The triggering of Article 50 initiates the formal process of leaving the European Union, but it should also lead to a debate about the kind of country we aspire to be. In this paper, I offer thoughts on the government’s approach to Brexit, on the wider challenges facing post-Brexit Britain, and a contribution to the debate on how Labour should approach both. I am confident that if we meet these challenges, and do so on the basis of a core set of ideas around which the Labour movement can agree, we can shift the mood of division and uncertainty to one of unity and national renewal.

Tory Brexit

What we need from the Brexit negotiations is a trade deal that works for the whole of the United Kingdom and the preservation of close cooperation with EU partners on counter-terrorism and crime. We need a deal that protects labour and environmental standards for workers and consumers, and that clarifies the rights of UK and EU citizens living in member states other than their own.

What we have is a Prime Minister who has argued for a pick and mix customs union that would contravene WTO rules; a Brexit Minister with no plan to deliver a fall back to the WTO; complacency with regard to the negotiations; and no plan to hold the UK together, other than to assert that everything will be fine in Northern Ireland and that Scotland must come to heel. Meanwhile, the Foreign Secretary spends his time fantasising about restoring a role East of Suez and agitating for the purchase of a new Royal yacht.

The Prime Minister has a mandate to negotiate a good Brexit deal for the country. If it becomes clear during the course of negotiations that she is failing to deliver, it will be Labour’s job to exert influence in parliament to ensure that she does.

Our Future Challenges

But our national challenges go wider than this.

By 2030, the population aged 65 or over will be 33% higher while the working age population will be 3% higher. Without change, a gap will open up in the public finances as an aging population delivers lower tax receipts while spending pressures rise.

The 4th industrial revolution is also transforming the world of work. I had a glimpse of this on a recent visit to Japan where I saw technology replacing care workers in a residential home. It is possible that automation could lead to the increased productivity we need, but according to a recent McKinsey Global Institute study, it could also mean almost half of today’s jobs are made obsolete. It is in this context that business leaders like Bill Gates are suggesting a need to levy a tax on robots.

We are going to have to seize the opportunities of this technological change while addressing its implications for taxation, employment, welfare, education and skills policy.And we are going to have to do that while recognising we are coming up against the natural limits of the planet.

If you step back from the immediacy of the debates over Brexit and Scotland’s future, the full scale and character of the challenge facing the country looks something this. We have to:

Reset our relationship with Europe and the rest of the world;

Increase our productivity to both generate more wealth and support an aging population;

Prepare for the opportunities and challenges that new technology will bring;

Respond to the demand for wealth, power and opportunity to be spread more fairly around the country, as clearly expressed in the Brexit vote;

And lock environmental sustainability into everything we do.

We will need to meet these challenges in fiscal circumstances that will be tough, and do so while bringing people together, because seven years in to a Tory Britain, we remain one Kingdom in the formal sense but few would say we are United. In Tory Britain Leavers are pitted against those who prefer to Remain; the poor are pitted against the rich; the young against the old; the Scots against the English; the north against the south; men against women; and British born residents against immigrants. Outside of important but isolated moments of national unity in the face of incidents like the recent tragic terrorist attack in Westminster, solidarity in our country is too often overshadowed by social disharmony while the country hovers on the brink of fracture.

Tory failure

Meeting these big challenges facing the country means overcoming significant barriers, not least the current government’s failure to prepare us for them. On coming to power in 2010, the Tories said the economic priority was to get the deficit down and the debt under control. George Osborne stated that a sustainable recovery would require more investment, more savings and higher exports.

He was right.

But seven years in, there’s not a balanced budget in sight, the national debt is still rising, and the savings ratio is not up but down from 11% in 2010 to 6.5% now. Seven years in, exports as a share of GDP aren’t up, but down, and capital investment remains among the lowest in the OECD, with only Greece and Portugal investing less.

We are doing no better when it comes to preparing our people for the challenges ahead. In the last decade, 500,000 children from the most deprived neighbourhoods were not ‘school ready’ by the age of five. In 2015, only 53% of school leavers in England achieved five good GCSE passes that included English and Maths. Attendance levels in further education are flat-lining and drop-out rates are too high. Although the number of apprenticeships has been growing most are in low-skill sectors with little chance of progression. And for those in work and on low pay, Britain has no comprehensive programme of vocational education and training to help people move on from a job to a better job.

It’s no wonder that productivity levels in Germany are 36% higher than they are in the UK.And no wonder that the Local Government Association has forecast that by 2022 there will be 9.2 million low-skilled people chasing 3.7 million low skilled jobs while we suffer a shortage of three million high-skilled workers.

The government’s record isn’t any better on fairness.

The Prime Minister would like us to think she leads a new government focused on the burning injustices of Britain but seven years into a period of Tory government a child living in England’s most disadvantaged area is still 27 times more likely to go to an inadequate school than a child in the most advantaged. We are witnessing the biggest increase in child poverty in a generation. Economic projections indicate we will soon see the biggest increase in inequality since the Thatcher years. And attendance at private school is still the best predictor of a child’s chances of becoming a barrister, a doctor, or even an Olympic athlete.

The Tories never have and never will deliver a fairer Britain, which is why it is so important that the Labour Party exists to do so.

A Greater Truth

But if we are to do so, we in the Labour Party have to ask ourselves some searching questions because the uncomfortable truth is that we can’t lay all the problems facing the country today at the door of the Tories alone. Despite the very considerable achievements of the last Labour government, and there were many, the roots of our national predicament were planted well before 2010.

It is fashionable these days to talk as though industrial strategy has been absent in Britain for many years, only just returning in the more recent past. But this isn’t true. The truth is we have been running an industrial strategy in this country for the best part of four decades, just not calling it that, and it has been a bad one. This strategy has consisted of the simplistic, flawed, but nonetheless powerful idea that only the private sector creates wealth while the public sector spends it. It has been manifest in the use of public procurement budgets to pump tens of billions of pounds into opaque PFI deals and outsourcing contracts, some of which have worked, but many of which have delivered dubious results and lower wages for workers. It is reflected in reluctance to do anything about the vast amounts of unearned and untaxed income on wealth that has been used not for long-term productive investment in great British businesses but for speculative share-trading in a model of British capitalism that is plagued by short-termism. And its signature is visible in decisions by governments of both persuasions to prioritise cuts to corporation tax over more ambitious public investment in physical infrastructure and people.

This has all left us with an economy that is over-reliant on finance and the south-east, with a persistent trade deficit, and not enough innovative companies for an economy of almost 70 million people. It has bestowed poor productivity, the asset stripping of many of our best companies and a growth model that to this day, is fuelled by excessive and still growing consumer debt. The public realm, defended and enhanced in many ways by the Labour government when times seemed good, has since withered and is now being savagely attacked as a result.

Poverty pay and inequality stalks this scene not only as a mark of injustice but as an essential driver of what has been going on, because when credit is cheap and people can’t earn enough to give themselves and their families a decent life, they borrow. Both Labour and Tory governments allowed them to do so and failed to rein in the easy credit, contributing to the onset of the financial crisis in the process. Letting it go on was easier than doing the heavy lifting required to re-think the entire economic model.

The crisis of trust we face in our politics is also not unconnected to this economic picture. People feel their politicians are too close to vested interests. Access to decisions and decision-makers is easier for those with wealth or connections. Too little government action appears to be in the public interest, and too much in the private interest of those already doing well.

All this seems set to get worse. Because the age of automation is going to see huge accumulations of capital in the hands of relatively few businesses and the people who own them. While this will mean high wages for some, it is going to mean not only job losses but downward pressure on wages for many others unless we upskill and ready our people and institutions for the challenges ahead.

If Labour wants to be heard again by the millions of working people we exist to represent, it needs not just to challenge the Tories on Brexit and to hold them to account for their record of failure over the last seven years, but to break with the industrial strategy of recent decades and chart a new course.

Reuniting and Renewing the Kingdom

In the context of Britain today, this means developing an ambitious programme of reform in pursuit of a reunited and renewed country while giving some indication of how we would pay for it. It means setting out a programme that addresses the flaws and injustices of Britain’s current economic model in pursuit not just of prosperity, but of a radically fairer distribution of wealth, power and opportunity.It means building a more transparent and accountable democracy, while addressing divisive issues in our politics and meeting the greatest areas of unmet need. And it means a programme that understands if Britain is not active in helping to shape the world beyond our shores that world will come to shape us here, and not always in ways that we might welcome.

At the heart of this programme must be an idea around which the Labour Party itself can unite, namely a belief in the power of the democratic state to do good. Without the state, there is little to stand between the maelstrom of neo-liberal globalisation, Brexit, the 4th industrial revolution, and a growing level of unemployment, inequality and insecure and low paid work for our people.

To deliver what we need, the state itself must also be renewed and used in different and more creative ways, its role not seen as anti-business but as influential and powerful in partnership with business and citizens.

A Civic Capitalism in the Public Interest

If we are to move down this road in pursuit of a reunited and renewed country, the power of the state must be used more creatively and assertively to build a civic capitalism that serves the public interest. It is time to ask not what we can do for capitalism, but what capitalism can do for us.

The starting point has to be to address the weaknesses in our national infrastructure and the inequalities in levels of infrastructure investment across the different nations and regions of the country. Far more investment is needed outside of London and the south-east without leaving London and the south-east short of the investment they need.

The National Infrastructure Commission should be tasked with identifying all projects that could pay for themselves over time, and we should take advantage of historically low interest rates to mobilise a mix of public and private capital and get on with them as quickly as possible.

Our digital infrastructure must be singled out for special treatment and be radically improved. Given the power of digital to connect people with markets, ideas and each other, its improvement is not just about national productivity and innovation but also about fairness, the radical redistribution of opportunity and social inclusion.

To deliver a genuinely civic form of capitalism that serves the public interest, however, we must do far more. We must bury the myth that only the private sector creates wealth while the public sector spends it and breathe life into the idea of the entrepreneurial state. A state that invests in areas of potential growth and the development of intellectual property, but also shares in the rewards of that growth and intellectual property when it comes.

We need an industrial strategy that doesn’t seek to pick individual corporate winners but sets ambitious public interest goals and catalyses and coordinates action to achieve them. If we are to decarbonise the economy for example, as we must, this is going to need not just clear long term carbon reduction targets but required investments in the car industry, construction, energy generation and distribution technologies, and the setting of standards and regulations across each of these industries to make sure the targets are met. To get this done, to put Britain at the cutting-edge of the low-carbon economy and position it to benefit from the jobs that can be created in this industry in future, government must not only invest but work with a network of businesses, universities, trade unions, auto manufacturers, construction companies, technology entrepreneurs, venture capitalists and others. The idea that this will just happen if we leave it to the market is nonsense.

The powerful role of the state as the procurer of goods and services must also be used to better effect. Every public contract must be transparent, and clear lines of accountability and redress need to be in place for when a service provider fails to deliver. The workers being employed to deliver public contracts must be on decent wages and terms and conditions and sometimes the state may need to specify a preferred location for any new jobs being created. If the free hand of the market doesn’t produce jobs where our communities need them, the guiding hand of the state will have to do so.

Civic capitalism also requires an end to the endemic short-termism that characterises our economy today. This means examining changes to corporate law to make sure companies focus on long-term purpose not short-term shareholder value. It means making sure the tax system favours long-term equity ownership, not asset stripping and debt. And it means examining the rights of shareholders, so that those who own shares for longer have greater rights.

And to really lock in a commitment to the long-term, we need to take action to spread ownership of the economy to more of our people. The people who call Britain home are the ones with most to gain from the country’s long-term economic success.We not only need a major expansion of social housing, but more people need a chance to own their own home or own a small but growing share in their home. We need a major increase in employee share ownership and to give people help to set up mutual organisations and cooperatives. In a new civic capitalism, asset ownership must be widely dispersed, not concentrated to excess.

We must support the important work being done by Frances O’Grady at the TUC, to make sure workers have a say on company boards and remuneration committees and more have recognised rights whether they are self-employed, work in the gig economy, or in more traditional forms of employment. More must be done to tackle excessively high pay, to link that pay to performance and to get more employees on a real living wage. And we must learn from countries like Norway, and use pay transparency to help end the scandal of lower rates of pay for women doing the same jobs as men. The power of government must also be used to stop consumers being ripped-off or badly let down by some private sector providers.

A renewed state acting in all of these ways to reject an ideologically bankrupt Tory capitalism in pursuit of one that serves the public interest can deliver prosperity and fairness and spread both more equitably around the country. It can be a decisive break from the industrial strategy of the last four decades and help Britain to avoid the dangers while seizing the opportunities of what lies ahead.

For too long Labour has been fearful of pursuing this agenda out of concern for being called anti-business. But from the World Economic Forum to the OECD and to individual business leaders the talk today is all about how we can create inclusive growth. No-one believes it can be done by the market and private sector alone. It is clear too, that more and more business leaders understand that current levels of inequality are unsustainable and if allowed to persist and grow, may even threaten the legitimacy of capitalism itself. The weaknesses and inequities of our current economy are related to the rise of populism.

Labour must be for a form of civic capitalism that serves the public interest, the interests of the working people and families we represent, as well as the interests of the planet. If we do not acknowledge and fight for the necessary role of the state in building that civic capitalism at this point in our country’s history, then we will have little of meaning to offer the people who need our help.

Opportunity For All

And let’s be clear about something else. While the Tories talk of setting up the UK as a tax haven we must warn of the dangers of a race to the bottom. We cannot make Britain beyond Brexit a land of opportunity for our people by being cheaper than the rest of the world but only by being smarter. A successful civic capitalism will be built on the talents of our people.

Theresa May said recently that we have to do more to help the brightest amongst the poor and her strategy is to re-introduce grammar schools for a limited few. But she doesn’t know how many of the brightest there are among the poor, and her belief that they will be few in number is telling. The fact that not a few, but countless potential doctors, diplomats, teachers, scientists, engineers, software developers, and creators of world beating businesses are slipping by the way-side because we’re not investing in their talent appears not to have occurred to her. But it has occurred to many of us in the Labour Party.

So instead of a few more grammar school places my proposal is this: that the next Labour government declares an excellent education is a right of citizenship, not a privilege of birth or wealth. To make that right real, to make sure that all can contribute to our future national success and that the daughter of a cleaner in Barnsley can have the same life-chances as the son of a banker in Belgravia, Labour should make the historic national commitment to deliver educational excellence everywhere in Britain, within a decade. Excellence at every level and in every community, from early years provision to life-long learning, from the White Cliffs of Dover to the islands of the Outer Hebrides.

There will be some who say this is too ambitious. I have no doubt the Prime Minister will be one of them. But we should let her confront the parents of ill served children in this country with the proposition that their children deserve something less, while Labour gets ready to deliver a historic change in educational standards. Because whether our concern is to help someone already in a job to get a better job, to tackle the productivity gap, to generate more innovation, to meet the automation challenge or, most importantly of all, to respond to the timeless desire of parents to give their child a better future, education is the key.

Revitalising Democracy

The measures I have outlined so far will help but they will not fully succeed if we don’t address the pervading sense that our politics and government is too remote from people and not responsive to their needs. And if our economy is to be run in the public interest then we must give more opportunities for the public to express what that interest is.

We need radical devolution of power and resources throughout the country to put decisions closer to those most affected by them.

If we are to save the union and face down Scottish nationalism, we must embrace the concept of a federal Britain and craft a version of that seen as fair by everyone.

And the debate over devolving power and resources in England cannot begin and end with the new Metro Mayors, important though they are. We may need to consider new forms of regional representation. In my own region, some have called for a Council of the North, some for a Yorkshire Mayor, and some for the creation of more city regions. Other parts of the country must have their own debates and decide what they think is best.

Above all, we need to change the way we do politics and put people at the heart of decision-making on how public money is used. We will only cut through the fog of cynicism about politics and its purpose by putting more power in the hands of people themselves. We need exercises in deliberative democracy and online consultation like those included in the Better Together programme in South Australia, and exercises in participatory budgeting that give people a sense of control.

Overcoming Division

It will be hard to reunite and renew our country if we don’t also address some of the most divisive issues in our politics and some of the greatest areas of unmet social need.

Immigration enriches our cultural life, helps to fill skills gaps, and is important to the flow of creative ideas and entrepreneurship that drives economic success. But it has also changed some communities too quickly and concerns about it are real.

There is inconsistency in the way some on the left think about this issue. It isn't my definition of internationalism to strip developing countries of brain power in order to make up for skill shortages here. And it shouldn't be Labour's approach to the 4th industrial revolution to tell millions of working people their jobs are going to be replaced by technology while simultaneously arguing high rates of immigration are inevitable indefinitely. We need an immigration policy that serves the public interest and commands public confidence.

We must also address the scandal of a crisis ridden social care service and the persistent failure to put mental health on an equal footing with other health problems. Injustice and indignity in both areas is a national failure, leaves people to face problems in isolation, causes financial and emotional stress, and feeds the politics of cynicism and division.

It fell to a Labour government to build the NHS after the Second World War. Every Tory government has damaged it, but none dare to abolish it. If the Tories won’t act to deal with crises in social care and mental health that seven years in, they have failed to address, it must fall to the next Labour government to address both with long-term, sustainable solutions.

Paying for Progress

None of this, of course, will come cheap.

While no one can write a budget for 2020 from the perspective of today, and attempting to do so would be foolish, it is also true that we cannot get through the next three years without saying something about our approach to paying for progress.

The first thing to say on this is that the tax and spending decisions of any government say something about its priorities. This government has cut services to the vulnerable, fostered a crisis in health, social care and education, and done so while giving away almost £60bn in corporation tax cuts since 2010. This, despite the fact that we already had one of the most competitive corporation tax rates in the world.

A Labour government reflecting the peoples’ priorities could have used that £60bn to move from deficit to balance more quickly, to address the crisis in the health service or social care, or to invest in the growth enhancing education, skills and infrastructure reforms that I have called for in this paper.

The whole country also knows that while Britain is too unequal, the Tories have been letting many of the richest in our society engage in tax avoidance. Which is why I have previously called for exploration of wealth taxes, particularly those on unearned income. There are many ways this could be done. A one-off wealth tax, for example, that could be used to help bring down the deficit. This would echo the unique contribution asked of the wealthy by the Attlee government after World War Two and the windfall tax on privatised utilities imposed by the incoming Labour government in 1997. There may be a case for going even further. There is no case for leaving things as they are.

Different tax and spending priorities; investments to lay the foundation for growth; and a fairer way of managing the public finances responsibly, these are the ways in which we can pay for progress.

And we must also address Labour’s wider reputation for economic competence. The 2008 financial crisis was a banking crisis pure and simple. But it was a banking crisis that took place in a regulatory context. I am watching President Trump’s moves to deregulate Wall Street so soon after that crisis with grave concern and believe regulators in the UK need to be alert to the possible consequences.

The last Labour government can be proud of the way it responded to the financial crisis in 2008/2009. But the job of the next Labour government is to prevent another crisis from happening. When Labour is next in office it must be vigilant in its regulation and management of the financial system. The message has to be: not on our watch.

In Defence of Internationalism

And President Trump’s deregulation of Wall Street is only one ongoing international development of concern. Beyond our shores, the climate is changing not just physically but politically and ideologically too. It’s not just that we have chosen to change our relationship with the European Union but that the European Union may not survive. It’s not just that American politics is changing but that US commitment to a liberal international order is weaker than for many decades. And it’s not just that trust in politics and politicians is declining but that illiberal powers and populist movements are the ones benefitting. Who can be re-assured amid all this, that beyond the task of managing Brexit, Britain has no discernible foreign policy to speak of?

In this context it is imperative that through the Brexit negotiations and beyond, we commit to a defence of internationalism. This is vital because of who we are: Permanent Members of the United Nations Security Council; one of the world’s largest donors of development assistance; a leading member of NATO, the G7, and G20. It is vital because internationalism itself is under threat. And it is vital because if we don’t work with others to solve the problems the world faces, those problems will overwhelm us.

The truth is there is no way to tackle climate change without coordinated international effort; no path to a stable global nuclear order without multilateral efforts at arms control, disarmament and a strengthened non-proliferation regime; and no fall-back to the Brexiteer’s dream of WTO rules if the WTO itself does not exist. A commitment to internationalism is not a liberal nicety but a strategic necessity, because no state, not even Donald Trump’s America, can solve all the problems and challenges it faces by acting alone.

The Case for Optimism

As I stated at the outset, the triggering of Article 50 starts the process of departure from the European Union but also a period of reflection on the country we aspire to become. We know that significant challenges lie ahead. The history of our country tells us something important about how our people react when their backs are against the wall. At moments of great challenge, we look for leaders to inspire and unite us not for prophets of division and doom. We have a responsibility to confront people honestly with the scale of what lies ahead but in doing so we should remember this: the morale of a people is not insignificant to its fortunes. Labour’s job is to rally and harness that morale. It is to unite around a compelling vision of the country we aspire to become. And it is to offer that vision to the country on the basis of calm reflection and credible solutions. If we can do that, we can press on to deliver a country that is the very best we can be and a place we can all be proud to call home.

And as Labour itself rises to this challenge it must take heart from a Tory Party whose unity is more apparent than real. The Prime Minister framed her premiership on the steps of Downing Street in terms of fairness and an active state because she had no choice in the wake of the referendum vote. But as we can all now clearly see, she is going to struggle to deliver. The libertarian, small state, big business, tax haven wing of the Tory party is already preventing her from turning words into action. If we in the Labour Party can find the unity of purpose and direction of travel needed, the path back to power may not be as long as we sometimes fear.