Labour's long journey back to electoral relevance must start by rebuilding trust in our ability to manage the economy, writes Stephen Kinnock MP Not since the omnishambles budget of 2012 have we seen a chancellor look quite so uncomfortable and out...

Labour’s long journey back to electoral relevance must start by rebuilding trust in our ability to manage the economy, writes Stephen Kinnock MP

Not since the omnishambles budget of 2012 have we seen a chancellor look quite so uncomfortable and out of touch. Yet despite a litany of Tory broken promises, missed targets and manifesto U-turns, Philip Hammond, according to post-Budget polling, enjoys a lead of over almost 20 per cent when asked who would make a better chancellor, and his party lead Labour by 32 per cent when asked who will best manage the economy. The harsh truth is that, when it comes to economy, nobody is listening to Labour.

Rebuilding public trust in our ability to manage the economy is essential if we are to ever form a government again, and to do so we must: 1) earn the right to be heard; 2) expose the Conservatives’ failings; 3) articulate our positive vision.

1. Earning the right to be heard

Labour has consistently lagged behind the Tories on economic management since 2009, and this trend is getting worse. The low point on economic trust in Miliband/Balls came in December 2014, when just 19 per cent thought Labour were best placed to manage the economy. The high point for Corbyn/McDonnell was in August 2016, when 18 per cent of the public said they trusted Labour more than the Tories, sinking to an abject 9 per cent in December.

Our worst days of the last parliament were therefore better, in terms of trust on the economy, than our best days of this one. And we know how much this matters, because the brutal reality is that the party most trusted on the economy has won every election in modern British political history. No wonder, then, that we are currently speeding towards electoral irrelevance at a rate of knots.

Rebuilding public trust in our ability to manage the economy must start by earning the right to be heard. A vital part of that is certainly about ensuring we avoid making unfunded spending commitments, and that we can account for every penny of the revenue we would raise through the tax reforms that we are proposing. But we must also focus on reframing the debate, by going back to first principles. In short, we must answer this question:

What is the economy actually for?

Drawing on a range of thinkers such as Lakoff and Hutton, I believe that the economy must: i) be productive, generating wealth; ii) provide enough money for people to live on; iii) speak to people’s human dignity; iv) speak to people’s ambition; v) enhance our society and common endeavour; and vi) operate within our planetary boundaries.

Now, when you consider what our economy is for in those terms, it not only changes how you would shape and manage it, it also reveals that the Tories’ fabled ‘long-term economic plan’ is little more than a book-keeper’s to-do list, focused entirely on the reduction of costs without any meaningful thought given to the generation of revenue through sustainable growth.

By defining and demonstrating how we would build an economy of purpose, we can begin to reframe the way in which the public thinks about the role of government, and so earn the right to be heard again.

2. Exposing the weaknesses of our opponents

Our economic model is structurally unbalanced, which in turns makes it unstable and lacking in the resilience so desperately needed to absorb the impact of Brexit. Shockingly, London and the South-East are the only regions of the UK that have returned to pre-2007 growth levels.

Britain’s economy is too unequal, inward-looking, short-sighted, London-centric, too reliant on financial services, and too weighted in favour of private interest over the public sphere. Add to these structural weaknesses the on-going productivity crisis, galloping inflation and a yawning trade deficit, and we are left with a toxic mix.

And all of this comes before we even get to the uncertainty and harm the brutal Tory Brexit is set to unleash. The Cayman Islands Brexit the prime minister spoke of in her Lancaster House speech would push us headlong into a race to the bottom. Britain would become an ultra-deregulated economy, and a tax dodger’s paradise.

The Tories have chosen a path of managed decline. Their answer to everything is simply to reduce the size of government and to transfer as much as possible of what is currently in the public sphere into private hands. Their make-do and muddle-through mindset means they will never take the radical action required if we are to fix the faulty foundations of our economy.

The only way our country can survive and prosper is through the design and delivery of a project of radical national renewal. We know the Tories simply don’t have the desire or ability to make this happen, and we must hammer this home at every possible opportunity.

3. Crafting and communicating a compelling Labour offer – a project of national renewal

Whilst winning the right to be heard and exposing the weaknesses of our opponents, we must simultaneously craft and communicate a compelling agenda that is based on three simple statements: i) Labour will partner with business, to drive a new kind of growth, ii) Labour is the party of the modern manufacturing renaissance; and iii) Labour is the party of fair and smart taxation.

i) The party that will partner with business, to drive a new kind of growth

Our mission as a party is to reform capitalism, not overthrow it. We understand that before wealth can be distributed it must be created, and that the market has created more wealth, and lifted more people out of poverty, than any other form of economic management. But just as we embrace the market when it works in the interests of the British people, so we are prepared to intervene when it fails to do so.

For too long too many business strategies have been driven by short-termism, and that must change. The current model has driven a transactional, rootless form of ownership that owes no patriotic allegiance to this country, and militates against the investment in R&D, innovation, skills development and new technologies that is so desperately needed if we are to rebalance the British economy.

Just as we understand the centrality of the profit motive, so we understand that business and society are interdependent. Each require the other to be healthy and effective, and central to that is a clear connection between corporate and social success. And the best businesses understand this as well: businesses that are better governed and take into account their social and environmental impact are more profitable, and enjoy more sustainable growth. There is a vanguard of business leaders who have identified and committed to this win-win strategy, but even among those who believe that the business of business is only to make money, there is a growing realisation that the whirlwind reaped by unreformed capitalism – from the 2008 crash, to the Brexit vote, to the backlash after Deepwater Horizon – is unsustainable.

Labour must, therefore, commit to working in partnership with business to build a new kind of growth that is both pro-business and pro-reform. This is a concept that must be co-created with business and unions; and formalised alongside a vanguard of progressive business and trade union leaders.

This new partnership model could deliver a number of changes, including a new code of conduct for institutional shareholders and a reformed Companies Act: one that involves a form of incorporation that speaks to people, planet and profit. A reformed Companies Act placing profit on equal terms with obligations to people and planet, will ensure business plays an active and enabling role in building a new growth model that strikes the right balance between societal, environmental and financial obligations and outcomes.

Responses to the BHS debacle and other corporate scandals have shown that the British people are crying out for reform. Labour must now set out a clear vision and detailed set of proposals. That is the gauntlet that we must throw down to both the Conservatives, and to the leadership of our party.

ii) The party of a modern manufacturing renaissance

In 1970, manufacturing accounted for one third of the British economy, but today that figures stands at barely 11 per cent. This is the root cause of many of the structural weaknesses in our economy, most notably the chronic trade deficit, the productivity crisis and the imbalance between regions and sectors. The British economy is the most imbalanced in the OECD, measured by the gap between the wealthiest and most impoverished regions.

Rebuilding UK manufacturing is therefore essential to building a better economy and society. To this end we should commit to boosting manufacturing as a share of GDP from 10 to 15 per cent by 2022, and this means at the very least, doubling our investment in R&D from 1.7 per cent to at least 3 per cent of GDP. To achieve this we will need a properly funded industrial strategy that covers skills, innovation, energy, infrastructure, access to finance and procurement in addition to R&D.

iii) The party of fair and smart taxation

The income of the top 10 per cent in the UK is around nine times that of the bottom 10 per cent. As stark a figure as that is, it pales in comparison to the inequalities in wealth; where the top 10 per cent own 45 per cent of total wealth, while the bottom half were left with just 9 per cent. And this trend is getting worse: from 2013-15 the top tenth of households saw a 21 per cent increase in their wealth, including property, compared to a 7 per cent increase in wealth for the bottom half of households.

As Alan Milburn’s work has shown, the key determinant of where you end up in life is still where you started, and the key factor perpetuating this intergenerational injustice and inequality is wealth, not income. The tax system should serve as a driver of social mobility, not a perpetuator of the status quo, yet our tax system does very little when it comes to wealth. Instead, our tax system rewards the passive accumulation of wealth, while discouraging productive economic activity.

And so our mission must be to turn the current reality on its head, by making the prospect of starting a business more attractive than the prospect of inheriting a home. To this end we should propose the integration of inheritance and income tax by incorporating the value of all inherited property above the current level of regional house prices into an individual’s total income, and taxing this accordingly.

Taxing wealth in a fair and politically sustainable way must be our guiding principle. Simply hiking inheritance tax will not suffice as it can easily be avoided, whereas the more integrated and graduated approach I have suggested would not only be harder to avoid, but could provide a politically sustainable and economically efficient means of countering the perpetuation of wealth inequalities, whilst simultaneously unlocking opportunities for greater social mobility.

Conclusion

In a commons motion in 1901, Keir Hardie decried the “poverty, destitution and general moral and physical deterioration” resulting from the brutish model of early twentieth capitalism, not because of how it looked on a spreadsheet, but because it “constitute[ed] a menace to the well-being of the realm”.

This is a moral and political truth that we still understand, but we are arguably as far from government now as we were when Hardie uttered those words. And that is precisely why, 116 years later, we must urgently develop a fresh approach, based on earning the right to be heard, exposing the failings of our opponents, and crafting a compelling new vision and plan for our twenty-first century project of national renewal.

Image: Derek Σωκράτης Finch