The balance sheet

7 Jul 10
Things really did get better under New Labour. But now we need a new settlement for progressive politics and public service reform, say Lisa Harker and Carey Oppenheim
By Lisa Harker and Carey Oppenheim

16 June 2010

Things really did get better under New Labour. But now we need a new settlement for progressive politics and public service reform, say Lisa Harker and Carey Oppenheim

Events have moved so fast since the election that the end of the New Labour era seems almost like ancient history already.  But while it is understandable to want to look to the future, it is also important to reflect on New Labour’s lasting ­contribution to progressive politics. 

During 13 years in power, the Blair and Brown governments made significant changes that improved life in Britain – but, of course, they also made mistakes. The ­lessons from this era need to be learnt by progressive ­politicians.

New Labour’s overarching ambition in 1997 was to ensure economic stability and throw off the reputation for fiscal ­incompetence that had dogged past ­Labour governments. Policy was focused on investment in education and employability to enable individuals to thrive in a largely unregulated capitalist economy. Social justice and economic efficiency were mutually reinforcing; growth was a prerequisite to an effective social policy; and flourishing citizens were necessary for a strong economy.

Where there was a concern with ­tackling disadvantage, it was poverty and social exclusion that mattered rather than inequality. The policy was to have an ­income floor established through the statutory minimum wage and labour market mobility. It was argued that little could realistically be done about overall income inequality. 

New Labour’s early economic management eschewed tax and spend in favour of wealth creation: economic growth rather than tax receipts generated ­resources to improve the lives of poor people.  New Labour actively sought to woo the City and establish itself as the party of enterprise. As such, it fully endorsed a lightly ­regulated financial sector.

Ten years of unbroken growth seemed to justify this approach – but then came the crash.  So where has this left us? At one level, New Labour altered socio-­economic policy for a generation.  An obvious example is the minimum wage, which has succeeded in providing a vital buffer against a rampant free market without threatening employment levels. Another example is child poverty – half a million children were taken out of relative income poverty and almost 2 million were taken out of absolute income poverty. Despite the Conservative/Liberal Democrat coalition’s proposed welfare cuts, there is no question of them rolling back the New Labour focus on tackling poverty as a ­policy priority.

On redistribution, the policy focus was virtually entirely on Tax Credits and benefits; the tax system was not made fairer under New Labour until very recently. And these policies were unable to tackle inequality – which affected not just income, but also social mobility and  levels of wellbeing.
The lesson is that using tax and benefits policy to mop up the impact of a global economy will only get you so far. If we are to overcome this challenge it will involve intervening more radically in the economic power and assets that individuals have in the first place.

The crash highlighted the ascendancy of the financial sector in our economy, and that manufacturing was moving in the opposite direction. Earnings galloped at the top of the income scale, providing a growing contribution to the public coffers, while at the same time widening the inequality gap. By the time Labour left office, it had moved into firmer regulation and to taxing incomes at the top. And the fiscal stimulus contained a strong element of sustainable green investment and jobs.
But the challenge now is to develop an economic model that relies neither on unfettered markets nor on old-fashioned Keynesian demand management. A new form of capitalism is called for, one based on a greater diffusion of power. 

In the reform of public services, the priority for New Labour was to reverse the many years of underinvestment. The flow of new cash was accompanied by a suite of targets aimed at ensuring accountability and value for money. New Labour’s approach was characterised by top-down initiatives from the centre, combined with tough performance measures – symbolised, for example, by the introduction of numeracy and ­literacy hours in schools.

This ‘command and control’ approach to public services was combined with significant investment – total managed expenditure increased from 36% of GDP in 1999/00 to over 43% in 2008/09. And it yielded major initial benefits. These included: reduced hospital waiting lists; improvements in child mortality and survival rates for heart disease and cancer; better exam results; the narrowing of the results gap between schools in poor and affluent areas; and infrastructure improvements.

By contrast Labour also drove reforms through choice and competition, followed by a focus on personalisation of services and citizen empowerment. It became clear that record levels of investment had not yielded the changes that New Labour had sought and public sector productivity had not increased in line with additional funding. Many entrenched social problems remained despite investment and reform. Targets were scaled back and the focus shifted to a set of ‘citizen entitlements’. Increasingly, changing behaviour rather than ameliorating symptoms was recognised as important, although these policies ­remained underdeveloped.

New Labour also seesawed in its view of local authorities, initially bypassing them by setting up new bodies and institutions outside their control, such as Sure Start and Connexions, and freeing up services from local authority control (notably schools).  But then it gave councils new powers in further ­education and in relation to Every Child Matters.

During a long period of increased investment in public services, such contradictions went untested. But, in tougher economic times it will not be easy to ­ignore them. Progressives now need public service reform that is not reliant on high growth in public spending.

Overall, New Labour’s legacy on public services amounted to an acceleration of the postwar trend of centralisation. The centre itself remained largely untouched. Despite the creation of the Northern Ireland Assembly, Scottish Parliament and National Assembly for Wales, New ­Labour’s appetite for sharing power did not extend much further. It cannot claim to have fashioned a ‘new localism’ despite repeated talk of doing so.

Labour leaves office without a strong account of the future role of the state and rather embattled by increased hostility towards central government, expressed largely in terms of anxiety about the size of public spending.  Yet for progressives to revert to an overly simplistic view of the state would dismiss the lessons of the last 13 years. Rather than big, small or smart state we need it to protect, enable and empower citizens, balance national fairness with local flexibility and shape behaviour – but give citizens the freedom to determine their own future. 

 As a political project, New Labour was remarkably successful. It was committed to social justice within a market economy, but believed it could achieve that without unpicking the economic model it inherited. Its audacity was in rethinking ­Labour’s traditional positions, but this led it to be timid in addressing structural problems in our economy and setting out a more radical and ambitious view of how we might live as interdependent citizens.

Now, there needs to be a new settlement between democracy and markets. A much greater role for state intervention internationally in global markets should be set alongside greater dispersal of economic power and assets at the local level.

At the same time, we will need to weave sustainability into the economy and society through new forms of innovation and creativity, as well as confronting a profound political challenge to persuade people to live their lives differently.

Finally, we need to think afresh about how change occurs. We should turn our attention to power, voice, autonomy – and to establish what things that give individuals and groups the confidence and capacity to chart their own lives.

Lisa Harker and Carey Oppenheim are co-directors of the Institute for Public Policy Research

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