Tag Archives: growth

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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Labour Must Find a Clear Message on the Economy

A new day, a new cut announced and the same failings from the Labour Party to challenge the Tory’s position with a coherent message. There is a very real threat that the economic debate is being lost without ever really being held. The leadership election is becoming a distraction. Labour needs a strong team in place to put the counter-argument to the ideologically-driven austerity of the coalition, and the endless hustings, although helpful in their way, are leaving us behind.

The frustration is that the counter argument does exist and some very serious economists are making it. Nobel Prize winners Joseph Stiglitz and Paul Krugman both have issued stark warnings about the dangers of government contraction at a time of depressed global demand. Excessive retrenchment now, when export markets are weak and local demand low, will force businesses under and push more people out of work. Increased unemployment leads to lower tax revenues and higher benefit and social costs. Stagnant growth means lower corporation tax take and a deficit which, regardless of how hard you cut spending, will never be properly controlled.

I don’t expect everyone to agree with this view. However, it is a valid and serious perspective. It supports the left’s view that governments exist to help in times of trouble. When the economy, here and abroad, is stable and growing, then withdraw the spending. Benefit costs will fall anyway as more people get into work. Some spending can certainly be lost with minimum impact, especially if the private sector is strong enough to take up the labour slack. The deficit and the debt can be managed down as growth increases. It’s a sensible, viable and economically-literate response to small state, free market Thatcherite economics. And it’s a message we need to be delivering now, again and again, in a unified way.

So, Ed Balls, Ed Miliband, David Miliband, Diane Abbott, Andy Burnham, Alan Johnson and anyone else who may crop up on TV and be asked by a Tory / Lib Dem “Well, what would you do?”, or “Well you would be doing exactly the same”, feel free to use this:

“Our approach is different. We agree with the Nobel economists who say growth is the best route to reducing the deficit. Cutting projects like Building Schools for the Future not only harms the children, it harms the private businesses who rely on this work to survive.

Savage cuts now, when there is no demand in the economy and our export markets are depressed, leave private business with nowhere to turn. You are not just cutting public sector waste, you are hitting the private businesses who supply our vital public services.

If these businesses go under, unemployment goes up, which, as Mrs Thatcher discovered, is a very expensive problem to deal with. Higher benefit spending and lower taxes, plus less money for people to spend in the shops.

We want to tackle the deficit – halve it by 2015 – but cutting now in such an excessive way, driven by an ideological desire to hammer the state will kill recovery.

We have a duty to support businesses and people, until the recovery, here and abroad is secure. Then we will see the deficit fall as tax revenues grow and people start to spend.

That is the time to make cuts, and make them in a fair way. Ensure tax rises fall on those most able to pay, unlike VAT. Make the banks pay a sensible amount back to society.

Cutting now risks a prolonged depression and the deficit will never fall. We would offer support now and make cuts later, when the economy is growing again. Yes, those cuts will be tough, but they’ll be against a backdrop of an economy on the up and they can be made in such a way as to protect the poorest in our society.

It’s simply untrue to say there is no choice in this. There is a clear choice – growth, jobs and a sensible plan to reduce the deficit, or ideological cuts which ignore the global economic climate. Yet again, the Tories are making the wrong call.”

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Filed under Coalition, Economy, General, Labour Party