Economic rebalancing: Labour must be “more interesting”

by Jonathan Todd

The Labour front bench might not welcome advice from retirees, no matter how dignified. But they’ve got some. “Be a little bit more interesting”, said Peter Mandelson, in response to a question at a recent Progress event. National recovery from the major economic crisis of recent years requires big, bold ideas. He wants Labour to rise to this challenge.

This is the stuff of pragmatic radicalism on economic rebalancing. Pragmatism demands workable solutions to national concerns. The support that politicians, of all parties, proclaim for rebalancing the economy indicates that this is such a concern. The persistence of the imbalances in our economy – between domestic consumption and exports; finance and manufacturing; the south east of England and much of the rest of the UK – attest that this support is inadequate to purpose. A dash of radicalism is needed, for not only rebalancing to be achieved, but for Labour’s arguments to cut through the white noise of mainstream politicians professing support and delivering so little.

Many more elected city mayors are the stuff of this radicalism. Our top heavy state is a drag on economic performance. Elected city mayors are the next step on the devolution journey begun by the last government. The centre for cities and the institute of government recently called for their powers to be beefed up – through, amongst other things, chairing integrated transport authorities and co-chairing local enterprise partnerships. The common sense of people in cities voting for their leaders and retaking command of their destinies should be a truth loudly proclaimed by Labour – as should be the common sense of rewarding hard work.

The tax system can further help to make us into a nation of grafters. This means less tax on income and more on wealth. A land tax could form part of this transition. It would do something to dampen the British tendencies towards property speculation and bubbles. It might also form part of a Labour drive towards tax simplification. Because taxation of land is simple, it would be difficult to avoid.

Labour could win friends from UK uncut to the CBI with a considered drive towards tax simplification. UK uncut should appreciate simplifications that make tax harder to avoid and the CBI should value simplifications that support economic growth. A land tax offset by reductions in taxation on employment would reduce the capacity of the rich to avoid taxation and increase the extent to which everyone keeps the fruits of their hard work. Tax simplification should not be owned by the right. Nor should backing for dynamic financiers and entrepreneurs.

Labour should insist that the Vickers review ends with rock solid retail banks. These, and an expansion of our credit unions, are needed to support household saving. This isn’t just important for households themselves, but to generate funds to be recycled by financiers as investment in firms. Alongside this we need a flourishing of nimble financial services firms prepared to provide capital to enterprising SMEs. Such small businesses must be developed in green manufacturing but they will be more likely to do so if a credible price for carbon can be established.

At the moment this price comes from the ineffective EU emissions trading scheme (EU-ETS). Its failure merits much stronger condemnation, which should come from Labour. It either needs meaningful reform or replacement by a carbon tax. Either approach should be taken forward at the EU level, rather than in the form of the cack-handed move towards a carbon price contained in budget 2011. The likes of Bill Cash bar sensible policy from David Cameron on this. The prime minister is unable to lead in Europe but securing a robust carbon price should be part of the more tightly focused Europe that Labour champions.

Most immediately, the eurozone needs to face up to the tough choices of its on-going crisis. The EU also needs to recalibrate itself to our Asian century. The turbocharged development of the BRICs (Brazil, Russia, India and China) and similar does much to explain the expectation of Gerard Lyons, chief economist at standard chartered, that the global economy will at least double in size between now and 2030. Europe, though, will be in the slow lane unless trade links deepen with the rapidly developing world.

This means more EU activity where it can add value – a properly functioning EU-ETS, completion of the single market in energy, and a sticks-and-carrots offer to all Mediterranean countries equivalent in ambition to that given to eastern Europe on its transition from communism – and much less where it provides little but muddle and duplication. Subsidiarity needs to be taken much more seriously. Not just in terms of Brussels deferring to member states, but to regional and local bodies, such as elected mayors, and, in turn, to communities and individuals themselves.

This hard edged devolution would be driven by a sense of mission. This is what fires the best of the private and public sectors. It’s making Apple great that motivates Steve Jobs. The profits are a by-product. The Steve Jobses of a reformed British state have to be Labour politicians. The government are u-turning themselves into an ever decreasing circle of failed reforms and unfulfilled ambitions, and not least among these is their commitment to economic rebalancing.

Labour can do better. And we will be very “interesting” indeed when we do so.

This is a shortened version of an essay that appears in the new Pragmatic Radicalism publication.

Jonathan Todd is Labour Uncut’s economic columnist.

Tags: , , , ,

One Response to “Economic rebalancing: Labour must be “more interesting””

  1. AmberStar says:

    Land tax is an interesting idea but in the world of virtual businesses – which don’t require the business to put so much as a toe on Uk soil – I’m careful not to get fixated on land tax as a panacea for the problems of collecting tax revenues in a globalised economic environment.

Leave a Reply