WESTMINSTER types are all abuzz about Ed Miliband's lecture on public-sector reform. They are odd like that. Still, it was an important intervention. In his comments this evening, delivered in memory of the Guardian journalist Hugo Young, the Labour leader addressed the largest gap on his policy prospectus.



In recent months he has talked lots about his plans for the market. It is now clear, for example, that he is willing to intervene in prices and economic rules, create new institutions, pursue active business and industrial policies—all in order to transplant Britain from one “Variety of Capitalism” to another. Where once Mr Miliband was accused of having no ideas, now even his fiercest critics accept that he is a man with a supply-side plan. But on the state, Labour has been rather quieter. That has exposed it to charges of convenient inconsistency. In a recent Financial Times column Janan Ganesh (formerly of this parish) argued that its willingness to challenge vested interests fades at the outer limits of its own: those of public-sector producers. He has a point, muttered some through gritted teeth.



In response, Mr Miliband used his lecture today to advocate a series of reforms, each boosting public-sector users: more access to information, a right to be put in touch with each other, a say in decision-making and greater proximity (through devolution) to the policy-making process. Many of these draw on models pioneered by Labour councils. The proposals are to be welcomed. They build on valid criticisms of the government’s public-sector reforms (Mr Miliband is right to note that Michael Gove’s school reforms have concentrated power in Whitehall) without succumbing to top-down paternalism.



Most commentators seem to agree with this analysis. But they are divided on whether the speech was the limit of Mr Miliband’s thinking on public-sector reform, or the tip of the iceberg. That distinction matters. Like it or not, big questions about the role, shape and size of the state confront Labour. The party needs to bolster its economic and fiscal credibility, damaged by the financial crisis and years of Tory claims that its first instinct is to throw public money (mostly borrowed) at problems. It needs to popularise a resonant riposte to the coming onslaught of accusations that it would greatly increase borrowing and raise taxes on low- and middle-income Britons—its tax and debt “bombshells”, in campaign parlance.



May 8th 2015



Most of all, it needs to accurately guide expectations of what it would do in government. Undoubtedly, it would inherit a tight fiscal settlement. George Osborne has committed to reaching budget surplus by 2018 (Labour has said it would do so on current spending by 2020, which is only slightly less onerous). Yet he has also ring-fenced spending on things like the NHS and international aid, and guaranteed that pensions—which account for one in five pounds of spending—will rise at or above the rate of inflation. Consider, too, the rising costs of an ageing population, the interest on Britain’s steadily mounting national debt, and that Labour has already committed to worthy but potentially costly policies like a state investment bank, more house-building and universal pre-school childcare.



So if it wins the 2015 election the party will have four main options: ditch its fiscal commitments, slice eye-wateringly deep into unprotected parts of government (possibly shutting down entire departments), dramatically increase taxes or undo the chancellor’s ring fences and pensions “triple lock”. A fifth—reforming public services to make money go further—would help, but would not suffice without one (or some combination) of the other four. Voters have a right to know how a Miliband Downing Street would navigate these choices. More detail would also help Labour prepare its supporters for the choppy political waters ahead.



Though welcome, the specific proposals of Mr Miliband’s speech only begin to answer these questions. In its more theoretical passages, however, were the seeds of something more sweeping. He talked of the “massive fiscal challenges” before the next government. He mentioned the work of Jon Cruddas on decentralising power and that of Andrew Adonis on devolution to city regions. He demanded a more responsive, less monolithic state.



A thought experiment



All of these chime with thinking in Labour wonk-dom. IPPR, the leading centre-left think-tank, is running a major research project, The Condition of Britain, focusing on how to make government work better—through devolution, in particular. There is talk of wealth taxes and—in One Nation in the World, a new Fabian Society report on Labour’s foreign policy—a Tobin levy on financial transactions. Liz Kendall, the shadow minister for care and older people, has set out a plan to control the costs of an ageing population by merging health and care services. “Preventative spending” (saving money by pre-empting social ills like crime, ill-health and joblessness) is a favourite topic. Labour has even flirted with (though since pulled back from) axing big-ticket items like HS2 and Trident.



So what next for Labour and the state? Under the title “Some big ideas Labour might like to consider”, today’s Telegraph essentially argues that the opposition should pipe down and get behind the current government’s reforms. That is unrealistic and in some cases undesirable. At this juncture, then, a thought experiment suggests itself. What if the party were more concrete about its “big ideas” for the British state? What if it settled on two of them to trumpet, two that were suitable for doorstep campaigning and could set the terms of the debate, disprove negative perceptions of Labour’s bossy, spendthrift ways and cause voters to look at the party in a fresh light?



They might look something like this:



1) “Universalism is dead—long live means-testing”



Britain’s welfare system is not particularly generous by international comparison. But it is especially indulgent towards those households with above-median income: paying them when they have children, subsidising their children’s university fees, caring for them when they get ill, paying each member some £110 a week for the last decades of their life and caring for them when they frail. These benefits are essential for the hard-up, but not for the comfortable. Yet in 2011/12 the British state paid £110 billion in benefits to the richer-than-average, or £4,148 per household. For comparison, that is more than the health budget.



Why? The standard defence of this universalism is that, by sustaining common benefits, it keeps British society cohesive, and secures a middle-class lobby for the welfare state. This is a well-intentioned goal, one consistent with Labour’s “one nation” slogan. But, as the philosopher Roberto Unger argues, cohesion comes from shared places and experiences, not cheques in the mail. At a time when whole hunks of government are being hacked off (and the only credible alternative being massive tax hikes), does universalism really justify the £110 billion price tag? Labour has already started to ask that question. Dipping its toe into the water, last summer the party announced that it opposes winter fuel allowances for those on high incomes. But that only saves £100m, a 0.09% drop in the “welfare for the wealthy” ocean.



The party could go much further, challenging the entire case for universalism, committing to more means testing, particularly in the largest entries on the debit side of the government balance sheet, like pensions. Indeed, a recent Civitas paper set out a credible plan for a means-tested state pension: making participation in workplace pension schemes compulsory, strengthening the “contributory principle” in the system and saving the state some £40 billion a year. Admittedly, this could curb incentives to work hard—but it would be relatively easy to smooth these out through the tax system. After all, child benefit, housing benefit and job-seeker's allowance are all means-tested already.



Not only would such policies free up money with which to reduce the deficit and pay for the child-care, housing, skills and industrial policies that Labour wants to enact, it would also make political sense. The Labour Party poll lead on public services and compassionate values is secure, so it can afford to adopt tough positions in these areas—classic “Nixon goes to China” policies. The party is also less reliant than the Liberal Democrats and the Conservatives on those older, wealthier voters who benefit most from universalism. Thus the latter two both pursue policies that disproportionately benefit the not-so-needy. The Tories continue to back universal old-age benefits like free television licences, winter fuel allowances and bus passes—as well as a state pension that has outpaced earnings for years in a row. At the same time, they slash support to those who really need it: the young and the poor. Though the Lib Dems dress up their flagship policy, the increased income-tax threshold, as a victory for low earners, it tends to benefit the wealthy most. According to the Institute for Fiscal Studies, those who benefit most are in the second-highest income decile. Yet still the party plans to increase it further.



2) “Power to the cities”



The second game-changing gambit would be to explicitly commit to devolving power to cities. As things stand, that is only a matter of time. The agenda has been prominent in Labour's debates in the past months. Mr Cruddas and Lord Adonis are both looking closely at means of dispersing the levers of government—and both are due to set out their proposals in coming months. In his new book “Transforming the Market”, Patrick Diamond of Policy Network argued that: “cities are generally more pro-active, entrepreneurial and competitive: the lesson is that ‘letting go’ can have a decisive impact on economic success.” Nick Pearce, the director of IPPR, argues a similar case in the latest issue of Progress.



As with ending universalism, here too Labour is politically well-equipped to make the necessary changes. To its credit, the coalition government attempted to persuade the residents of eleven English cities of the case for elected mayors. But the envisaged roles were inadequate in various ways, as I discussed in a recent piece on Bristol—the one city to say yes—last year. And Labour has a better chance of driving the mayoral agenda all the way: not just getting it through referenda but also ensuring that mayors have control of city regions, their taxes and their public services, rather than just the unglamorous parts of city-centre management. That is because the party can both learn from the coalition’s mistakes and harness its political dominance of the cities in question in order to win support for devolution.



Another similarity with ending universalism is that such a step is bound to be necessary eventually. Despite some calls to create an English Parliament—which will rise to a crescendo this autumn if Scotland stays in the union but pursues devo-plus, as seems likely—most politicos are resistant to the idea because of the constitutional imbalance it would create. English assemblies would avoid this problem, but have little emotional basis. Few voters think of themselves as “south-easterners” or “north-westerners”, but many self-identify as Bristolians, Mancunians, Brummies, Geordies and so forth. So city-region government is both more pragmatic and better aligned to Britons’ geographical identities. It also chimes with a recent trend in social and economic scholarship. A number of prominent academics are now arguing that nation states are ineffective, and that globalisation makes city economic areas a particularly efficient level of government. That thread runs through "The Metropolitan Revolution" by Bruce Katz, "The Triumph of the City" by Edward Glaeser and, most recently, "If Mayors Ruled the World" by Benjamin Barber. It means thinking less about the comparison between Britain and the US, Germany or China, and more about the comparison between Manchester, Barcelona and Chongqing—or Birmingham, Bangalore and Warsaw, or Newcastle, Lyon and Manaus.



Championing city regions would also fit neatly with Mr Miliband’s public-sector principles. The Labour leader talks of a new layer of oversight between a mighty Whitehall and individual users. Where should this new layer sit? Local authorities are too small—and not always very accountable—but experience in London, Germany and the US shows that powerful mayors tend to be more visible and accountable than most other forms of regional government. That suggests that services like education, health, taxes and welfare should be devolved to their level. Mayors also comply with the Milibandite credo by linking users to producers; a “third way” between top-down and bottom-up services.



What would Tony say?



If these ideas seem counter-intuitive, it is because they are. Parts of the Labour tradition are undoubtedly committed to the centralised, universalist Fabian state; one that one might call “paternalist” (and many of the party’s opponents do). But if there is a convincing Milibandite response to such jibes, it is surely that in his better moments, Mr Miliband spends some of his large stock of internal political capital on leading Labour away from a monolithic, one-size-fits-all approach to government and towards something more flexible, co-operative and modern. Indeed, in his speech to the Fabian Society in January 2011 the Labour leader deliberately buried the Fabian tradition, proclaiming that “we need to draw on that other tradition based on mutualism, localism and the common bonds of solidarity.”



But does he have it in him? Contrary to much commentary, Mr Miliband is actually rather good at taking on his party; as his recent union reforms show. He is just subtle about it. Tony Blair used to treat Labour’s sacred cows like clay pigeons: flinging the mooing beasts high into the air and gunning them down for the sheer spectacle of it. His successor-but-one treats them like Japanese wagyu—caressing and massaging them for years before shooting them in the head. The outcome is the same, but the process is a lot less messy.