Wider economic change critical to Labour’s response on social security

By 08.01.13BlogSeptember 2nd, 2020No Comments

Why does the Labour Party get more fired up about the narrow issue of specific spending cuts than the prospect of more radical economic reform? Luke Hildyard writes for Labour List

George Osborne’s decision to use the recent Autumn Statement to cut social security payments in real terms provided an immediate call-to-arms for many on the left. John McDonnell and Joe Dromey made impassioned arguments opposing the changes on LabourList, and Ed Miliband gave a forceful performance at the subsequent PMQs, saying the changes would hurt people that the Tories ‘never meet and whose lives they will never understand.’ LabourList has subsequently provided analysis showing how the number of people who lose out in key Labour target constituencies significantly exceeds the Tory majority.

The enthusiastic response contrasts significantly with the lukewarm reaction every time Ed Miliband talks about reforming capitalism. And this question of whether Labour wants to make radical change to whole economic system part of its message at the next general election, or to forensically oppose specific public spending cuts, and ruthlessly target the voters affected.

It is understandable if Labour supporters feel galvanised by the party’s commitment to uprate social security payments in line with inflation.

Whatever the merits of this decision in policy terms (and most progressives surely back the notion of supporting those facing the hardest struggle in life), it’s rare and refreshing that it appears to have been taken on the basis of principles rather than political expediency, and has been defended in an open and enthusiastic manner.

By contrast, the Conservatives shouldn’t derive a great deal of pride from their depiction of social security recipients lying in bed all day. There’s an obvious nastiness about this naked attempt to scapegoat the unemployed and working poor as an entire class. But with the use of stock image photos and obviously leading questions in the subsequent advertisement campaign, there’s also a high level of naffness. I think they are laying it on a bit thick if they want to win over the public, and certainly the Autumn Statement have done nothing yet to address the Tories problematic poll ratings.

However, the assertion repeated by multiple commentators after David Cameron and Ed Miliband clashed at PMQs – that the issue of social security payments was of huge significance in terms of setting dividing lines for the next election – is still a bit disconcerting.

The debate around whether cuts are necessary and where they should fall is frustratingly narrow in its scope. While households receiving social security payments shouldn’t be stigmatised or ashamed for doing so, it isn’t a lifestyle that Labour should want for people. The party should make radical reform of the UK economy the centre of their electoral offering, with the aim of substantially reducing the number of people that need state support in the first place.

If that sounds like slightly right-wing language, it shouldn’t. Tackling inequality and out of control pay at the top of the income distribution is one of the most important ways of improving the lives at the bottom. One way of reducing dependency on in-work benefits would be to take a tougher line on big companies that make colossal profits but don’t pay the living wage. The wage share of the national income has fallen from 65% to 53% over the past 35 years, and policies are needed to address this. Stronger Trade Unions and greater workplace democracy are an important part of this.

We are now five years on from the worst financial crisis in most people’s lifetime. Growth remains stagnant, while levels of inequality in the UK are amongst the worst in the OECD.

Case studies from ICI (which collapsed after pursuing a disastrous course of speculation and acquisition rather than concentrating on its core business) to BP (which ended up with a $100 billion clean-up bill for the Gulf of Mexico oil spill after undertaking dangerous cost-cutting measures) show how UK businesses obsession with short-term share price increases encourages behaviours that are immensely damaging in the long run. Economist Andrew Smithers argues that corporate resources invested in share price manipulation through stock buyback rather than genuine innovation is inhibiting the economic recovery, and that this is currently incentivised by the conditions of executive bonuses (again linked to share price increases). This explains why business investment in the UK is lower than in France, the US, Germany and Japan, and why our few remaining world class companies are concentrated in the financial services and commodity extraction sectors.

With the UK public’s trust in business the fifth lowest across 25 countries surveyed as part of the Edelman Trust Barometer survey, there has never been a greater need or popular appetite for radical economic policies. Merely redressing the balance through more generous social security payments than the Tories would provide just isn’t enough.

To his credit, Ed Miliband has recognised this with some tentative moves towards tackling the problem of inequality at source through the ‘predistribution’ agenda. His responsible capitalism agenda articulates the idea of a private sector that benefits society as a whole, while Sir George Cox is chairing a policy review into business short-termism.

These are undoubtedly positive steps, but it is perhaps a little worrying that they don’t seem to have fired up the party or the wider left in the same way that the much narrower issue of social security payments has done.

(This article originally appeared on Labour List)