New Labour is older than me – it’s more than a quarter of a century old – so how much is still relevant in 2022? Focussing on the economic policies of the 1997 manifesto, I argue a lot is still relevant for today.
Labour’s contract with the British people for the first five years of a Labour government included:
During the Major years, the Tories cut government spending on education as a share of national income by the equivalent of more than £3 billion. Labour committed to reversing that trend. Since 2010, per pupil funding has had a real terms cut, and the gap between state and private school spending per pupil has grown by c.£3,400. As Gordon Brown stated in 2006, Labour should increase state school spending up to spending levels in private schools. Education investment is arguably the best long-term economic growth strategy. You drive skills which creates productivity, which feeds into higher wages, and you support growth. Labour should commit to reversing the trend in education spending again.
The 1997 manifesto committed to, ‘not returning to the penal tax rates that existed in the 1970s… to encourage work and reward effort’. New Labour pledged not to raise the basic or top rates of income tax. In the face of the current economic situation, Labour should keep National Insurance, Income tax, and VAT the same, as well as looking beyond the conventional broad-based taxes to finance public expenditure, such as road pricing, business rates, corporation tax and carbon taxes.
Under the 18 year of Thatcher and Major, the Tories created the two longest, deepest recessions this century. The UK also experienced the slowest average growth rate of any similar period since the second world war. Since 2010, austerity, Brexit, Covid and 2022’s ‘mini’ budget has meant the longest period of wage stagnation in modern British history. We have faced repeated deep recessions and low growth, with limited recoveries; under Labour the UK led the G7 on growth per capita, now we lag all major economies. In 1997, New Labour set key economic rules:
This should remain Labour’s policy now, accepting the Spending Review settlements, but acknowledging the current public sector pay issues, and reversing plans to reduce the size of the civil service to austerity levels.
In the early days of New Labour’s first term, the Treasury was forced to impose a series of stringent cuts, including lowering benefits for lone parents, in order to meet the spending pledges made during the election. Since they later relaxed their spending rules and increased these benefits, the move was economically pointless, but politically vital. Labour must demonstrate to the nation that we are able to prioritise, even when that’s very difficult.
Such dilemmas will doubtless face Labour again, if we return to power. After all, the public finances are in a much worse state than in 1997 and economic growth looks likely to be slower, at least to begin with. As a result, Labour must be realistic about the extent to which current spending can be increased, the end of austerity will be a slow release, not a sudden opening of the floodgates.
In Labour’s 1997 manifesto it notes, ‘there has been a fundamental failure to tackle the underlying causes of inflation [and] low growth’. This is just as applicable now as it was then. Political instability breeds economic instability. Economic stability is vital to promote investment and to sustain growth.
Labour must be trusted with the economy. Trust in governments is earnt in large part via fiscal responsibility. People must trust the government to spend their money properly and effectively. Trust will then give confidence to take bolder policy action in areas such as tackling climate change. In 1997’s manifesto it states, ‘New Labour will be wise spenders, not big spenders’. Labour now are wisely following this message, and I welcome their plan for an Office for Value for Money.
In 1997, Labour championed SME and local businesses. Labour should continue to do the same now. Labour must back the high street by reforming business rates and introducing an online sales tax. It may also be worth exploring whether SMEs, new businesses, and those in R&D, tech and green industries should have lower corporation tax rates. Labour must also be aggressive in pursuing a ‘per revenue’ model of international corporation taxation, so that the likes of Starbucks are forced to pay tax on their UK holdings.
Labour must be pro-business as well as pro-worker. Labour should incentivise entrepreneurialism, innovation and aspiration, but not at the expense of hard working employees. That’s why Labour should commit not just to a National Minimum Wage, as in 1997, but a higher National Living Wage that is the same regardless of age.
There are some areas that I feel New Labour got it wrong. The championing of private capital – such as extending Private Finance Initiatives – a relic of the Thatcher-era. New Labour rightly understood the efficiencies and enterprise culture brought about by the market economy, but we also needed to ensure social justice, and the need to channel investments that deliver social aims and improve welfare. PFI was not a resounding success, with evidence showing costs may even outweigh the benefits. Indeed, in 2018, a Conservative government canned PFI.
In addition, the political constraints on Labour today are also different to those that faced New Labour in 1997. New Labour went too far when it said it, ‘did not believe that public ownership was efficient or desirable’. Labour should favour some publicly owned industries. We have seen recently that there are some industries and assets which must be owned by the State. Despite this, Labour must work in partnership with the private sector to achieve our goals, especially with the Green agenda.
In 1997, New Labour had the foresight to write, ‘there is huge potential to develop Britain’s environmental technology industries to create jobs, win exports and protect the environment’. However, despite a commitment to solar and wind energy, arguing there was ‘no economic case for the building of any new nuclear power stations’ now seems misguided.
A year after COP26 in Glasgow, the UK government must be aggressive, and work with private companies to create a healthy environment for green technological advancements. Going Green can be a quadruple win for the UK:
1) Post-Brexit leadership
2) Economic growth, investment & jobs
3) Levelling-up with Green hubs across the UK
4) Achieving Net Zero
These measures, in line with Labour’s spending commitments, should be financed through an influx of investment, the likes of which Rachel Reeves has already announced. Such an approach can be consistent with a broader commitment to fiscal discipline.
In Labour’s 1997 manifesto, it put reforming the welfare state at the forefront. A welfare-to-work programme to get young people and the long-term unemployed back to work was announced, funded by a windfall levy on the excess profits of the privatised utilities.
Today, unemployment is very low, but economic inactivity is rife. Underemployment, where workers want to take on more hours or work that more fully utilises their skills, is also at a level never seen before in British history. Labour should introduce a similar scheme, funded by taxing the excess profits of energy companies, that seeks to bring the economically inactive back into the workforce, and helping those who want more hours or higher skilled employment to get it. Such a programme must also be coupled with facilitative measures, such as a solution to the epidemic of rising childcare costs, which is threatening the employment prospects of parents, especially mothers, across the UK.
For all that the last Labour government achieved, housing was a major area that was unaddressed. The building of new homes did increase substantially in the early 2000s, but not enough to stem the growing housing crisis. Likewise, whilst the social housing built per year grew, it was by a limited magnitude. Housing is a major area of policy crisis that an incoming Labour government must tackle; this will require deviating from the New Labour record on planning reform, investment in public sector housing, and direct government house-building.
Like in 1997, the UK still needs greater skills, productivity, growth, wages, and a fairer tax system. The 1997 manifesto was bold and it was ambitious. New Labour was bold and ambitious. To win big again, the current Labour Party should be just as bold and ambitious. There is plenty to learn from New Labour, both good and bad. Plenty of the problems identified 25 years ago still persist today, but we live in a different world, and some problems require new solutions.
