'The first 100 days of the new Labour administration will be significant in addressing people’s anxieties. It will be a huge mistake for Labour to stick to Tory fiscal and monetary rules'

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

At long last, after 14 years, the Tories have been booted out of office. Their toxic legacy is a country that is more divided, unequal, and authoritarian.

Labour has inherited a toxic legacy and needs to rebuild the country. Despite a huge majority in the Commons, time is not on its side. Labour has come to power on the back of anti-Tory sentiments rather than specific radical policies. In a 60% turnout Labour’ share of the vote is around 35%, compared to 32.1% in 2019 and 40% secured in 2017 under Jeremy Corbyn’s leadership. The right-wing vote split between the Tories and Reform, and tactical voting opened the door for Labour landslide. This suggests that Labour’s landslide may be precarious. The euphoria will soon evaporate if people do not see a material improvement in their living standards.

The incoming Labour government is committed to economic growth though almost nothing has been said about equitable distribution of income and wealth. People cannot buy goods and services when their purchasing power is systematically eroded. Investment in productive assets remains low. The UK ranks a lowly 28th for business investment out of 31 OECD countries. Brexit has also been a negative factor and deterred trade and investment and Labour needs to have a much closer relationship with the EU, the biggest market at our own doorstep.

A major reason for low investment is the neglect of public investment. Since the late 1980s, the role of the state has been drastically changed. It is no longer an entrepreneurial state that invested in newer industries such as information technology, biotechnology, aerospace and more. Instead, the state became a guarantor of corporate profits as exemplified by privatisations, private finance initiative (PFI), outsourcing and massive cash handouts and tax reliefs to corporations. This has neither boosted private investment nor public investment. Just look at the privatised water industry in England. No new reservoirs build since 1989 and sewage network which is utterly inadequate.

Labour is not offering any new model of investment. Here are some interesting lines in the Labour manifesto: “… investment in the UK is too low. To address this long-standing problem Labour will use every available lever. Public investment, where it supports and de-risks additional private investment”. This means more subsidies, guarantees and tax reliefs, where corporations will own assets and income streams arising from public cash. The manifesto suggests a public private partnership, a new name for PFI. All of these have been tried in the last 30 years and have not yielded significant tangible benefits. With finance industry not showing any appetite for long-term risks it is hard to see how the investment conundrum can be addressed without the return of the entrepreneurial state. This will require the state to create money, borrow, increase taxes on the rich or engage in quantitative easing. Labour has boxed itself by ruling out all of these. Something will need to change.

Household incomes have been particularly hit hard and are a huge obstacle to economic revival planned by Labour. A broader perspective shows that successive governments have facilitated an assault on workers’ share of gross domestic product in the form of wages and salaries. In 1976 workers’ share was 65.1% and it is barely 50% now. Corporations and the rich have been the biggest beneficiaries. Just 1% of the population now has more wealth than 70% of the population combined.

People will not become long-term labour voters unless they feel improvement in their disposable incomes and quality of life. Real terms average pay is lower than in 2008. In May 2024 median pre-tax wage was £28,548 a year, and £24,074 after income tax and national insurance. The Joseph Roundtree Foundation estimated that in 2023 a single person needed income of £29,500 a year to reach a minimum acceptable standard of living. A couple with two children needed to earn £50,000 between them. Buying a home is almost impossible for the average earners. Faced with real wage cuts, people have been forced to rely upon charity. In 2007 there were hardly any food banks, but in 2023/24 there were nearly 3,000 foodbanks. Typical accommodation rent outside London is £1,316 a calendar month in May 20024. In London it is £2,652 a month. 

Workers’ share of GDP can’t be increased without reducing capital’s share. Stronger trade union and worker rights are part of the answer, as well as worker elected directors on the boards of large companies. Corporate profiteering is a major reason for household poverty, but Labour would not impose price controls. Labour can also immediately help households by abolishing the two-child benefit cap, raising income tax personal allowance and abolishing VAT on domestic fuel. The resulting loss of tax revenue can be recovered by ending tax anomalies. For example, by taxing capital gains and dividends at the same rate as wages. So, an emergency budget is needed now not in September.

People distrusted Tories because of the destruction of public services. Some 6.33m patients are waiting for 7.57m NHS England hospital appointments. Seeing a family doctor has become an ordeal. Contrary to the Tory rhetoric there are 1,862 fewer fully qualified full-time GPs less than there were in September 2015. Despite the pandemic and an ageing population, government funding for GPs in 2022-23 was 3.3% lower than in 2018-19. One in 20 patients have to wait at least four weeks to see a GP, a necessary precursor for most hospital appointments.

The first 100 days of the new Labour administration will be significant in addressing people’s anxieties. It will be a huge mistake for Labour to stick to Tory fiscal and monetary rules. Labour did that in 1997 when it adhered to Tory financial plans for the first two years. But we are now in an entirely different position. The economy has flatlined and public services are a pale shadow of their recent past and too many people are impoverished.

Rebuilding the country needs to be treated as national emergency. The King’s speech will outline urgent government policies on 17th July. This will be followed by 4-5 days of parliamentary debates before parliament shuts down for summer recess. It is then expected to return in September for a couple of weeks before breaking for the party conference season, and then returning in October. This needs to be changed. The country is in a dire state and parliament must not have a summer break.

Comments are closed.