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Recovery Bonds Could Form a Left Strategy – If Used Correctly

Rather than giving money to middle-class savers, the Left could push a programme of regional recovery bonds to help the areas cheated by the London finance bubble – before the Tories take renewal for themselves.

Keir Starmer’s big economic proposal in last week’s speech was for ‘British Recovery Bonds’, offered to the mostly middle-class savers who put aside more than £120 billion during the pandemic. Much of the Left has questioned the economic need for this: after all, if government can currently borrow from capital markets at close to the lowest interest rates in history, why bother trying to get these funds?

The bonds would appeal only to a relatively lucky minority. Those able to work from home, saving on transport, and no longer able to spend in pubs or travel for holidays have managed to do quite well financially over the last 12 months. But others, forced to continue working in unsafe conditions, unable to access furlough payments, or simply pushed into unemployment, have done very badly. Labour should be making big proposals to lift the income floor too many have been pushed onto – ideally through a Universal Basic Income, but a Minimum Income Guarantee would be a halfway-house.

The appeal of national recovery bonds to Labour’s leadership is most likely to be political: that Labour now have one ready-made answer to any Tory demands to know how future spending will be paid for – it’ll be through the British Recovery Bonds, and who could possibly question patriotic savers doing their bit for the British Recovery?

But the real political win for the Left lies away from the national alignment of the current proposal, and that is why, with a twist, the British Recovery Bonds contain the germ of a strategy to win. Instead of a national bond, the recovery bonds should be launched with a local or regional focus. This could be done by local and combined authorities without waiting for Whitehall to catch up.

Regional Recovery Bonds are Better

The economic case for the bonds at a local or—ideally—regional level is simple. The £120 billion (or more) of savings that has been built up during lockdown is spread across the country. It is unlikely that worried savers will spend this quickly, even in a recovery, with the Bank of England expecting just 5 percent of the total to be spent. This means that places that otherwise have significant difficulties accessing investment capital—essentially, everywhere outside of London—now have large amounts of money effectively sitting in bank accounts, waiting to be used.

A rough calculation, based on historic savings rates, would suggest for the North East of England, for example, these pandemic savings will be a bit over £4 billion. This might sound like only a small part of the whole, but when the government’s entire annual investment spend in the North East is just £2.8 billion, the size of the money pile on a regional scale is made clear. Even a small part of this £4 billion or so being turned into investment would represent a big increase on government spending.

Or it could be used to invest in small businesses, which again, outside of London and the South East, are starved of cash; in the most recent annual figures, venture capital raised for firms in the North East in 2019 came to £26 million—that’s million, as in one-thousandth of a billion. The Covid cash pile dwarfs this amount. And there’s no reason why an investment fund built from these savings, professionally managed under the direction of a local authority or group of local authorities, should not look to favour funding for employee-owned and co-operative businesses, or steer investments towards creating jobs in critical new industries. Without having to worry about EU State Aid and its other ‘level playing field’ provisions, regional interventions like this can be made freely at a significant scale.

Time is of the essence. Those funds may not be spent rapidly, but they will not be around forever, and the process of rebuilding in the wake of Covid must begin now. So the demand for local recovery bonds is an immediate demand, catering to the specific circumstances of the time we are in – not something to think about in 2024. If made correctly, the bonds could be a step towards achieving a major, intermediate goal: helping to break regional economies from their dependency on financing from London – whether directed through national government in Whitehall, or national financial institutions in the City.

Whitehall and the City Don’t Serve the Economy

There should be no doubt by now that the Whitehall/City system has served the English regions outside of London poorly. The excuse often made for England’s extraordinarily centralised system of local government financing, with only 5 percent of taxes being raised on a local basis, has been that it promotes redistribution, allowing richer areas to fund poorer. Yet for a decade, this centralisation has meant Westminster governments have been able to inflict more serious spending cuts on local governments than almost any other part of the whole system. Real terms funding for local authorities has fallen by an astonishing 40 percent since 2010; worse yet, it’s been the poorest areas that have suffered the most.

But it’s not just the centralisation of day-to-day financing. Whilst Tory spending cuts have targeted the most deprived local authorities across the whole country, including London boroughs, decisions on capital spending—long-lasting things like new buildings, or public transport equipment—by successive governments have been skewed against England outside of London. Yorkshire and Humberside, for example, is set to receive just £844 per head in transport investment, and the North East £855 – compared to £4,155 per person in London.

This Whitehall bias is then reinforced by the pronounced bias of private-sector capital institutions. These are notoriously skewed against small business investment in general, but small businesses outside of London (and, to a lesser extent, the South East) are particularly badly served. Yorkshire and Humber businesses received £96 million of total equity investment in 2017, or about £18 per head. London received £4.58 billion, or around £509 per head. The pattern repeats across the English regions.

So what the pandemic has done, as a side-effect, is create at a regional level what are likely to be very large pools of new wealth, without an obvious home, in places where investible capital has been constrained for decades. More than this, it has offered the opportunity to mobilise those funds in a way that is independent of existing financial institutions. This is important for the future, since decisions about investment taken by institutions based in London—whether in Whitehall or the City—have consistently failed the rest of the country.

Of course, it would be preferable to have a Labour government that could end austerity and rebalance investment. But the next election is nearly four years away, and the building blocks of the recovery need to be put in place now. Decisions taken today, as the economy rebuilds around Covid-19, will determine what shape it is in for a long time to come.

We cannot afford to wait for the general election. Moreover, the blunt truth is that victory at the next election is by no means guaranteed; worse still, the decades-long biases in Whitehall and City decision-making point to deep structural biases that even a majority Labour government would find difficult to tackle. (The last one did not.)

Strategy After Corbyn

This raises a broader issue of strategy, and one the Left must address in the wake of the defeat of Jeremy Corbyn’s Labour. If there was a route to a socially just transformation of the British economy via Whitehall, it was always rather slender, but plausibly a Jeremy Corbyn-led Labour government could have attempted it.

Ironically, it’s likely that some of the more managerial elements of the Corbynite economic programme will be enacted by Boris Johnson’s Conservative government. They are likely to push hard on a jobs-creating ‘Green Industrial Revolution’, given the falling cost of renewable energy, the politics of the so-called Red Wall, and the desire to use the COP26 climate conference (to be held in Glasgow later this year) as a platform for Britain’s new post-Brexit place in the world. But this would be a Tory ‘transformation’ without serious challenge to the power structures in Britain: that is why the Tories are likely to make it, as they did in the 1930s and the 1980s, recognising, like the Leopard, that ‘everything must change so that everything can stay the same’. And the Tories are good at this – much better, looking at the historical record, than Labour.

Nor do they particularly need to succeed in actually delivering much of the programme. The arrival of working vaccines and the ending of lockdown do not mean the end of Covid-19, but they will give a boost to the economy. If further serious outbreaks and lockdowns can be avoided—a big ‘if’, but not absurdly so—that boost can plausibly be sustained until 2024. Whatever the long-term economic prospects, the Tories need to win the election in about three years’ time, not in ten. If it looks like the plan is working to most people by then, that could easily be enough.

It’s not just that the prospects of an election win for Labour next time are slender, and currently fading. It is also likely that the kind of state-centred social democratic programme the Corbyn movement presented reached a political high point over 2017-19, from which it will not be able to recover. This applies to both a full-fat 2019 variant of the programme, or some more watery edition of the same. Should the Tories successfully occupy the political space of what we could call state-led ecological renewal, it’s hard to see the cross-class bloc they want to create—fusing their core vote of state-supported homeowning retirees with state-supported workers in new industries—being broken up at the level of Westminster politics. If they can create this bloc, there is no reason to think they will not be in power for the next decade. There is no guarantee they get there, of course, but in the wake of the Covid outbreak they have the opportunity to move rapidly – and, on current showing, all sections of the Left will struggle to keep up.

The path to challenging this lies elsewhere: not directly in Westminster, but at the level of local and regional political authorities, and through parts of civil society outside of the Westminster party system. One impact of Covid-19 has been to accelerate political fragmentation in Britain: most obviously in demands for Scottish independence, but also in calls for greater Welsh autonomy (even independence) and, in some ways most novel of all, in the appearance of authentic, popular political leadership for England outside of London. The role of the Metro Mayors in articulating a distinctively Northern voice is unprecedented for some decades.

It would work hard against Labourism’s centralising instincts, but the movement must learn to cut with the grain of this fragmentation, rather than try to hold out against it. What the ‘Preston Model’ pointed to, in embryonic form, was the potential to establish new flows of investment and income in areas starved of both – and to do so, via changes in the ownership of assets, in a way that promoted a fairer distribution of wealth. Given the limits on local authority powers, there were and are limitations to what can be achieved directly; but the secret to these ‘community wealth building’ exercises is that they can draw on powers beyond those of local government itself – as, for instance, in the use of anchor institutions to steer their buying power into local and regional economies.

A new political alliance for the Left could be built on the ground. It could start to link up Labour’s existing base, of younger, often insecurely employed workers alongside the public sector workforce, with a slightly older layer of the population, mostly working in the private sector. (This is the political key to local and regional recovery bonds: they literally create a material interest for the bondholders in the successful recovery of a local or regional economy.) It would mean thinking more seriously about how small (ideally worker-owned) businesses could be promoted and supported as the bedrock of renewed local and regional economies. It would mean starting to offer an attractive vision of what fairer, ecologically sustainable and economically independent local and regional areas in England look like – the kind of vision North of Tyne’s Combined Authority has started to develop in its Covid recovery plans, shaping new patterns of work around existing strengths. In practical terms, for most activists, it would mean thinking less about the comings and goings of Westminster, or what the Labour leadership is or is not doing, and more about building alliances outside of the bubble.

The elements of a renewed socialist strategy for England are all there, waiting to be assembled: regional autonomy; a fair distribution of ownership; and the ecologically-led renewal of local and regional economies. The centre can hold; we shouldn’t let it.