A Labour Vision for a New Economy

Andy Burnham, Labour Leadership Candidate

Wednesday, 15th July 2015

CHECK AGAINST DELIVERY

Last week we saw the first Budget from a majority Conservative Government in 19 years.

It was a budget that contained a number of positive measures, including some lifted direct from the Labour manifesto. But viewed a week on, it is clear that it is more about good politics than good economics, which is becoming the hallmark of this Chancellor.

It was a budget that did little for small business, the self-employed, or indeed growth in the overall economy.

While the Chancellor acknowledged that productivity is the great challenge our economy faces, it was left until a few days after the budget for the Business Secretary to present a report on productivity, that was largely a rehash of existing measures, far short of the economic vision that our country needs.

The Budget made it even harder for young people to make their way in an already challenging world and raised the prospect of a two-tier workforce dividing young and old.

The pledge to give Britain a pay rise was revealed by the Institute for Fiscal Studies to be an enormous pay cut.

It will cost an average of £1,000 for three million families on low and medium incomes.

In total the IFS say 13 million families will lose out overall — an incredible 60 per cent of UK households.

But my single biggest critique of George Osborne’s budget is that it didn’t do enough to support work.

The devastating verdict of the Institute of Fiscal Studies is that the tax credit changes weaken incentives for people to move into work.

This fails even by this Chancellor’s own terms.

So now seems the right moment for me to set out what I believe is a better vision for our economy.

As Leader I will work every single day to re-establish Labour as the Party of work, both employed and self-employed, the Party of business, small, medium and large, and the Party of economic credibility.

Today, I will set out the key components of my vision to do that.

A Labour vision with fiscal responsibility at its heart and where growth helps reduce our national debt.

Where government works in constructive partnership with business and unions, not picking fights with one or the other.

Where we rebalance business taxation to take taxes off businesses starting out and on the way up.

Where a high-skilled and high-paid workforce contributes to and shares in our national success, and where the millions of self-employed people are better recognised and supported.

And where we get on and deliver the infrastructure and new homes that our country needs.

But, the hard truth for my party is that George Osborne wouldn’t have been setting out a Conservative Budget at all if Labour had been trusted to set out the alternative.

So, I also want to talk about the fundamental problem facing my Party — winning back the trust that we lost back in the financial crisis.

That loss of trust has now cost my Party two elections. It will cost us a third if we do not address it.

And perhaps more importantly it has taken Britain back to a decade of Conservative government.

Our response now and in the years to come must be driven by a burning desire to win back trust.

If I am elected leader, winning that trust will be central to my leadership and that of my team.

My argument today is that we will only win back that trust by being straight with people about our past in government, about the challenges Britain today faces and about our plans for the future.

There is no substitute in politics for being direct with people — and trust comes from people knowing that you will be straight with them and do what’s right even when it’s unpopular.

So today I set out five clear principles that I believe should be at the heart of Labour’s vision for delivering a UK economy fit for the future and fit for the British people.

First of all, a balanced and sustainable economy must be based on balanced and sustainable public finances.

And the trust we seek to regain can only come with a true account of our record in government.

We achieved many great things but we can see now that it would have been better to have been spending less in the run-up to the crash.

It wouldn’t have prevented it.

Our investments in public services didn’t cause the global financial crisis.

But it would have meant we were in a stronger position to deal with the consequences.

That is not an easy admission for Labour to make, but it is a fair one.

And it is necessary if we are to win back the confidence of people.

Let’s be straight with people about the things we genuinely got wrong.

Then we can be equally straight about the things we got right.

And when we are honest about what we got wrong people are more likely to trust us when we talk about what we got right.

I believe this honesty about our past is necessary to move forward, but on its own it won’t build credibility or provide answers for the future.

On the eve of the financial crisis, national debt had been reduced to just 37% of GDP by the last Labour Government, and we had run more surpluses than the Tories had managed to in 18 years.

The deficit we were running was small by historical standards.

And, as I said at the start, I want to be clear that Labour spending on education and the health service didn’t cause the global banking crisis.

I am proud of our legacy on the NHS with public satisfaction at a record high and waiting times at a record low.

And I’m proud that we rebuilt thousands of schools and colleges and raised educational standards.

But, small though it was, we were still running a deficit at the peak of a booming economy.

That is why I began my leadership campaign by acknowledging that in government we should have done more to control spending in the middle of the last decade, so that we were better prepared when the crisis hit.

Just as I am candid about Labour’s past, George Osborne won’t be candid about his own.

The reality is that the Chancellor doesn’t like to talk about all the time he spent backing Labour’s spending plans when he was in opposition.

And he cannot admit the truth that his first five years as chancellor were marked not by “holding to the plan” as he likes to pretend, but in fact by significantly slowing the pace of deficit reduction, as his sharp early cuts stunted the recovery and made his deficit bigger, not smaller.

The question facing Britain in the future is how to clear the deficit and run a surplus without making the mistakes of either the last Labour Government in overestimating growing tax revenues, or the mistakes of George Osborne’s first term in which savage cuts stifled growth and set back deficit reduction.

Last week’s budget, which disproportionately hit families in work, is no answer to this question.

Labour under my leadership will always run sound public finances and we will reduce the national debt, back toward its sustainable pre-global financial crisis levels.

But we will ensure that growth is as important in our plan as being careful on spending.

And what we spend money on will be as important as how much we spend.

We will ensure that delivering long term public spending on investment is never sacrificed for short term political convenience.

I will therefore give the Office of Budget Responsibility the role of regularly auditing governments’ investment plans, to ensure enough is being spent on the long term projects that will grow the economy and most effectively reduce our debt levels, while raising living standards.

Second, Labour’s vision under my leadership would be based on a true partnership between government — national, regional and local — businesses and unions, based on the German model.

This Government is waging a campaign of demonisation against the unions. Labour will engage them as constructive partners.

Today, the Government is announcing its latest moves in its ongoing campaign of demonisation against Trade Unions. Just as Labour doesn’t win when it seeks conflict with business, I don’t see how constantly provoking and picking fights with the unions helps the UK’s productivity problem.

So, let me say today, I will oppose this unjustified attack on the legitimate role of trade unions to protect people in a fragmented and casualised workplace.

But, as I acknowledged at the start of my leadership campaign, we got the message wrong on business.

It will always be the role of the Labour Party to stand up for employees and to criticise those who evade taxes.

But that should never lead to an impression that we as a party stand against the millions of businesses, from growing firms and those that create jobs for thousands of people, to small local companies to sole traders and entrepreneurs, that are working hard to survive and thrive, and in doing so employ workers, pay taxes and invest in the future.

If we are to truly tackle our long term productivity problem, then it will be businesses that do the hard work to achieve this.

And so I will listen to business as Labour leader.

That is why I have established a Business Panel to advise me, co-chaired by Rachel Reeves MP, Graham Cole from Agusta Westland, and Shabir Randeree of DCD, with a broad range of membership.

This panel has begun its work as part of a conversation in which we will engage businesses of all shapes and sizes throughout the country — so that Labour can best understand what businesses need from government to create the jobs and opportunities to grow our economy.

And to ensure the Labour Party draws on the largest pool of talent and range of experiences, I will as leader establish a programme to help encourage and support people from a business background who share our Labour values to become Parliamentary candidates for the Labour Party, and my Shadow Cabinet and I will find innovative ways of making sure we all stay closely in touch with the business world.

But that understanding must also lead to action.

Because businesses in this country don’t want a government that simply stands back and gets out of the way.

That narrow 1990s Conservative view of how best to help industry might still guide Cameron, Osborne and many other Tory MPs.

But it is not a vision that leads to success in the 21st Century global economy.

Germany has not become Europe’s powerhouse with a laissez-faire economy but with a strong partnership between government, firms and unions and high levels of infrastructure investment.

Even the US, often cited by Conservatives as the model for free market economics, has a major record of public involvement in its big economic successes — from the development of the internet to GPS, to its support for the development of silicon valley and other start-ups.

So under my leadership, Labour will commit to championing growth by being an active partner to business.

I am glad that George Osborne lifted an array of policies from the last Labour manifesto, but there was no action on improving access to finance, a key challenge cited by many firms.

The Treasury’s productivity report merely notes the work of the British Business Bank set up under the coalition, but criticised as having far too limited lending capacity to really make a difference.

A British Investment Bank, as we proposed, would be able to make a meaningful change in the level of finance available to SMEs.

Likewise, only words not action on late payments, another threat to the viability of small firms who face being strangled before they can grow by delays in receiving what they are owed.

While there is plenty of rhetoric and — to be fair — some substance to the Government’s regional devolution agenda, there is more of an attempt to devolve blame for cuts than a genuine vision for transforming our regional economies, empowering businesses and local communities with backing from national, regional and local government.

I have already set out my commitment to a clear national framework to shift power from Westminster to empower our City and County Regions, local government and local communities.

And businesses want government to champion our exporters — but again we saw no real action from this Chancellor.

For example, suggestions from business, such as introducing a single point of contact for SMEs wishing to export, were not taken up.

And — instead of committing Britain to an open and outward face to the world and its growing emerging markets — ministers chose the launch of the Government’s productivity report to emphasise a crackdown on the best and brightest international students who come to Britain to study.

We must act on public concerns about migration that undercuts workers and strains public services.

We must stand up for the pay and conditions of British workers and we will win the EU referendum if Europe is seen as a guarantor of those rights and not a means to undermine them.

But it is not in our country’s interests to cut off access to one of our leading exports — higher education — or to the skills, knowledge and links that international students bring to the UK.

Instead Britain, a strong and diverse country, should use its communities and connections around the world to build opportunities for more foreign direct investment and more exports into the new emerging global economic powers, not least India, home to one and a quarter billion people and a growing economic engine.

Harming our university sector and our ability to attract global talent will be bad for our innovative economy, and so will turning our back on the industries of the future.

A Green Investment Bank, publicly owned but freed to borrow, would be able to invest in the carbon free technologies of the future, ensuring Britain can compete in the industries of tomorrow.

Instead the Government has announced, since the Election, a plan to sell a majority stake in the Bank.

And last week’s Government productivity report does not mention it.

In fact, the word “green” was not mentioned at all.

Instead, environmental standards are to be weakened, support for onshore wind has been suddenly brought to an end and the budget nonsensically subjected electricity from renewable energy sources to the Climate Change Levy.

All measures that go in exactly the wrong direction if we are to create the green, competitive economy of the future.

Labour under my leadership will never turn our back on either our duty to tackle climate change or the prospects offered by the green economy.

A new economy, creating new sustainable jobs; jobs not dependent on finite and polluting fossil fuels

And it is not only the green economy which was set back instead of being driven forward by this Government’s policies.

Entrepreneurs and the self-employed are a large and growing part of our workforce at 4.6 million, the highest rate ever.

But again, there was not a single mention of the self-employed in last week’s productivity report.

Instead, the budget has hit many of them directly, with the Chancellor’s assault on tax credits.

Today’s aspiring-entrepreneur mum, setting up a web design business from home so she can balance work with childcare, could be tomorrow’s tech start up success story.

Figures show that many of the self-employed struggle to take money out of their business in the early years, but earnings then rise significantly for those that are able to establish themselves and stay in business for more than three years.

But the assault on tax credits would leave a mother with one child, on average start up earnings for a self-employed person, £1,400 per year worse off.

If we drive tomorrow’s entrepreneurs and employers out of business today, then every pound saved in tax credit payments today will be lost many times over as we miss out on tax takings and saved benefits tomorrow.

But the tendency of government to ignore the self-employed goes deeper, from the design of Universal Credit to the Work Programme to National Insurance, the needs of the self-employed are ignored, and even well meaning policies end up causing them harm.

Before the Election, Labour rightly highlighted the plight of those pushed into self-employment due to a lack of secure work.

But we didn’t acknowledge that most self-employed people have higher job satisfaction and that they are a key ingredient of a successful economy of the future.

So I want to correct that mistake.

Labour has always been the workers’ party, and in the 21st Century that means Labour must be the party of the self-employed too.

So under my leadership these vital members of the workforce will no longer be an afterthought — every policy will be considered for its impact on them, and we will study ways to reform Universal Credit and other government programmes to ensure that they address the needs of the self-employed as well as those in traditional employment.

And finally, no government can be a credible partner to business in raising the UK’s productivity if we do not also raise productivity in the public sector.

This Government’s cuts have fallen haphazardly on departments and public sector workers, with no vision for how a more effective state can do more with less.

It has been left to local government to be the true innovators of the last five years, with many councils finding ways to protect services despite enormous cuts.

I will ensure Whitehall learns the lessons from our best town halls and finds ways to drive up performance in the areas central government delivers, while I will meet my commitment to shift more power and money away from the centre to local communities.

A true partnership with all types of businesses and the self-employed will inform my approach to the other elements of my vision.

That is why I will also look to work with business on my third principle; a pro-growth rebalancing of business taxes.

I will as Leader appoint an independent commission on business tax reform, to ensure that the tax system supports those who are starting out and those who are trying to grow their business.

Osborne claims that his budget measures fall on those with the broadest shoulders.

But just as it is untrue of his personal taxation and tax credit changes, so it is untrue of the UK’s business tax regime.

It must be in the interest of both businesses and the wider economy that taxes are kept low on those struggling to start up and grow, with those who are established taking their fair share of the burden.

Such an approach will help grow the overall tax base and create more jobs — reducing demands for welfare spending — all of which will lower the tax burden for all in the longer term.

So I want a thorough review to look at the balance in our tax regime and consider how it can be made more pro-growth and improve our productivity.

This will be a wide ranging review.

It will not change how much we raise from business, but how we raise it.

It will consider our current system of business rates, which tax productive businesses making use of their premises, but leave unused or underused land largely untaxed.

While business rates are paid by those enterprises occupying premises, alternatives include measures that capture a fair share of the value of commercial and Brownfield land that accrues to its owner.

Such approaches, which incentivise the most productive use of these sites, should be considered as part of our efforts to meet the productivity challenge.

The commission will also look at small business rates relief, which is currently based not on the size of the business but the rental costs of the property they occupy.

It will look at Research and Development tax credits, to ensure they are best designed to drive up long term, value-added research.

And the Chancellor’s business tax measures will be reviewed to ensure we best address the key issues that drive productivity:

Do his budget changes help address our low rates of investment relative to the rest of the G7?

Will they help take us from one of the lowest investors in Research and Development to one of the highest?

Addressing these questions must be a key guide in our approach to business tax reform.

Fourth, both key to delivering a new economy but also as a central outcome of this approach, we must empower our workforce as a high-skilled and high-paid engine of our economy.

Just this week the CBI has said that skills shortages mean firms are facing a skills emergency that is threatening to starve economic growth.

Most worryingly their view is that it is in the high-growth, high-value sectors of construction, manufacturing, science, engineering and technology where the skills gap is most acute.

More than half of businesses now fear that they will not be able to find the skills they need.

I want a fundamental shift in professional and technical education in this country, so it is a route of equal prestige, and equally supported, as that of university.

We must undo the legacy of the Conservative government of the 1980s which dismantled our apprenticeship system, as part of a wider attack on industry.

I welcome the Government’s introduction of a levy to support apprenticeships, but I want to ensure these are high quality apprenticeships, led by the demand and expertise of businesses at a local level, with further education colleges working with Local Enterprise Partnerships to meet the needs of local employers.

And so all those that get the grades, based on a UCAS style points system, can undertake high quality apprenticeships, regardless of where they are from, I want the same student funding arrangements that allow university students to study away from home to be made available to these apprentices.

Building a new high quality apprenticeship system as part of a wider skills agenda is key to re-building and re-balancing the UK economy.

While raising skills is crucial to raising pay in the long term, we must also break the cycle of low pay and productivity by boosting pay at the lower end of the pay scales.

The sad truth is that despite his attempt to commandeer the language of the living wage campaign, the Chancellor has delivered nothing of the sort, with a measure not based on cost of living, taking no account of the slashing of tax credits, and ignoring the higher living wage rate needed in London.

And while I welcome plans to raise the minimum wage, by applying the measure only to those 25 and over, the national minimum wage has now become a five tier system, with your pay decided by the year you were born not the job you do.

I do not believe this can be justified and I do not believe it is in businesses’ interests that these skewed incentives are introduced into their hiring and pay decisions.

I understand some businesses are more sensitive to wage rate changes than others. Labour will always stand up for the low paid and we’ll do it in a way that considers the impact on all employers in our country.

My fifth principle would see a Labour Government place the delivery of world class infrastructure as an integral part of its economic strategy.

Perhaps no single issue captures the failure of Westminster politics more than its failure to give the British economy the infrastructure it needs.

From the endless kicking the can down the road on airport expansion by governments of all parties, to the cynical trumpeting of rail upgrades before the Election, only for the electrification of the Midland Mainline and TransPennine lines to be abandoned just after, Britain deserves better.

It must be a priority to improve the rail links between our great Northern cities and those through the south west to Cornwall. This cannot wait.

By ensuring that public spending is audited so that infrastructure is properly resourced, and by backing action to implement the findings of the Davies Commission on airport expansion, provided certain conditions are met, I want to change this sorry record.

And through a broad framework for devolution to the city and county regions in England, as well as the other nations of the UK, I will make clear that Westminster doesn’t know best — local areas should be in the driving seat when addressing our infrastructure needs.

But nowhere is Westminster’s failure as great as on housing.

I will look carefully at the Government’s latest proposals on planning reform, but it is not just by getting government out of the way that we will get more homes built.

Many local authorities are ready and willing to build, but face arbitrary caps from central government on their ability to borrow against future rents to get the job done.

I want to remove these caps.

And while the budget, by raiding social housing rents, will lead to 14,000 fewer affordable rental homes being built according to the independent Office for Budget Responsibility, I have set out plans for a national roll out of rent-to-own schemes, providing good quality rents that are also an affordable step onto the ladder of home ownership.

Support for local authorities and housing associations to build pays for itself through the earnings new homes bring, while central government saves money currently wasted in housing benefit to private sector landlords.

Fixing our broken housing market is a moral imperative but also an economic one.

There is no greater infrastructure need than to be able to house our nation’s workforce.

And, as the Bank of England has highlighted, the failure to build now represents an economic risk to the whole UK economy and not just those families and young people unable to get on the housing ladder.

I believe that Labour must be the Party that offers a different future to the British people, one where everyone can get on.

To do that we must offer a clear and credible vision of how we will reach that future.

As leader I will ensure that we offer that vision.

A vision for a productive economy based on sound public finances, where we tackle deficits and keep debt low through balanced growth.

An economy where the Government works in partnership with business and values the self-employed and entrepreneurs.

Where innovation is nurtured, not ignored.

Where taxes aid growth, never stifle those who are starting out or building up their business.

Where high-skilled and highly-paid workers drive our growth and share in its benefits.

And an economy where world class infrastructure and affordable homes are actually delivered on the ground, not just endlessly promised by politicians in Westminster.

An economy where national success and social justice go hand in hand.

A new economy, an economy fit for the 21st Century and an economy fit for Britain.