Labour's Economic Policy: Are We There Yet?

After a severe drought, new policies were showered on the Labour Party conference in September. Both the leader and his shadow chancellor made significant announcements. But does it yet add up to a coherent economic policy? Or can we at least see the outlines of an approach or an economic philosophy?

In trying to answer the questions, I find two immediate difficulties. Firstly, few of the policies are actually new. Secondly, where there are changes, they reflect political positioning rather than economic analysis.

The conference welcomed the reforms to employment rights which will see worker protection strengthened and crucially sectoral pay bargaining expanded. Support for the green new deal comes with an interventionist industrial policy to substitute imported technology with home grown windmills, batteries, electric vehicles and so on. All of which is consistent with recent manifestos.

Other policies announced include rules to ensure fiscal discipline and a target for R&D spending. Outsourcing will be curtailed with a promise of “insourcing” at an unprecedented scale. Rachel Reeves’s fiscal rules are identical to those advanced by John Mc Donnell as shadow chancellor. (Anneliese Dodd had proposed to update them, post Covid, but we seem to be back to the 2017 rules). Insourcing of public services is another idea that sounded radical when John Mc Donnell launched it some years back.

The target of 3% of national income spent on R&D has been government policy for 20 years. Indeed, the Blair government wrote it into a European agreement, the Lisbon Agenda, in 2000 and it was maintained in its successor programme, Europe 2020

Genuinely new are the reform of business rates and the duty of long-termism imposed on company directors, A new body will be created to oversee value for money in public spending, which sounds new but I thought that was already the job of the National Audit Office.

The shock rejection of nationalisation seems to have less to do with effective policy than political signalling. New Labour saw nationalisation as toxic to their brand and were reluctant to use it, even when it became inevitable during the global financial crisis. Sir Kier is signalling a break from the recent past. However, he does not offer an alternative to fix the broken system introduced by privatisation. Poll after poll shows that nationalisation is popular. It is not just economists who have noticed that privatisation has failed but customers as well.

Alongside the holdovers from past manifestos, there are other signs that Starmeromics is not a return to the neoliberalism of the 1990s or the austerity of the naughties. Rachel Reeves’s focus on “the everyday economy” and the shift to sectoral bargaining reflects a rejection of the idea that wages can be set in the “labour market”. Green industrial policy also reclaims power from the market. Indeed, it overturns the liberal idea of free trade. If government will sponsor the development of domestic industries to supplant imports, then trade is no longer free.

However, its radicalism is combined with a “business friendly” framing. Business lobbies have left a mark on the policies on business rates and corporate governance. The business friendly idea is ambiguous and fraught with political risks. For example, most business think a friendly policy would be tax cuts.

Another problem with business friendly policy is that businesses are meant to be in competition. So which businesses are we going to be friendly with? The abolition of business rates is popular with SMEs, not so much tech giants. The change to directors’ duties will please productive companies more than financial companies and industrial policies will favour manufacturing over trading businesses.

Labour does not yet have a coherent economic strategy. In particular, Sir Kier will need to be careful not to let signalling trump effective policy. He will need to exercise caution in dealing with business where the same policy will make a friend of one but an enemy of another.