Wes Streeting may not have launched a leadership challenge against Keir Starmer, but he has called for a “battle of ideas” about the government’s future direction.
When it comes to economic policy, there are (at least) four overlapping Labour camps, which have recently generated a flurry of policies from which the leadership contenders could choose. Here we run through the main ideas behind each camp.
Team Reeves
Rachel Reeves seized on Thursday’s positive economic data – stronger than expected 0.6% growth in the first quarter – as evidence that she has “the right plan”.
As set out in her Mais lecture earlier this year, that involves embracing the opportunities of AI, devolving more tax revenues to metro mayoralties, and seeking to negotiate a closer trading relationship with the EU.
Reeves has also rewritten the fiscal rules to allow for significantly more public borrowing for investment, but is aiming to balance day-to-day spending with tax revenues. To that end, she has raised taxes significantly, with a focus on higher earners and businesses.
Since Donald Trump launched his war on Iran, which Reeves has described as “folly”, she has insisted that any support for households will have to be targeted to the less well-off, instead of the costly across-the-board approach favoured by Liz Truss in 2022.
Reeves is expected to say more next week about how she will shield consumers from the coming inflationary shock.
The chancellor’s outriders have also been arguing that a change of personnel in No 11 could trigger a damaging crisis in the bond markets that would drive up the government’s borrowing costs.
Labour Growth Group
Chaired by the Milton Keynes North MP, Chris Curtis, who described Streeting this week as a “once in a generation talent”, the Growth Group has conveniently just published a policy prospectus.
Grandly titled “An Honest Day: a new economic settlement for Britain”, it argues that too much wealth in the UK accrues to people just for holding assets.
Echoing the “abundance” agenda developed by Ezra Klein and Derek Thompson in the US, it blames this on the “rationing” of assets, as a result of failures by the state – through restrictive planning regulations, for example, or policies that make energy expensive.
To tackle these challenges, the Growth Group calls on the government to lift the tax burden on workers and focus on cutting the cost of basic essentials.
It would like to see the tax rate on capital gains and income to be equalised, for example – completing a shift already begun by Reeves. It says the additional revenue raised could then be used to fund a 2p cut in employee national insurance.
Regulations should be cut back for many markets, the Growth Group argues, but the state should stop colluding in what it calls “fake market capitalism” for essential services such as water.
To that end, it calls for long-troubled Thames Water to be allowed to collapse into government control. “The message should be unmistakable: the public is not the backstop for owners who treated essential infrastructure as a financial chip in a casino where they never lose. In essential services, ownership comes with obligations.”
Other policies include devolving more power to the mayoralties and reining in the Treasury, which it argues currently acts as “the unaccountable veto‐player over the elected programme”.
Tribune Group
In an edition of the policy journal Renewal this week, Labour MPs from the soft left Tribune Group, including the former transport secretary Louise Haigh and the backbench MP Yuan Yang, Tribune’s secretary, gave a similar economic diagnosis.
“For too many people, hard work no longer guarantees rising living standards,” they argued, while, “growth has been too weak, too uneven, and too often driven by asset inflation rather than productive investment.”
They put more emphasis than the Growth Group on making space for more borrowing to invest – with development corporations such as in the Oxford-Cambridge corridor, and planned new towns, able to borrow directly, for example.
Over time, Haigh also argues that the fiscal rules should switch to being measured over a 10-year horizon, to take more account of the long-term benefits of investment – although she cautiously insists this should take place only when the current budget is balanced, to avoid spooking bond markets.
Haigh’s proposals for tax reforms are more radical than anything contemplated by the Growth Group – including scrapping stamp duty and cutting council tax in favour of a new property and land tax and closing inheritance tax loopholes, alongside moving capital gains tax rates closer to income tax.
Yang argues that depressed consumer demand is one factor holding back economic growth. To ease the cost of living crisis and thereby boost demand, she urges the government to cut costs for households – echoing moves made by Reeves at last year’s budget but going much further.
Yang’s suggestions include reforming energy pricing to cut poorer households’ bills; capping bus fares and clamping down on the rip-off property management fees charged to many leaseholders.
Any potential soft-left candidate – Angela Rayner, Andy Burnham or Ed Miliband – might be expected to draw on ideas such as these.
A wider constellation of leftwing thinktanks including the New Economics Foundation and the Joseph Rowntree Foundation have also been publishing radical policy proposals, partly in the hope of influencing potential challengers – with the latter advocating rent controls this week, for example.
Mainstream/Manchesterism
Mat Lawrence, the director of the thinktank Common Wealth, has written a lengthy piece for this week’s New Statesman on “Manchesterism”, aiming to encapsulate what lessons could be learned from Burnham’s mayoralty for the wider UK.
A taster for a report to be published by the Burnham-aligned campaign group Mainstream, its central argument is about what it calls a Productive State, doing more things directly, through public ownership – building social housing, for example.
Like the Growth Group, Mainstream would like to see Thames Water placed into a government-run special administration; and like Tribune it calls for public corporations to be able to borrow directly, to finance investment projects.
But it sees this as part of a more ambitious project, for the state to take over where the private sector is failing. Lawrence cites the eminent 20th-century economist John Maynard Keynes, calling for what he called the “somewhat comprehensive socialisation of investment”.
He cites Burnham’s transport reforms as an example of how this can work: “The Bee Network’s restoration of bus routes in Manchester that private operators had abandoned is the practical demonstration: where private calculation withdraws, public provision steps in and serves.”
Lawrence argues the Bee Network has been able to increase passenger numbers and hence reduce costs.
The suggestion is that a similar approach could be pursued in other areas where there are public policy goals the private sector is not meeting – “what has been done for buses can be done with similar ambition for energy, water, housing, and care”.
Alongside a greater role for the state, Burnham is also expected to base his economic pitch on a bolder approach to negotiations with the EU – with many Labour MPs keen to see the government flex the constraints of its manifesto and seek a closer deal.
