Comment: Labour should embrace the smarter state, not the bigger state

Labour should take decisions based on how something works, not who delivers it

Labour Party Rosette


Cards on the table: like most people I’ve not yet decided who I’m backing for Labour leader. Other than tuning out from the group think, what I do know is that whoever wins in September faces a mountain of a task. I’m not claiming that the following is anything other than a small nod in the right direction, but what is clear is that Labour needs to re-evaluate its entire political economy from the bottom up.

Let’s start with some first principles. Much as some on the left would like, Britain isn’t Scandinavia. The British public tend to get a bit twitchy when public spending gets too far above 40 per cent of GDP, and positively antsy when it’s above 45 per cent (as in the 1970s or 2008/9). We broadly like our economy tilted slightly away from government.

Similarly, about a sixth of the British workforce is employed in the public sector. This is a significant percentage, but it of course means the vast majority of people work outside such confines. A traditional default to a public sector base (heck, throw in a chunk of the two and half million unionised private sector workers too) isn’t going to get Labour over the line. ‘Public good, private tolerable’ is just the kind of stuff that can’t deliver a 35 per cent strategy.

Labour must always clamp down on rapacious elements of the private sector (including riskier elements of the City), but the tone needs to be right and not so blanket. The much maligned notion of public-private partnership is not just a backdoor to screwing over the taxpayer, but broadly the entire way any mixed economy functions.

And so the next Labour leader needs to give a coherent message that goes from town hall to Whitehall: Labour is open for business. It will take decisions based on how something works and not who delivers it. It recognises that government needs and should help facilitate a buoyant private sector. It will intervene to correct market failures, but not to over-regulate where it is not needed.

And, whilst there will of course be carrots and sticks to all of this, Labour may need to proffer a few more carrots than of late.

Part of this means, as Liz Kendall has rightly said for Progress, the centre being prepared to let power go. At present the Conservatives own the devolution agenda lock, stock and barrel. Labour need to act.

The cuts borne by councils have hardly always been welcome with open arms, but they have led to a spirit of innovation the previously more comfortable environment kept hidden. And the reality is that this new thinking includes significant and multifaceted engagement with the market.

Before the election I authored a report for the think tank Localis which illustrated that without activities such as sharing service provision with other authorities, negotiating innovative deals with the private and third sectors, and running their own trading companies, eight in ten councils would have to cut services and raise council tax. Labour, Tory, Lib Dem and all shades of council in between are already forging such creative paths – it’s time to acknowledge the reality of what the modern state actually looks like: councils aren’t just about fixing potholes.

And so for example, whilst saying local small business should be further plugged into such supply chains is an entirely reasonable point, claiming any such collaboration inevitably leads to some of the more egregious uses of PFI isn’t.

In any case, this isn’t about outsourcing come what may. Where the private sector can deliver for the public purse it should be invited to do so. But this pragmatic approach can equally include significant insourcing, and the centre should facilitate this too. To get a little specific, creative thinking around the local retention of tax receipts generated by increased council run child care would be welcome; as would tax breaks for municipal enterprise (particularly in areas like energy and payday lending where the free market has clearly underserved consumers).

Broadly, Labour needs to view the smarter state of the future not only as a grudging necessity, but as a way to reinvent itself. The hundreds of millions of local government and police savings identified in the party’s Zero Based Spending Review was a small but positive step in rethinking what the state looks like, but more is needed. Listening to voices like Stella Creasy, Jim McMahon and Steve Reed on the next state would be a good start.

Equally, moving up the governance ladder, Chuka Umunna has been right to champion a reformed version of Local Enterprise Partnerships as central to the Labour vision. In this area, as I’ve set out in detail before, any government should be going beyond the reforms proposed by Michael Heseltine and Andrew Adonis – and pledging even more budgets be devolved to the sub-regional level.

Local businesses working with councils to identify the skills or transport needs of an area over the next ten or twenty years is entirely consistent with a more responsible capitalism. Tristram Hunt has rightly talked of the need for re-skilling our economy over the long-term, and university technical colleges is an agenda Labour need to be further along on too.

These are all areas any review of Labour’s economic thinking need to look at seriously.

In a sense, then, much of Labour’s reform needs to be about the redistribution of where power lies and who wields the spending pen. But, a redistribution of capital will also remain a historic aim of the Labour Party. I get the need for a symbolic casualty of Milibandism, but if taxing a small fraction of the artificial bubble that has built up on two million plus houses is anti-aspiration, then does Labour really want to be pro-aspiration?

Indeed, there’s a strong argument for using such wealth taxation to reduce levies on forms of income (even – perhaps especially – revising views on the top rate, or indeed corporation tax).

An aging population plus the whole Thomas Piketty argument of assets outstripping income means a general shift in this direction may be welcome. Pledging to reverse every Miliband pledge is as knee-jerk as Ed’s own large default to the policy agenda of 2008.

And so this isn’t about a return to the 1997 playbook – not least because Labour’ll need at least one more – possibly two – election cycles to get such a free-ride from the press. But it is about saying that Labour needs to embed a bit more pragmatism into its arsenal.

Opposing everything the government does looks childish. Claiming everything would have been champagne and roses had the Darling Plan of 2010 come into force looks unrealistic. When Labour views the world as it is, not as West Wing fan fiction might have it, it’ll be in with a shot.

Richard Carr is a lecturer at the Labour History Research Unit, Anglia Ruskin University, and a contributing editor to Left Foot Forward. He wrote the book One Nation Britain last year.

31 Responses to “Comment: Labour should embrace the smarter state, not the bigger state”

  1. andywade

    Let me guess. carrots for the rich, sticks for everyone else.

  2. Cole

    While I agree with some of this, public opinion is strongly against privatising public services (eg the NHS). Look at the polls. And there’s little evidence that privatisation generally delivers for consumers, though it does enrich Establishment types such as hedge funders, former Labour ministers etc.

  3. stevep

    The British public is told to get twitchy about anything that doesn`t suit the establishment by a media owned lock, stock and smoking barrels by the establishment.
    Once upon a time a local Council was trying to make soup for the people they represent with less and less ingredients because they had been told they already had sufficient for their needs, the cooker and the pots and pans had to be sold off to the private sector to pay for them. The private sector then rented them back (providing a service) for more than they were worth in the first place. The soup got thinner. The people wanted more carrots in the soup, the private sector provided leeks because they are cheaper and more profitable. The soup got thinner and less nutritious, the ladle was sold off to the private sector to pay for more nutritious ingredients. The soup was still thin but because the ladle had gone, it couldn`t be mixed so the nutritious bits settled on the bottom and became even thinner on the top. The private sector offered to rent the council a new, longer ladle to reach the nutritious bits at the bottom of the pot. The council, because has been forced to sell off most of the equipment necessary to feed it`s people had to offer the long ladle to anyone who could afford it and everyone else had to use whatever they could get their hands on.
    Time passed. The people became too hungry to care about having a say in what ingredients were provided, the council can now only afford to provide a choice to a few people who can afford the long ladle. Everyone else has to survive on the thin soup at the top of the pot.
    Everyone (except those who could not afford the long ladle) lived happily ever after!
    THE END (of democracy)

  4. Matthew Blott

    I’m not sure that’s true regarding the NHS. Most people think privatisation means paying for stuff, they just want free healthcare at the point of delivery something the Tories (and even Ukip) agree with. Scaremongering over NHS privatisation has been done to death and is more likely to turn the public off.

  5. GTE

    Labour must always clamp down on rapacious elements of the private sector (including riskier elements of the City),


    The UK government made 600 bn from the bail out.

    Meanwhile the UK government has hid 9,200 bn of pension debts off the books.

    Pure socialist welfare state. Pure disaster. So you’ll never mention it. You’ll have to scapegoat someone else for that, and its going to be hard. The banks aren’t involved.

    How about lynching the accountants and actuaries?

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