The UK economy is not working. Dramatic reform is needed now.
As the Labour Party decamps to Brighton for sun, sea and several drinks, it’s important to focus on the task in hand. Labour must develop a prospectus for fundamental reform of the British economic model.
The UK economy is not working. The period from 2008 to 2021 will be the longest period of earnings stagnation for around 150 years. Young people today are poorer than previous generations at the same age.
Ours is the most geographically unbalanced economy in Europe, with almost 40 per cent of UK output produced in London and the South East.
Unemployment may be historically low, but work for many is insecure, with limited rights, and it doesn’t deliver a fair share of the country’s economic growth.
For too many people and parts of the country, the ‘economic promise’ of rising living standards has been broken. It’s time for reform.
Fundamental reform of the economy has happened before. In the 1940s the Atlee Government implemented the new Keynesian economics. In the 1980s Margaret Thatcher put into practice the free market ideas of Hayek and Friedman.
The persistent economic problems we have experienced since the 2008 global financial crash demand a ‘paradigm shift’ of the same magnitude now.
What would this look like? The IPPR Commission on Economic Justice is exploring a set of policy proposals over the next year that together would make the British economy more competitive and more innovative; and which would hardwire it for justice.
First, we need an industrial strategy to raise the rate of investment across all regions of the country, in manufacturing as well as services.
To raise overall productivity – and therefore wages – this needs to focus on low-paid, low-skill sectors like care and retail (with predominantly female workforces) as well as sectors at the frontier of innovation such as green technologies and life sciences. Regional development banks may be needed.
Second, reform should rebalance power in the economy, responding to the public’s desire to ‘take back control’.
The Commission will explore whether employee representation on company boards should be mandatory, and how different models of ownership such as cooperatives can be supported.
Third, the rise of digital platform companies such as Amazon and Google requires a new focus on data. At present we readily hand over our data to a small number of powerful multinationals. Is now the time to open public data banks that allow greater access to this vital resource?
Fourth, the Commission is looking at how to create ‘good jobs’ which deliver security and rising living standards once again. Unions are the best way we know to raise wages, but they must modernise to work for people in insecure jobs.
And work should not overtake our lives. As automation gains ground, could we use the productivity gains to enable people to spend less time at work and more with their families, rather than ever increasing consumption?
Finally, for a just economy, the gains must be shared. Returns to capital and wealth are higher than returns to labour, but taxed more lightly.
The Commission will look at the reform of inheritance tax, and removing the tax benefits of investing in property that distort the market for housing, for instance by charging capital gains tax on first homes.
It is also exploring how wealth can be shared to provide everyone with a stake in the economy through a Sovereign Wealth Fund that pays out a dividend to all citizens.
If Labour returns to government in the next few years, the challenges it faces will go well beyond Brexit. Radical ideas to transform our economy must be on the table in Brighton.
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