Labour’s next state: the five big questions

Time flies. The terrible defeat of 2010 feels like yesterday, but suddenly Labour’s 2015 manifesto is just two years away. The good news is the party’s policy debates have energy and vigour, but so far there’s a lot more diagnosis than prescription. Ed Miliband’s promise of a 10p rate of income tax shows how that is beginning to change, but in the next 12 months Labour needs to pick up the pace. And when it comes to the future of the state that means answering five questions.

1. Can Labour find a middle way on fiscal policy?

Labour strategists are rightly anxious that the party is not trusted to manage the public finances. But the obvious solution to this impasse, to ape George Osborne’s spending plans, would bring economic and social disaster. Hugging close to the government would mean further reductions in social security entitlements and eye-watering cuts to public service budgets, all on top of five years of coalition cuts. It would also rule out any new pro-growth spending to help boost investment and demand. The planned cuts could even turn out to be an overreaction, especially if the economy rebounds and the tax coffers start to fill. There’s just too much uncertainty for Labour to contemplate tying itself to the mast of small state Tory spending plans.

At the same time Labour cannot promise to undo every cut and must have some plans for a few savings of its own, both on economic grounds and because of the political signal this will send. At best, public spending will rise very modestly in the next parliament which will still mean that some budgets need to be shaved and social security entitlements scrutinised. Meanwhile, the party will face understandable pressure to increase public sector wages after years of sacrifice, but this brings the risk that pay rises consume every penny of whatever extra spending can be afforded.

So, is it possible to set out a middle way, by making promises on spending which are tough but not stupid? Apart from cuts, are there other ways to provide reassurance, like a stronger role for the Office for Budgetary Responsibility in policing the public finances? Above all, how can Labour change the terms of the debate, so that it is no longer framed as a polarising choice between Osbornomics and reckless irresponsibility?

2. What are the next ‘pledge card’ policies?

Opposition parties are there to oppose. But when the government’s prevailing narrative is gloomy austerity and Labour’s job is to find fault, the party ends up sounding even gloomier. That’s no way to win back apathetic supporters who need positive reasons to embrace change. So Labour needs to set out an optimistic agenda to show that government can help people in new ways, not just retreat.

Just within the sphere of the welfare state, there are some exciting contenders for the next big idea; probably too many for Labour to promise and pay for them all. Some tough choices need to be made on the basis of social priorities and electoral advantage, but the wish list goes something like this:

• A guaranteed job for everyone facing long-term unemployment, paid from falling social security rolls and some equivalent of the 1997 windfall tax on excess profits
• A massive house building programme including a million affordable homes, funded by future rents and sales
• Merging social care into the NHS, with health bodies commissioning community support and care, but with richer older people paying more towards the costs
• Increased hours of free childcare to boost  employment for mothers (and some fathers), a move that might possibly pay for itself
• High-status vocational and workplace training from 14 to pension age, with state funding for courses that boost long-term prospects in the middle of the labour market

Getting noticed in opposition is tricky. Unless you have big ideas that stand out from the noise and until you repeat them month after month, the public will barely notice. So Labour needs to start setting out its big ‘pledge card’ policies over the course of 2013. And in this climate it will need to fully stress-test each idea and be ready to explain how it will pay for each of them.

3. What does Labour do with the legacy it inherits?

So much for new things; Labour also needs a plan for dealing with the mess it will inherit.

On welfare the party will be unable to reverse most of the cuts, although it may have to expend time and money unpicking some of the most disastrous reforms (including, perhaps, the council tax benefit changes which will cause havoc from April). The party might also need rescue plans for universal credit and the privatised work programme which both seem to be teetering on a precipice. That won’t leave much scope for reforming welfare on Labour’s own terms but the top priority must be to make work pay for parents. Iain Duncan Smith’s plans make working financially pointless for many second earners but solving this problem will be hard without more spending.

Turning to public services, the urgent task is unpicking the worst excesses of the NHS and schools reforms. Labour is starting to talk about replacing Andrew Lansley’s fragmented market with council-led commissioning and end-to-end care run by acute health trusts. But there’s a lot of devil in the detail. Turning to schools, Labour faces a similar task to the mid-1990s, when John Major’s grant-maintained schools were reintegrated into the education system without stripping them of all their autonomy. Where free schools and academies have powers which are genuinely helpful, they should be available to all schools; but admissions, funding and a core curriculum must come under democratic control.

Labour also needs to put flesh on the bones of its own forward-looking agenda. The party has come to a day of reckoning regarding its long experiment with markets in public services. While I’ve never been opposed to the principle of a plurality of providers, the list of failures is now too long to be dismissed, even before the results are in on the current experiments with free schools, clinical commissioning and probation. A new settlement is needed, where independent providers play a small part within publicly-managed ecosystems. For example, Labour will surely want to explore public or mutual control of workfare and the railways, even if there is private sector involvement at a more operational level?.

Labour also needs a positive alternative to markets with respect to innovation and citizen control. So far there is a hazy cloud of interesting ideas. The buzz words are: cooperative, coordination, coproduction, dialogue, institution-building, integration, mutualism, person-centred and relational. But we need to move beyond concepts, to defining goals and agreeing the tools for achieving them. At the heart of the debate is Labour’s now deep-rooted conversion to localism. The party needs to explain what localism without marketisation will mean in practice. How will councils become the ringmaster for local schools and healthcare? What support do they need to found autonomous public and community institutions? How do they make direct accountability and control by citizens a reality? For all of this Labour needs a ‘theory of change’; that is to say, a sense of how government will use the levers and relationships at its disposal to realise its ambitions for public services.

4. How does government change the economy and society?

In the aftermath of the financial crisis Labour has realised that government must intervene to rebalance the economy. Under the strap lines of ‘responsible capitalism’, ‘the squeezed middle’ and ‘pre-distribution’ the party has acknowledged that government can and must shape the outcomes the market delivers. Labour is seeking ways to change business culture and power relationships; intervene where markets are failing to serve people; and cajole industrial sectors to work together on issues from innovation to low pay. When it comes to economic policy the party wants to determine not only the rules of the game but the way it is played.

This is a huge agenda and a huge departure from previous decades. The question is: what will Labour be able to achieve over a handful of years, with the tools at its disposal, the vested interests it faces and the weak Whitehall machine it will inherit? The party needs to adopt solutions from the traditional toolbox of regulation but also consider how to participate in the market (for example. in banking or house-building); change incentives through tax reform ; and pull strings through the soft power of political leadership and media pressure.

The same set of challenges applies to the government’s influence over society, including civic life, local relationships, attitudes and culture. For Ed Miliband’s ‘one nation’ ambition is as much about a different set of social relationships and values as it is a fairer economy. But what on earth can a government do to bring such a change about? Labour only needs to look to the awful spectacle of David Cameron’s ‘big society’ to see the risks attached to invoking a huge project of social change without the commensurate levers of power.

Take two examples: community self-help and the integration of migrants. People in Labour circles talk with great enthusiasm about community organising and new grassroots movements like Citizens UK, but so far the scale is small. How will a Labour government create the conditions for a vibrant self-organising culture in every low-income neighbourhood? With immigration, in terms of national policy the Labour Party might consider, we are reaching the limits of what is legally or ethically possible. But the flashpoints, simmering tensions and success stories are local and in future the solutions must be too. So how does a Labour government give local agencies the tools to forge a sense of responsibility, belonging and mutual respect among immigrants and existing communities?

5. How does Labour create a better state?

Finally, Labour cannot ignore the machinery of our democracy and government. For example, the party is having lots of parallel conversations about the things it would like councils to do, but is ducking a strategic conversation about the future of local government. If we want councils to be the fulcrums for shaping how public money is spent locally and how local communities evolve, are they really fit for purpose as institutions? Everyone I talk to is wary about changing the structures of local democracy, after the disappointments of police commissioners, mayoral referenda and Labour’s attempts at regional government. But if the relationship citizens have with their councils is to truly change, I can’t see how we can escape questions about their size, capacity, financial independence and democratic accountability.

The party will also have to grapple with issues regarding the organisation and capability of central government and its agencies. By 2015 there will have been a huge brain drain of skilled public servants which will severely constrain the capacity of ministers to achieve their objectives, particularly in areas such as economic policy. There will also need to be yet another conversation about the balance between political oversight and autonomous expertise, not least because almost the whole of the health budget is now in the hands of a quango.  Labour will also have a lengthy debate on the competencies of the EU foisted up on it.  Hopefully this dialogue will happen in the context of Europe-wide discussions on the evolution of a two-tier union, rather than being a pre-referendum UK-only package. For I fear that Labour-led attempt to tweak the terms of our membership and then sell Europe in a referendum would lead to the Tories campaigning for ‘out’ and the UK leaving the EU.

Lastly, Labour must deal with the unfinished business of constitutional change. This always gets written off as a topic for the anoraks, about which typical voters care little. But institutions set the terms of culture and behaviour, and the public certainly care about how elected public servants conduct themselves. Rebuilding trust in politics and public service can’t be achieved by institutional change alone, but it’s an important start. Above all, how can Labour call itself a social democratic party and not take on the vested-interests in the House of Lords? It’s to Labour’s great shame that it failed to reform the upper chamber over 13 years in office, largely because it was never quite high enough a priority. Something that is ‘important’ but never ‘urgent’ must be locked in to the legislative programme from the outset, as the first bill in the 2015 Queen’s Speech.

Just five short questions, but they demand big answers: from clarifying Labour’s governing principles and ‘pledge card’ policies, to thousands of pages of painful detail. The party has had plenty of time to observe what happens when an ill-prepared government rushes through half-baked plans. It must prepare now, so that it too comes to power with a radical programme of government, but one that survives contact with the reality of office.