Labour and the return of the state

Is Labour’s ambition to transform Britain’s economic and social model or merely to manage it more competently than the Tories?

By New Statesman

Photo by Greg Kahn for the New Statesman

After Keir Starmer became Labour leader in 2020, a three-part strategy was devised. The first would be to reform the party in the aftermath of its worst general election defeat since 1935. The second would be to provide credible opposition to the Conservatives. The third would be to establish Labour as a government-in-waiting.

Labour’s consistent opinion poll lead has earned it renewed respect but it has also rightly invited greater scrutiny. The party’s economic programme will be central to its return to power. During her recent trip to New York City and Washington DC, Rachel Reeves, the shadow chancellor, boldly declared that “globalisation, as we once knew it, is dead”. This was not an opportunistic political statement but a summation of an economic philosophy for a new era of geopolitical competition. As Ms Reeves remarks in her interview on page 20, “The old model – of the fastest, the cheapest, not mattering about who owns things – has passed.”

In an age of permanent crisis, as we have long argued, the state is returning to its primary function, which is the provision of security. Far from merely ensuring the efficient functioning of the market, governments will be forced to take on ever greater responsibility for their citizens’ material well-being.

In recent years, the Conservatives have presided over some of the largest state interventions in British history – the Coronavirus Job Retention Scheme when people were paid not to work during the pandemic, and the Energy Price Guarantee – and have raised taxes to a postwar high. That the government has done so is not the result of some grand ideological conversion but a reflection of the times in which we live. Wage stagnation, great power conflict, ageing populations, climate change – these necessitate sustained intervention.

Ms Reeves’s ambition is to shape future events rather than merely react to them. “[Harold] Wilson spoke about the white heat of technology,” she told the New Statesman. “But, in a way, this is about the green heat of the technology of the future and the industries of the future. We need to build our own resilience, security and strength.”

The shadow chancellor draws encouragement from “Bidenomics” and the 2022 US Inflation Reduction Act, which includes $375bn of subsidies for green industries. But she is not merely following; in her 2021 Labour conference speech she pledged £28bn a year of green investment and promised “the biggest wave of [public service] insourcing in a generation”.

But as Labour prepares for power, unresolved tensions and ambiguities are emerging. Mr Starmer is under increasing pressure to abandon or dilute the pledge to spend £28bn a year on green investment, which is largely associated with Ed Miliband, the shadow climate change secretary. “The green prosperity plan will only be possible if we have an iron grip on public spending and tax receipts,” Ms Reeves said in her interview, avoiding any reference to the £28bn figure.

The question of how Labour would fund its priorities is becoming similarly urgent. In our interview, Ms Reeves rules out raising income tax, equalising capital gains and income tax rates (as the late chancellor Nigel Lawson did) and introducing a wealth tax. Labour has to date focused on uncontentious tax rises, such as abolishing non-domicile status and levying VAT on private school fees. But should it wish to announce more ambitious policies – such as Nordic-style universal childcare – it will soon need to be much bolder.

There are, at present, two Labours. The first is a party that has broken decisively with the liberal economics of the Blair era and that has embraced past taboos such as public ownership and industrial strategy.

The second is a party that remains scarred by the legacy of four consecutive election defeats. It is by presenting a “small target” – this tendency argues – that the party can quietly assume power.

The task facing Mr Starmer and Ms Reeves is to decide which of these parties will go before voters at the next election. After 13 years in opposition, is Labour’s ambition to transform Britain’s economic and social model or merely to manage it more competently than the Tories?

The time has come for Labour to choose.