Four Years to Save Britain

Labour currently has no ideas, no vision and no strategy for addressing the many problems Britain faces. But there is a way through, if only Keir Starmer can find the courage.

Keir Starmer addresses the 2017 Labour Party Conference.

Reading his always thought-provoking columns in the Financial Times, it’s difficult to get a sense of Janan Ganesh’s politics. I suspect that with most of the sensible ‘left’ of the Conservative Party having been effectively expelled by Boris Johnson, and the rest given the boot at last year’s general election, he probably feels politically homeless.

I don’t often agree with him, but much of what he said in his 3rd September column made sense, even if it led him to draw the wrong conclusions.

That piece carried the somewhat momentous headline:

The historical necessity of Starmer’s failure

For those without an FT subscription, Ganesh argues that as neither of Britain’s main political parties have any explanation for the situation in which the country currently finds itself, there’s little chance of either of them being able to turn things around. Politics, at least as it has been done for the last 80 years, has reached the end of the road.

Following 14 years of serial Conservative governments during which five different prime ministers failed to come up with a realistic plan, and the country elected to commit economic suicide via Brexit, he suggests the capacity of politicians to any longer make a difference is zero.

The problem Keir Starmer faces, like all conventional politicians, is that Britain’s economic and social institutions are in desperate need of major structural reform to make them fit for the 21st century.

Democracy versus Civilization

In a democracy, politicians depend for their power on the support of voters. But voters are inherently conservative. They tend not to like change. So any suggestion by politicians of changes on the scale necessary to address the problems currently bearing down on us, make most voters run a mile.

But if people won’t vote for a leader who threatens major change as the only way out of a crisis, then democracy would appear to be undermining the future prospects for civilisation, at least if you believe that the world becomes more civilised when more of us enjoy greater economic security.

People understand democracy to mean that by choosing how they are governed and by whom, those they elect will deliver social and economic conditions which broadly suit their interests. But does this really happen? That so many voters are prepared to give up on the two main parties suggests not.

Ganesh hopes that following Starmer’s inevitable failure, people may finally come to accept need for reform of the state. But what he means by ‘reform of the state’ is a smaller, more affordable state. He’s still seduced by the argument that the state ‘crowds out’ the private sector in respect of its capacity to generate wealth and so grow the economy. When in reality, the failure of economies across the world to generate sufficient wealth and distribute it equitably, is a result of the crucial balance between the state and private sectors tipping too far in favour of the latter.

Yes, Britain needs reform, but it doesn’t need a smaller state, it needs to change the relationship between the state and the economy so that the democratic wishes of the majority can once again shape economic policy, instead of the interests of a small minority as represented by the financial markets.

At the same time, politicians need to explain why the decades-long experiment in unfettered free markets has not delivered widespread prosperity as promised, but has instead led to an increasing concentration of wealth at the top.

Today, despite mature democracies in many countries, an elite minority calls all the economic shots. As a consequence, many people have experienced a reduction in their economic security to the point that they now feel worse off than their parents’ generation.

This is a direct result of the remarkable success of minority interests, usually working in cahoots with elected politicians, and having co-opted the support of a sizeable chunk of the better-off professional classes, in placing the management of the economy beyond the reach of democratically-elected national governments.

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No wonder so many people feel their interests are not being represented when politicians have given away the only tool - management of the economy - which would enable them to safeguard those interests.

It’s not surprising that conventional politicians have lost the trust and respect of many voters, a large proportion of who are now happy to throw their support behind unconventional politicians like Donald Trump and Nigel Farage.

Ganesh doesn’t discuss what happens when Starmer’s government has run its ‘inevitable’ course, but the implication is clear: Britain goes down the Trump route under the stewardship of Farage. This is an outcome that looks daily more possible, but one which there’s still time to prevent.

Taking Back Control

Trying to out-farage Farage on immigration and the small boats issue is not going to cut it for Labour. In November’s budget, Starmer and his chancellor, Rachel Reeves, must abandon their pre-election pledges (and explain why they are doing so) and put up income tax. This is the most straightforward way to to plug the hole in public finances and provide the funds necessary to deliver on promised improvements to public services.

Rather than messing around at the fringes of our overly complex tax system, the budget fund-raise should target the tax that generates the greatest share of government revenue. In another post ahead of the budget, I will outline in detail the changes I would like to see. But it’s already clear that all but the very poorest should be asked to pay more, with those at the top contributing most.

It will be painful for many lower to middle income earners, and doubtless enrage many higher earners, but it would allow the government to tell a story along the lines of:

Yes, everybody except the lowest earners is being asked to be pay more, but this will enable us to get public services back up to the standard we all expect and deserve. And higher earners are being asked to pay the most, so the earnings gap will begin to reduce, which, along with improvements in public services should, over the next four years, help to bring about a less unequal country.

Of course, taking back control over the economy by asserting itself on taxation, requires not only a well communicated narrative from the government, but also that the extra cash generated be wisely and effectively spent, and that efforts already underway to improve efficiency and remove unnecessary layers of bureaucracy in the NHS, for example, continue.

There is a widely peddled myth that tax increases are a drag on the economy because they leave people with less money to spend. But as long as the money raised is spent into the domestic economy, or used to repay government debt and so reduce future interest payments thus freeing future tax receipts for public spending, there need be no negative impact. And with the public sector delivering improved outcomes, the private sector should enjoy a boost from a healthier, more motivated and less cynical workforce, and benefit from increased investment in public infrastructure.

And once the bogey of higher taxation has been slain, it may even be possible to have a serious debate about how we fund the state in the longer term. There is a clear need to shift taxation from income and profits on to those assets which relentlessly appreciate in value without any effort on the part of those who own them.

Messaging Matters

Of course, it’s crucial that the government gets its messaging right and does not antagonise that amorphous blob known as ‘the financial markets’ who will, of course, baulk at the prospect of a higher tax economy because it constitutes a redistribution of earnings from those who have more to those who have less. But they can’t have it both ways: if the national debt is too high, the government should be allowed to increase taxes and use some of the extra revenue to reduce it.

All we’re talking about is raising enough money through transparent taxation to pay for the services that people voted for and that only the state can provide; and reducing the reliance of public spending on private lending.

The ‘historical necessity of Starmer’s failure’ is not inevitable. If Keir Starmer is prepared to show courage and upend conventional wisdom regarding taxation, he can still turn things around and win a second term in 2029.

It would certainly represent a change of seismic proportions. The right wing press and Nigel Farage would be apoplectic, but after a while the din would die down, people would begin to notice a change in the quality of public services, and Britain would become a happier place.

Let’s face it. A Farage-led government would be a disaster for pretty much everyone. If Starmer wants to avoid that outcome, the government needs to raise taxes and establish new terms for the relationship between the state and the economy. He still has the chance to show the courage that is the essential ingredient of leadership. And, having become Prime Minister he has a responsibility to do so. The alternative doesn’t bear thinking about.

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