A series of new banks, the failure of austerity and some praise for New Labour: McDonnell’s full speech

This is the full text of John McDonnell’s speech at the National Glass Centre in Sunderland today:

The vote to Leave the EU presents every single one of us in politics with a challenge: to think big and adjust our policies rapidly to the new situation.

So today I want to announce a major new commitment from Labour to the British people. A policy that will form the lynchpin of everything else we do to rescue Britain’s communities from decay; and to rebuild Britain’s industries after years of neglect.

Britain’s relationship with Europe and the rest of the world has now been thrown open to question in a way that it hasn’t been for decades.

Labour will not hesitate to defend the interests of working people in the UK, whatever the negotiations throw up.

I have laid down clear red lines that Labour will insist future proposals on our relationship with the European Union cannot cross.
These will protect jobs and existing rights for those who live and work here.

But there are consequences for the domestic economy, too, and it is those that I want to address today.

It is impossible to understand the vote to Leave without understanding how our economy is failing so many.

One part of this is clear.

George Osborne leaves behind a legacy of failure.

We said austerity was a political choice. He chose it. The result was spending cuts on a scale not seen for generations.

We’ve got public services cut to the bone and in some cases beyond.

We’ve got million people using foodbanks in the sixth richest economy in the world.

And investment has fallen, dragging down productivity.

Our economy has become far too dependent on low-paid, insecure work as a result.

Worse yet, spending cuts have hit the places least able to cope with them the hardest.

If you live in one of the poorest boroughs – the bottom 10 per cent on the deprivation index – you’ve seen councils cut spending by £288 per person since 2010. What’s the figure for the top 10 per cent? £44.

Disgraceful injustice. And those who suffer are: elderly people, disabled people, children at risk, council tenants – and council workers who are being asked every day to do more with less.

The injustice here is painful – but it is also unnecessary.

End of austerity

Labour told David Cameron that austerity is a political choice, not an economic necessity. We told him it would fail. We told them their targets would not be met. We were right.

Today, in the wake of the Brexit vote, we can see that argument’s the Conservatives rejected – and Theresa May rejected – is close to becoming a consensus.

The failures of austerity are all too obvious.

Legacy of failure

However, the anger behind that vote runs far deeper than just the last six years.

New analysis from the Resolution Foundation shows that it was long-standing economic injustice that helped drive the vote to Leave.
Communities that had been left behind, with higher unemployment, helped determined the outcome.

So the vote represents the wholesale rejection of an economic model that had been promoted by a few people at the centre of national political life.

That economic model promoted the idea that if a lucky few at the top did well, the rest would surely also benefit.

If you believe that, it’s logical to cut taxes on the rich, and on the big corporations. It’s logical to let tax avoidance rip on an industrial scale.
But here’s what we’re left with. The ruins of an economic model. Lives ruined by low pay, poor prospects, massive debts and a disastrous shortage of affordable homes.

Some were winners, many others lost out.

If you had the good fortune, for example, to work in financial services and own a property in London, you would have done extraordinarily well.

But the better-paid, secure manufacturing jobs that were lost in the rest of the country over the last thirty years were too often replaced by poorly-paid, insecure work.

Some of this work went to those who already live here, but some went to migrant workers from across the EU. We know why they came: to build a better life – and they had, and still have a right to. But too many employers used those new arrivals as exploited labour; kept in the dark about their rights; ripped off; forbidden to organise trade unions; sacked on the spot.

It was to New Labour’s credit that it addressed some of the injustices of globalisation.

Growth in inequality, which had risen so dramatically since 1980, was restrained during its time in office.

But the inequality was not reversed.

The UK has the worst regional inequalities of any current member of the European Union.

And while we have some of the richest places in the whole continent, with central London as the single wealthiest place in the EU, more than three-quarters of the country earn less than the EU average.

We can’t tolerate a situation where too many of our people live in places that are being left behind by economic growth. Under a Labour government – nobody, no town, now community, no region will get left behind.

Stimulus measures and long-term plan

There is growing recognition today that we need a stimulus to mitigate a likely recession, in the wake of the vote to Leave.

Andy Haldane, chief economist at the Bank of England, has argued for a big package of monetary measures to intervene against any downturn.

I urge Theresa May to listen to Mr Haldane – not to any stay-behind right wing fundamentalists from the George Osborne fiasco.

The areas most exposed to any shock and recession will not be the richest.

The North-East exports more goods to the EU than any other English region, per head of population.

It also receives more EU structural funding support than any other English region.

The Government needs to tell us, now, what it’s going to do to stop North East’s trade relationships being damaged by Brexit.

And Government must act to safeguard the £10billion of EU regional funding that is now at risk of being lost.

Either it should ensure funding remains in place, or it must guarantee the funding itself.

Globalisation

Brexit is not happening in a vacuum. All over the world – as we fight to avoid the threat of stagnation identified by central banks – the old assumptions about how the world works no longer apply.

The old idea that states could no longer play any role in the economy is breaking down.

We’ve seen this with steel, where steel dumping by China has been met by concerted state action to protect domestic steel industries, from tariff barriers in the US to nationalisation in Italy.

The Government’s failure to properly protect Britain’s essential steel industry suggests that is not equipped to think through and act on these changes.

There is a risk they will push the effects of any shock from the Leave vote onto the poorest and most vulnerable, and leave the whole economy adrift in an uncertain world.

I fear, too, that the legacy of the last thirty years leaves this economy weaker than it ought to be to cope.

Its low productivity, its dependence on domestic borrowing and its extraordinarily poor current account position all point to deep-rooted problems.

We need decisive action to transform our economy.
We need a break with the failures of the past.
We need an economic strategy that builds on the real strengths that exist outside of the City of London.
We need a government committed transforming economic outcomes for the benefit of the majority of our people, not just the rich.
We need the country outside of the City and Westminster to take back control of their own economies.
We need an economics that insists no one will now be left behind.
Here’s what Labour plans to do.

Investment and infrastructure

At the heart of Britain’s economic problem is poor productivity.

Since 2007, productivity growth in the UK has stagnated.

Every hour worked here on average produces one-third less than the average hour worked in the US, Germany, or France.

Without sustained improvements in productivity, it will be harder to make real improvements in most people’s standards of living.

The underlying problem here is the weakness of investment in the UK.

Investment allows firms and workers access to new technology and ideas, and is the quickest route to drive productivity growth.

Business investment in the UK was falling well before the Leave vote, and now looks set to fall further.

And yet this government is currently looking to cut its own investment.

Government investment spending is set to fall in every year from now until the end of the decade.

This is uniquely damaging, since it is government investment that can provide the long-term spending on infrastructure that the private sector is unwilling to make.

There is a near consensus today amongst economists and responsible organisations on the need for government to invest and provide the secure foundations for economic growth.

From the OECD to the IMF, and the CBI to the TUC, there are demands for governments to step up.

In the case of the UK, weak investment has meant increasingly poor infrastructure.

We have been slipping down the World Economic Forum infrastructure rankings.

This national weakness in infrastructure is then exaggerated by the imbalances in regional funding.

London receives nearly half of all English infrastructure spending.

Spending per head in the capital is more than £5,300.

Spending per head in the North East is just £414.

We know London has exceptional needs, but a gap on this scale is hard to justify.

This isn’t about pulling down the successes. It’s about lifting our sights.

Even raising public investment in the North East to the national average per capita would increase it by £7billion a year.

As the OECD has argued, additional spending on infrastructure where infrastructure is already robust produces lower returns.
It is the places where that spending has been lacking that hold the greatest potential.

Potential

We know there is huge potential here in the North East, as there is across the North of England.

We can start to think about how and where future growth will come from, and plan for it now.

The Northern Powerhouse Independent Economic Review identified particular strengths in advanced manufacturing, the life sciences and the digital economy.

There are world-leading universities and research centres.

The North East is an exports success story.

It is the only English region to run a trade surplus with the rest of the world.

We can see, in ten years’ time, how its economy can build on these foundations as an outward-looking, productive and fairer economy.

But building on those strengths will need more than just the marginal tweaks of past years’ policy.

We need to approach the future with confidence.

Our country needs a programme of economic transformation.

That must start with addressing the funding imbalance, and delivering the investment needed to kick-start high-quality growth.

Infrastructure spending

We should be aiming for nothing less than a transformation of the economies of the North.

The potential here has been identified.

The Northern Powerhouse Independent Economic Review suggested 850,000 high quality additional jobs can be created.

But that vision won’t be achieved without a serious commitment of resources.

At a time of grave and growing uncertainty, it is up to government to support the transformation of economies and to supply the long-term, patient investment where the private sector cannot.

We can unlock the potential of the North of England with a push to deliver the sort of infrastructure and investment it has been deprived of for too long. And we should match this with a new approach to meeting the aspirations of those who live here.

Whitehall doesn’t always know best.

Nor does the City of London.

We should be handing the power to make decisions about local areas back to the people who know them best – those who live here. Devolution has to be more than a slogan. It has to mean trusting those across the rest of the country to make the decisions that are best for themselves. It means giving employees real power in their companies, with seats on boards. It means employee ownership and new co-operative enterprises to give those who work a stake in the wealth of society. Central government should be there as the backbone for this transformation.

The possibilities are clear.

We should aim to match the best in the world for infrastructure and investment. South Korea, Singapore and China are moving to install ultra-fast fibre-optics, delivering speeds of one gigabit per second – or about 300 times current typical UK broadband access speeds. This will be the new frontier in connectivity.

Why shouldn’t the North East aspire to meet that?

And why shouldn’t our towns and cities provide free wifi access, just as they do now in towns and cities across the US. Our transport networks need overhauling.

Rail electrification has progressed too slowly. Bottlenecks and delays directly impact on productivity. This isn’t just about the big plans for high-speed rail.

It means delivering the local improvements in connectivity that will make the biggest difference to those areas currently missing out on the economic and social benefits of high-quality public transport.

There are projects held up by a lack of funding, and a lack of willingness of Government to deliver. We need to break out of the old Treasury model, which thinks that it doesn’t matter where growth occurs, as long as it occurs somewhere.

This is quite wrong. Where growth happens and who benefits from it should be the fundamental questions of economic policy. But to break the hold of Westminster thinking, we need new institutions. Government can commit to spending additional funds.

For a stimulus, Government can and should mobilise its own resources to deliver shovel-ready projects.

But the patient, long-term investment required for future growth needs something new.

National Investment Bank

So today I am making a firm pledge: on coming to power, Labour will set up a National Investment Bank, and a network of regional banks whose aim is to help mobilise £500bn into the economy and transform Britain.

A National Investment Bank, managed independently of government, can raise the financing needed to deliver infrastructure on this scale.
By mitigating the risks and giving a firm, government-backed commitment to funding, it will draw in the private financing that has otherwise been wary of financing infrastructure in the UK.

There are examples across the world of similar, successful banks.

The model of KfW Banks in Germany is one of the most compelling.

By working with regional banks, it helps sustain economic growth across the whole the country.

So as well as our proposal for a National Investment Bank, we would look to establish a network of regional banks, publicly accountable and locally managed, with specialist local knowledge.

These would break the logjam in the British financial system.

By being closer to a locality, and by making decisions based on local needs, they will be able to deliver the capital that our current financial system cannot.

A ‘Bank of the North’ could help unlock the potential of the North of England, delivering finance for critical local infrastructure and supporting lending to high-potential local businesses.

Job creation

It would mean starting to deliver on the promise of high-quality jobs.

Weak investment has damaged job creation, and particularly high quality job creation in the private sector.

The argument that cutting public investment would lead to a private sector resurgence has been proved wrong.

It has led to the zero hours contract economy of mass insecurity and poor pay.

Public funding does not ‘crowd out’ private. Instead, sustained public funding can help ‘crowd in’ investment from the private sector.

The North-East Independent Economic Review suggests that if the North-East had similar levels of private sector job creation to comparable regions, another 70,000 jobs could be created.

With an ambitious programme of economic transformation, it will be possible to beat that.

Crowding in extra private investment by providing the high-quality, public funding.

Together, these will transform the economic possibilities here.

We should be aiming to create 100,000 additional well-paid, secure jobs across the North-East.

The funding to deliver this, and to transform the rest of the economy, should be top priority of any Labour government.

The UK’s infrastructure requirements over the next decade or more come to £500 billion of additional spending.

With £250billion of government funding, we could look to massively enhance the UK’s current public sector net investment.
We wouldn’t just reverse the planned cuts to investment. We would lay the foundations for a new economy.

And with £100billion for new public national and regional banks, on the same conservative leverage ratio as the European Investment Bank we could look to deliver an additional £250billion of long-term, patient investment.

The commitment is substantial.

But at a time when bond yields are the lowest ever recorded, private sector growth is weak, and there are good projects and decent companies crying out for funding, this is the scale of investment we need.

We have to reverse an historic injustice.

Globalisation and government policy have done huge damage to too much of our country.

So much potential has been wasted.

So many lives have been blighted by the failure of the old economic model.
It is time to turn our country around.

Labour has offered bold visions for the future before.

We set up the National Health Service. We delivered a welfare state.

We must now raise our sights once again.

We should now work to build a transformed economy where no-one is left behind.