How Labour can change Britain

For the next 14 months everyone within Labour will be focused on keeping the party’s polling lead intact and winning in 2015. But a different disaster could unfold: Labour might come to power, govern badly and leave no impression at all. If Labour resumes office next year without clear and specific plans to change Britain, the chances are that the next government will be a damp squib – and then Labour will face catastrophic defeat after a single term.

Principles, pledges, plans 

Any opposition needs three Ps to be ready for power: principles, pledges and plans. Labour has made great strides on the first two Ps, but it has little to show on the third: plans.

We now have a pretty clear idea of the principles that will inform the thinking of the next Labour government: a radical agenda for reforming markets; fiscal responsibility, but with a little wiggle-room for investment and long-termism; and renewed public institutions based on localising relationships, power and accountability. The ideological contours of Milibandism are hardening, to the surprise of his early detractors.

We also have headline pledges that have a chance of lodging in the minds of some voters: the 50p tax rate, energy price freezes, extra childcare, guaranteed jobs, and a lot of housebuilding. More will come, no doubt.

But you can’t govern just with big themes and a few trophy promises geared to winning an election. Labour needs to have operational plans, both for hitting the ground running in its first 100 days and in order to use power strategically over the long five years of a fixed term parliament.

Compare Labour’s prospectus today to Conservative thinking before 2010. No one can accuse David Cameron’s cabinet of coming to power without firm plans, even if they were well concealed from the electorate. Labour needs to replicate the single-minded determination that enabled a weak minority party to change the whole landscape of public services in such a short time. What’s more, those plans must be robust, as the various pitfalls faced by the coalition’s biggest reforms show.

Changing Britain without spending

So what are the 2015 Labour equivalents to the coalition’s year one onslaught of reforms? We know there will not be lots of extra public money to pay for change, so the first question must be what can be achieved without new spending? The answer is a huge amount, if the party is prepared to be radical.

First, take economic reform, where the Labour leadership is being pretty plain about its principles. Ed Miliband knows that the inequality and short-termism that taints British capitalism has little to do with how much government spends; the party must take on deep structural flaws. For its next step, Labour needs to set clear goals for how the economy could be changed over a five year timeframe and then work backwards to flesh out the plethora of small-scale institutional and regulatory reforms that are needed. Little of this will be sufficiently eye-catching to be worth troubling electors with, but Labour’s economic radicalism will founder without it.

The second route to changing Britain without spending is to reform our political and public institutions and create a better public sector ecosystem. There may be few votes in rewiring the machinery of the British state, but our crisis of political disaffection demands an institutional as well as a cultural response, to show that Labour has the confidence to put more trust and power in people’s hands. Public institutions can only save money and meet people’s rising aspirations by changing how they work with each other, with frontline workers and with citizens. And although ‘no more top-down reorganisation’ is a good line for attacking the coalition, it is also a potential trap. Labour must not rule out organisational change if this is necessary to drive through a plan for improving the strategic scope, capability and accountability of local public bodies, for that might include a redefinition of powers, responsibilities, funding and boundaries.

The third way Labour can change Britain without spending a penny is reforming taxation. Once again, there are already some pledges. The proposed taxes on top earners, mansions and bankers are fine in as far as they go. The return to a 10p starting rate of income tax is a mistake, which I expect to see quietly dropped before the election (far better to reform national insurance for low paid workers). But beneath this tweaking, Labour should embrace a systematic, five year process of tax reform of the sort the Institute for Fiscal Studies has been pushing for years. It should seek a fairer balance of taxation between earnings, other income and wealth. The academic evidence suggests that increasing taxes on top pay and property is not only fair, but will dampen down the excesses of the market. And if Labour is to realise Britain’s 2020 targets for greenhouse gas emissions the chances are it will need to adopt more green taxes, and then recycle some of the proceeds into green investment and to mitigate the effects for low income households.

How to spend it

Expenditure decisions will matter too. Labour will come to power in 2015 with years of spending restraint still ahead but the planned Osborne cuts are not set in stone. All political parties are staying very quiet about widely anticipated post-election tax rises; and if the economy and tax revenues perform a little better than current projections it will make a big difference to the options open to Labour.

At the 2014 Fabian New Year conference, Ed Balls set out the rough shape of Labour’s fiscal policy with his pledge that Labour will balance the current budget during the next parliament. This means that Labour can reckon on spending a little more than under the Chancellor’s current cuts plan, but it is only a slightly looser straitjacket.

Crucially, the Balls fiscal rule excludes capital investment, and so opens the way to the possibility of a big increase in housing, infrastructure and public service capital spending. To some this may smack of fiscal irresponsibility, but it is time British politicians were prepared to speak up for investment. Even if Britain were to increase public investment to 2007 levels this would still be far below public investment seen before 1979 or in other advanced economies today. The party will need to plan investment to capitalise a proper network of state investment banks; build hundreds of thousands of cheap homes for rent; and build the schools our new baby boom demands.

When it comes to day-to-day spending, the party should also prioritise long-term investment-style spending, for example on science, skills and early years. But in the years directly after 2015 current spending decisions will be very tough. Following Ed Balls’ Fabian speech, we know that spending on public services will be roughly flat until the deficit is closed. That is a big improvement on George Osborne’s plans, but Labour politicians will inevitably have to make cuts in order to fund new priorities elsewhere. After all, childcare, jobs guarantees, whole person care and apprenticeships all cost money.

More widely, Labour should consider top-slicing every budget and reinvesting the money into upstream preventative measures. This may seem like draconian top-down control in defiance of the spirit of localism. But what is the alternative, after years when so much lip service has been paid to ‘prevention’ while public money has flowed in the opposite direction?

In the short term Labour may also need to shave the social security budget, although even modest cuts will not be easy. Again, it comes back to having a long-term plan. As things stand, we know that Labour would like to find a few hundred million pounds to reward contribution a little more, but there has been total silence on its direction for social security over the next two decades. If Labour wants to stop inequality from rising it will have to contemplate more generous social security for children and working-age adults.

After all, sometime in the next parliament austerity will be over. By 2020, and hopefully quite a bit sooner, Britain will have respectable growth and balanced public finances. Then it will be possible to raise spending in line with GDP, or even by a bit more if the party can make the case for modest tax rises.

The decisions the party takes once there are ‘proceeds of growth’ will set the course for the quality of public services and for the extent of inequality for decades. In the five years after 2015 Labour will need not one spending plan but two: a plan for austerity; and a plan for after, setting Britain’s course for the long term.

This article was first published in the Fabian report ‘How Labour can change Britain: Ten priorities for a future government’, edited by Anya Pearson.