those at the bottom and the middle of society to improve their financial position. It is here that tax cuts should be targeted, instead of at the top 1% of earners. Rather than cutting HMRC staff, Labour should propose significant investment in tackling tax evasion (theft) and implement a thorough review into tax avoidance. These two areas cost the country a huge amount each year, vastly in excess of benefit fraud and should be prioritised as such.

Labour’s message should be clear – Keep the economy moving, keep people in jobs, ensure people are fairly rewarded for the work they do, make the fundamental changes to business practice we need and invest to transform our economy. It is a hopeful message which will restore shattered consumer confidence, motivate businesses to invest, create jobs and bring down the deficit. It will also demonstrate that while Labour supports enterprise and hard work (in fact more emphatically than the coalition), it also recognises that we cannot continue to exacerbate the dividing lines between workers and executives, which drives social disharmony and creates huge resentment.

I will deal more specifically with public sector spending cuts and reform in an upcoming post, as well as housing and education which I touch on here. In the meantime, your comments on this are very welcome.

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The Myth of Entrepreneurialism

It perhaps will surprise some of my more belligerent critics, but I am an entrepreneur. In 2008 I left a well-paid job as a lawyer in the City of London to set up my own business, This Fair Earth, tapping into the increasing demand for high quality, ethically-made goods. I used my own money to fund the start-up costs. I put together an extraordinarily detailed business plan which I think took the bank back somewhat when it was presented to them. I worked long hours to get the business off the ground and I am extraordinarily proud of what I have achieved.

However, the business is struggling now. It’s unquestionably a better run, more efficient and better targetted business than it was 2 1/2 years ago, but demand is falling. This despite the fact that November and December have historically been the strongest months, by a long way. I am hopeful there will be a rally this month and next, but I am markedly less confident than I was last year, in the teeth of the recession.

This is why I am skeptical, bordering on contemptuous, of the government’s ambitions for an increase in private sector employment. All the tax incentives in the world won’t help new businesses when consumer demand (from individuals or businesses) is rock bottom. We are allegedly in recovery, but there is very little optimism. Small business provides the employment for the majority of workers in this country, and yet the only jobs created in the past three quarters have been part-time. The number of full-time jobs has fallen during the “recovery”.

So, if you have a great idea and can afford to lose the money, by all means set up a business when you are kicked out of your job next year. You might succeed. However, even in the best of times, most start-ups fail within a year. With the government sucking money out of the regions and an unprecedented cut in the amount of spending coming from the centre, this percentage is likely to rise. This coalition has fanciful notions of an energised private sector leaping into the fray as the public sector is ravaged. It isn’t going to happen.

I have said it throughout the recession – the economy needs government support when demand is weak. It is exceptionally weak now. VAT rises and job losses in 2011 will make things worse. No-one has successfully cut their way out of recession and Ireland is once again showing us what not to do. This government steams ahead regardless.

So I offer two pieces of advice: First, don’t bet your mortgage on a start-up. If you have the money, the idea and the determination to establish a business, by all means try it, but don’t leave yourself exposed. And second, when you are working 20 hour days to make your vision become a reality, and you feel the confidence and demand seeping out of your market, make your voice heard. Fight back against the myths of entrepreneurship peddled by our new rulers, who can barely boast a day’s work in the private sector between them. Demand their support, because although they will never listen to the poor, unemployed and homeless, they might listen to you.

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Filed under Coalition, Economy