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What Labour Should Be Saying About the Economy

Instead of caution, Labour should show ambition – it's time to make the case for a transformative recovery which delivers a pay rise to workers and tackles social crises in housing, care and climate.

Rishi Sunak’s mini-budget speech on Wednesday may have raised a lot of eyebrows, but perhaps the most egregious element was his claim to be “unencumbered by dogma.” By dismissing the idea of spending constraints as “dogma,” Sunak sought to draw a line under a decade of austerity politics. In doing so, he implicitly conceded that spending cuts were always ideological and not a matter of economic necessity.

But of course, whatever he says – and notwithstanding breathless talk of the Tories “parking their tanks on Labour’s lawn” – the Tories are still very much encumbered by dogma. In fact, their economic plans are steeped in it. This is one reason why they are spraying businesses and consumers with random cash incentives, rather than simply creating jobs directly by investing in the public sector.

The Job Retention Bonus is the clearest example of this dogmatic behaviour. This £9 billion scheme will give a £1,000 handout to employers next January for each worker they bring back from furlough. As an attempt to safeguard jobs, this is likely to be wholly ineffective: for those who aren’t planning to bring back staff, the amount on offer is simply not enough to change the economics of the situation, particularly in the context of radical uncertainty which the government has done little to ameliorate. Meanwhile, those would have brought back staff anyway are essentially being given free money. Ministers were even forced to override their civil servants, who did not believe the scheme represented value for money.

Labour has rightly been critical of the scheme on this basis – but by stopping there, it has walked into a trap. The Tories have been able to paint them as bean-counting during an unprecedented crisis rather than backing their bold and decisive action to save the economy. Instead of framing its criticism around the idea that public funds are scarce and precious – a losing frame for the left at the best of times, and irrelevant now that austerity has been thrown under the bus – it should be telling a story about why this isn’t a good use of money and what that money should be spent on instead.

That story goes something like this: the Tories are throwing cash at the owners of capital when they should be putting it into the pockets of workers. The Job Retention Bonus is a subsidy for corporate profits: plain and simple. This might make sense if you believe the right-wing ‘dogma’ that corporate profits are what drive investment and thus economic recovery. But it clearly doesn’t make sense to HMRC, who are hardly a bastion of left-wing economic thinking. 

Lasting recovery can only be achieved by putting money in the pockets of low-paid workers, who will spend it and create demand. £9 billion would be enough to give £2,400 to every single one of the 3.7 million key workers struggling on poverty pay – who were offered precisely nothing in last week’s budget.

Still more frivolous is the much-derided ‘Eat Out to Help Out’ scheme, under which consumers will be able to claim vouchers for half-price mid-week restaurant meals, up to the value of £10 per head. Again, Labour have rightly criticised the scheme on the grounds that it fails to address the underlying lack of confidence that is holding people back from going out. 

But again, it doesn’t go far enough. The argument needs to be extended by exposing the flawed ideology that underpins this approach and offering an alternative. Confidence isn’t only about getting a grip on the public health crisis so people feel safe to go out – although, of course, that is crucial. It’s also about government stepping in to safeguard economic confidence. 

The best way to do this would be through a mass programme of direct public investment to create secure, well-paid jobs in sectors like childcare, social care and renewable energy – sectors that are job-rich, socially useful and which the pandemic has exposed as being desperately in need of investment. Alongside this, a minimum income guarantee would give those who are worried about losing their jobs the financial security of knowing that they will never be destitute.

Of course, the Tories do not want to do these things, because they are still dogmatically opposed to expanding the public sector or democratically reshaping the economy towards social ends. Moreover, their damascene conversion to state intervention only extends to investments they (often wrongly) cast as stimulating ‘productive’ activity. It emphatically does not extend to repairing our social safety net to support those deemed ‘unproductive’ – even though the pandemic is likely to make involuntary unemployment a reality for millions for the foreseeable future.

The closest the government has come to direct job creation is the Kickstart Jobs Scheme – yet another handout for private employers, which will subsidise them to offer short-term, minimum-wage jobs to under-25s. There has been no indication that this support will be targeted at sectors deemed ‘mission critical’ to addressing challenges like climate change or the care crisis. Once again, it is simply a form of corporate welfare: underwriting the same private businesses to offer the same low-paid, insecure jobs that made people so vulnerable to the effects of the pandemic in the first place.

Yet the crisis has made it painfully obvious that our ‘flexible’ labour markets are a disaster. Strengthening workers’ rights and boosting the minimum wage would give more people the means and the confidence to spend without worrying about the future. But the Tories still subscribe to the dogma of supply-side economics, which dictates that such moves would be a disaster, making life harder for the go-getting entrepreneurs and investors who are the engines of recovery.

Of course, none of this is just about ideology. It is also about the vested interests this government represents (and after all, these two things are never really separate). In case this was in doubt, they offered a stamp duty cut to landlords and second home owners at a cost of £1.3 billion. This is emblematic of the government’s whole approach to economic ‘recovery’: pump up the housing market, protect the interests of capital, and on no account empower workers or expand the public sphere. Many things may have shifted in British politics in recent months, but the economics of ‘trickle down’ is still alive and well.

The Tories must not be allowed to get away with their Rooseveltian rebrand when their actual policies are anything but. Nailing them on this requires more than just critique – it demands an alternative. With polls showing just 12% of people want to go back to the ‘old normal,’ it’s past time for Labour to step up and offer a new one.