Labour’s economic cause

Money

When Ed Miliband first started talking about the ‘squeezed middle’, many in the political and media establishment professed confusion. But it didn’t take long before the phrase began to appear in newspaper headlines, with the Oxford English Dictionary pronouncing Ed’s coinage their new ‘word of the year’ in 2011.

Why has this phrase gained such currency in such a short space of time? It’s because family incomes and living standards are under unprecedented pressure.

Families with children are, on average, £450 a year worse off as a result of last year’s VAT rise and, according to the Institute for Fiscal Studies, another £511 worse off this year because of further cuts, freezes and restrictions to benefits and tax credits.

In addition, unemployment, underemployment, and stagnant or falling wages are weighing heavily on household incomes. New analysis I commissioned from the House of Commons Library shows that the deterioration of the economic outlook since George Osborne’s 2010 spending means that the real disposable income of the average UK household will be £1,700 lower in 2015 than was then expected.

As the failure of the government’s economic plan becomes clear, with the years of austerity and uncertainty stretching on into the future and no sign of light at the end of the tunnel, people are asking if we just have to accept all this, or if there is an alternative.

That presents an opportunity and a challenge to Labour. We need to show that is there is much more that could be done by an active government determined to find a fair way through the tough times we are living through, and put our economy on the path to a better future.

An absolute precondition for real improvement in living standards for most families is economic growth. That’s why we have been urging the government to take action to restore business and consumer confidence, stimulate investment, and tackle the current crisis of joblessness and underemployment.

Second, tough decisions on tax, spending and pay cannot be avoided. But when money is tight, our values and priorities matter all the more. A Labour government would make fairer choices – for example, reversing the Tories’ tax giveaways to the richest one per cent so we can do more to protect incomes and opportunities for those on low and modest incomes.

While tax credits and support for families will remain critical to reducing poverty and rewarding work, a Labour government could achieve far greater leverage over social and economic outcomes at much lower cost to the taxpayer if it found ways of addressing what Jacob Hacker has called the ‘pre-distribution’ of income and opportunity. That means rebalancing and restructuring our economy to improve the availability of good jobs paying a decent wage as well as regulating and reforming markets to contain the costs that families face.

This is an enormous challenge, but it is opening up exciting new frontiers for policy development.

For example, a bold government ready to challenge powerful providers could do much to contain the costs that families face – reforming energy markets, regulating rail operators, getting banks and pension providers to be more transparent about fees and charges, or improving the availability of affordable housing (for first time buyers but also in the private rental sector).

We also need an active government strategy to increase the availability of high quality jobs. I am working with Ed Balls and Chuka Umunna to identify the levers we could use to boost investment in cutting edge industries: from a more strategic use of government procurement to incentivise innovation, to examining the role that a British investment bank could play in getting more finance into strategic infrastructure and high growth sectors.

Raising living standards for all will also mean quality-raising investment in high employment sectors like retail or social care – turning what for too many are low-status, low-paid jobs into jobs that are properly valued, better paid, and offer a real chance of career progression and personal development.

Finally we need to ensure that the proceeds of rising productivity are broadly shared. We can’t take it for granted that the gains will trickle down if wages aren’t set in a way that is responsible, accountable, and equitable. The fact that one in four British workers are paid less than the living wage, and workers at the median have seen their wages stagnate or fall has as much to do with their power as their productivity. The public sector can take a lead in this, setting an example for the rest of the economy. I am working with Ed Miliband to encourage and support more Labour councils to become living wage employers. A Labour government could also build on the success of the national minimum wage by introducing stronger checks on excessive remuneration at the top, and looking at how we can bring greater transparency, and a stronger voice for employees to bear at every level of the pay scale.

We have a long way to go, and we know we don’t yet have all the answers. What’s most important at this stage is that we shift the parameters of political debate so that the hardships and barriers facing households on low-to-middle incomes are at the forefront of politicians’ and policymakers minds. Organisations like the Resolution Foundation are beginning to change this.

It’s for the Labour party to take up the cause.

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Rachel Reeves is MP for Leeds West and shadow chief secretary to the Treasury

 

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  • Anonymous

    Labour’s “cause” should be the same as that it was founded on and that certainly isn’t the “squeezed middle”. The cause should be to fight, at every opportunity, for the rights of the poor (waged and unwaged) and most vulnerable.

    Take your Blairite ideologies and you middle-class principles and shove ‘em.

    Get back to basics and fight for the rights of those less able to make their own voices heard. Thankfully we still have trades union leaders who are willing to fight for these people because all Blair and Progress care about is the “middle political class”.

    You lot should tear up your Labour membership and are the main reason I would not rejoin the party.

  • John McCormack

    Spending in the public sector will always be limited by what we can afford, so let’s also focus on wealth creation. Labour should lead the way as providers of opportunity for young people by nurturing their natural entrepreneurial spirit with radical new approaches in education. Let’s find ways to release their energy, separate to getting GCSE’s.