Industrial Strategy

Labour's economic programme

A new approach. Rachel Reeves outlined Labour’s new approach to economic policy in her speech to the Labour Party Conference this week. (Video here.) The Shadow Chancellor focused on rebuilding the ‘everyday economy’ as a solution to the deep pre-pandemic problems of the UK economy, which she identified as falling growth rates, flatlining productivity, a plummeting trade balance, widening regional and other inequalities, and stalling pay growth. 

  • Diagnosis of the problem. Analysis of these five economic problems lay at the heart of the report of the IPPR Commission on Economic Justice, Prosperity and Justice. IPPR last week published its follow-up report analysing the UK economy after the pandemic, calling for a radical shift in four fields of economic power. (Twitter thread summary here)
  • The everyday economy. First used by IPPR in arguing for a new approach to industrial strategy in 2017, the concept of the everyday economy was elaborated by Reeves in a pamphlet in 2018. It focuses on those core but often overlooked sectors which provide the foundation for all other economic activity and which employ large numbers of people in every part of the country - sectors such as retail, transport, energy, water, health, education and care. Noting that these sectors “employ a lot of people but too often pay low wages, employ workers in precarious situations, and suffer from low levels of productivity,” Reeves argued that these should be a primary focus of industrial strategy. 
  • Origins and critique. The ‘everyday economy’ idea draws heavily on the concept of the ‘foundational economy’ originally developed by Karel Williams and colleagues at the University of Manchester’s Centre for Research on Socio-Cultural Change (CRESC), who have published many reports and articles on the topic. Former head of CLES Neil McInroy analysed the political economy of the everyday economy approach in an article in The Political Quarterly. Reeves replied to McInroy’s critique here.
  • Industrial strategy. The everyday / foundational economy idea is also linked to the concept of ‘social infrastructure’ developed by Jérôme De Henau, Sue Himmelweit and the Women’s Budget Group. Himmelweit explained this in a chapter in Craig Berry’s e-book What We Really Mean When We Talk About Industrial Strategy and discussed it on Ed Miliband’s ‘Reasons to be Cheerful’ podcast earlier this year. Isaac Stanley has outlined “an industrial strategy for the foundational economy” in a report for Nesta, focused on government investment in undervalued sectors to increase pay and reduce gender, racial and regional inequalities, while Common Wealth have set out an industrial strategy for adult social care to restructure the sector from one “dominated by for-profit provision to one that puts the needs of people first”.

“The first green chancellor”. Reeves announced a decade-long investment programme of £28bn per year in the “green transition”. This would “invest in good jobs in the green industries of the future: giga-factories to build batteries for electric vehicles; a thriving hydrogen industry; offshore wind with turbines made in Britain; planting trees and building flood defences; keeping homes warm and getting energy bills down; good new jobs in communities throughout Britain.“ She didn’t, however, refer to this as a “Green New Deal”, despite the resolution in favour of a Green New Deal passed by the conference and Ed Miliband’s committed support in his conference speech (“this is the cause I came back to fight for.”) 

Taxation and fiscal policy. Reeves made a series of announcements on taxation. She pledged to end the tax benefits of charitable status enjoyed by private schools, with the £1.7bn a year saved going to state schools. She promised to abolish business rates, replacing them with a new - but as yet unspecified - system putting online businesses on the same tax footing as high street retailers. (She singled out Amazon as a key target: “If you can afford to fly to the moon you can pay your taxes here on earth.”) She said Labour would review all tax reliefs and abolish those that do not “deliver for the economy or the taxpayer.” And she almost-but-not-quite committed to equalising the tax rates on income from wealth - particularly dividends and capital gains - and income from work, a longstanding reform proposal. (Might this be filled out in Keir Starmer’s speech on Wednesday?) 

  • Analysis. Tax Justice UK’s Robert Palmer analyses Reeves’s proposals in this twitter thread. TJUK’s recent report, Pandemic Profits: who’s cashing in during Covid”, identifies six companies making £16bn in excess profits over the pandemic. Tax Watch’s George Turner pointed to previous research pointing to companies not paying any corporation tax
  • Alternatives to business rates. Both IPPR (also here, and, to be fair, here) and NEF have called for business rates to be replaced by a land value tax, levied on the value of land in its undeveloped state. This would be fairer, and it would enable the community to capture the increase in land values which occurs when planning permission is given, a longstanding reform proposal. 
  • Taxing wealth. For more analysis and resources on this, see our recent Digest
  • Tax reliefs. The tax system includes a very large number of tax reliefs, particularly for businesses. Reformers have long wanted to reduce the number but Chancellors have always found it difficult, since almost all have some kind of purpose and a constituency which will complain loudly. The Office for Tax Simplification conducted a review in 2011 which explained the issues. IPPR has argued that tax reliefs for research and development are particularly inefficient (largely subsidising R&D which would have occurred anyway) and should be phased out. 
  • New fiscal rules. Reeves also said that Labour would adopt new fiscal rules “that will bind the next Labour government to ensure we always spend wisely and keep debt under control”. Though she did not spell out the details in the speech, she elaborated in her pre-conference interview with the Financial Times, setting out a series of rules including, in the “medium term”, balancing the current budget and putting debt “on a downward trajectory”. Labour’s rules, Reeves said, would sanction borrowing to invest in infrastructure, introduce a permanent mechanism for suspending the rules if the economy was hit by an “exceptional shock”, and would look at public sector assets as well as liabilities. 

Insourcing. In her speech Reeves targeted the Government’s over-reliance on outsourcing (citing companies like Serco) in its response to the pandemic. She promised that a Labour Government would institute “the biggest wave of insourcing in a generation” to reduce wasteful public spending and bring public contracts and services back into the public sector. The Institute for Government shows how insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands. 

Progressive procurement. Reeves emphasised Labour’s previously announced plan to “make, buy and sell more in Britain”, through which it aims to award more public contracts to British businesses and support the ‘onshoring’ of manufacturing capacity.

  • Community wealth building. This approach to public spending has been championed by local and regional authorities across the country with the help of CLES, originating with Manchester City Council and then being developed by Preston Council and others. See CLES’s Community Wealth Building Centre for Excellence for examples and principles of best practice in progressive procurement.  
  • Office for Value for Money. Reeves also announced that Labour would create a new Office of Value for Money to keep a “watchful eye on how public money is spent”. This proposal came from a recent Fabian Society report. Interpreted too narrowly, the concept of ‘value for money’ may be in tension with the commitment of progressive procurement to maximising social value rather than focusing on a narrower definition of public service costs.   

Employment rights and collective bargaining. Earlier in the Conference, Deputy Leader Angela Rayner and then shadow minister Andy McDonald published a Green Paper on Employment Rights, setting out more detail on their ‘New Deal for Working People’. The centrepiece is a commitment to ‘fair pay agreements’ in key sectors. These would set out national pay rates and working conditions and would be achieved through sectoral collective bargaining. Among the other key elements of the Green Paper are: 

  • an immediate increase to the minimum wage to at least £10 per hour for all workers
  • the creation of a single status of ‘worker’ for all but the genuinely self-employed giving all workers the same rights and protections, including rights to sick pay, holiday pay, parental leave and protection against unfair dismissal from day one 
  • the right to flexible working for all workers as a default from day one, alongside the ‘right to switch off’ outside of working hours
  • a ban on zero-hours contracts and an end to ‘one-sided flexibility’, with all workers having the right to a regular contract and predictable hours
  • an increase in Statutory Sick Pay (SSP) and making it available to all workers, including the self-employed and those on low wages currently excluded by the lower earnings limit for eligibility 
  • ending fire and rehire 
  • extending statutory parental leave, introducing the right to bereavement leave and strengthening protections for pregnant women 
  • updating trade union legislation to strengthen employment rights and power to organise collectively
  • overhauling the enforcement of rights and protections by establishing a single enforcement body to enforce workers’ rights, inspect workplaces and bring prosecutions and civil proceedings against bad employers 
  • introducing mandatory ethnicity pay gap reporting to mirror gender pay gap reporting, and a new requirement on employers to report and eliminate pay gaps
Weekly Updates

Fiscal policy and macroeconomics

Financial crisis in China? Economist Adam Tooze produced an explainer of the Evergrande crisis in China, collating various links to explore how the “Lehman-style implosion” could be “another test of “Keynesianism with Chinese characteristics”.

The EU’s fiscal rules. Economist Joseph Stiglitz calls for a “new, more flexible and more thoughtful approach to macroeconomic and fiscal management” in an article for the FT to promote Fiscal Matters’ week of debate on fiscal rules.

  • Evidence and justification. NEF’s Frank van Lerven translated a French initiative of ~30 economists, parliamentarians, trade unionists & reps of civil society’s call for reform of EU fiscal rules.

Should the MPC tighten monetary policy? Oxford economist Simon Wren-Lewis explains why “monetary tightening is a bad idea” in the current recovery phase because “inflationary shocks hitting the economy are temporary”.

Industrial strategy

The renaissance of industrial policy. Economists Mariana Mazzucato, Rainer Kattel and Josh Ryan-Collins from the UCL Institute for Innovation and Public Policy have explained in the Boston Review why there is an international shift in economic policy which embraces an active role for government in spurring growth and innovation.

Resilient supply chains. A new briefing from the White House on “Preventing and Addressing Supply Chain Disruptions” describes the Biden Administration’s strategy to create an economy more resilient to shortages in strategic industries like computer chips.

  • Building capacity for the green commodities supercycle. Andrew Janes, David Stringer and Adrian Leung discuss the “green” commodities supercycle in an article for Bloomberg Green. The authors highlight the need for public investment to build supply chains for materials critical to the energy transition, such as for EV charging infrastructure and lithium-ion batteries. 

Job creation where it is most needed. Bloomberg’s Lizzy Burden covers IPPR’s call to ‘boost it like Biden’ and invest in skills and transport to tackle the jobs crisis. Analysis from IPPR suggests that there is “more slack in the labour market than official estimates show” and raising public investment to 5% of GDP will create more jobs in the middle of the pay spectrum. 

A just transition for heavy industry. Ed Miliband proposed a 10 year £3bn plan to help the UK steel industry transition to net zero which drew heavily from IPPR North’s report on the future of Northern steel and recommendations from IPPR’s Environmental Justice Commission.

Housing and local economies

Public-common partnerships. Common Wealth published a report on Public-Common Partnerships (PCPs), a model for councils and other public bodies to work with communities to design, manage and expand public and common resources. 

  • Not Public-Private Partnerships. The proposed governance model is in opposition to the “failed approach for public-private partnerships”, aimed rather at facilitating “collectivised ownership and control over key assets and infrastructure, creating new spaces of commoning and democratising landscapes and economies”. 
  • Taking back control, illustrated. The report explores case studies from the Seven Sisters Development Trust to illustrate how ‘common associations’, rather than private developers and speculators, can take control of assets, resources and planning. 

Berlin votes to socialise housing. Berliners have voted in a referendum for Berlin’s city government to expropriate apartments owned by corporate landlords with at least 3,000 units. 56% of voters were in agreement. Though the referendum is not binding, the vote has increased pressure on the city government to buy apartments from larger landlords

Levelling up is impossible without proper devolution. New Local wrote an open letter to Michael Gove arguing that “inequality and centralisation are directly linked. So, levelling up is impossible without proper devolution”

Community wealth building’s role in the just transition. CLES’s Ellie Radcliffe wrote a briefing for LGC Plus explaining how local authorities can use community wealth building practices to further social, economic and environmental justice.

Proportional Property Tax. A report from WPI Economics found that replacing council tax with a Proportional Property Tax and abolishing stamp duty could release 600,000 homes onto the market and rebalance regional inequality. The Fairer Share campaign summarised the report in a short twitter thread.