“A radical overhaul” – Rachel Reeves’ full speech at The Everyday Economy launch

This is the full text of Rachel Reeves’ speech at Thursday’s launch, hosted by the New Economics Foundation, of her new pamphlet ‘The Everyday Economy’.

Welcome everyone.

Richard, thank you for inviting us to the Trampery this afternoon.

The event has been organised by the New Economics Foundation to launch my pamphlet ‘The Everyday Economy’ and Richard Wyatt kindly offered us this wonderful space. Will Brett of NEF has organised today. Can we thank him.

I want to talk today about political economy. Since 1945 Britain has experienced two models of political economy. The first was Keynesianism which underpinned the social democratic consensus of the post war years. The second is the liberal market consensus we know today, underpinned by Neo-Classical economics.

The first practical application of neoliberal economic policy began back in 1973. A group of Chilean economists had been introduced to the teachings of Milton Friedman and Friedrich von Hayek as part of an exchange programme between the University of Chicago and the Catholic University of Chile.

Following the coup, General Pinochet invited them to initiate a ‘radical austerity programme’. They opened up the Chilean economy to international trade and drastically reduced the money supply and public spending. Capital markets were liberalised, and strategic banks and industries were privatised and sold off to a small group of rich Chilean families. Traditional industries collapsed.

It was a brutal economic experiment that ushered in four decades of globalisation. Our western market economies are transformed. But a super rich global elite has taken the lion’s share of wealth. And our societies have become bitterly divided.

The financial crash in 2008 marked the beginning of the end. Globalisation and world trade have slowed, and in some instances they have gone into reverse. Productivity across most sectors of the economy has collapsed and it is not recovering.

The majority of forecasts predict slower economic growth in the years ahead. Our economy has come to rely on household debt as a kind of Keynesian stimulus, making up for structural shortfalls in demand. Meanwhile technological change is transforming the productive forces of the economy with unforeseen consequences for jobs and for the way we live.

The neoliberal settlement is exhausted. Voters have lost confidence in it. But we need an alternative to replace it with.

What might it look like? I believe that Labour must answer this question and so begin the renewal of our country. The pamphlet I’m launching today, The Everyday Economy, is a contribution to this collective effort.

A tale of two countries

Eight years ago The Trampery set up Tech City’s first start up work space. It now has eight across London. The room we are in today is part of its flagship building which opened in 2014.
Over at Fish Island in Hackney it is building work spaces, homes, cafes and galleries as part of a ‘creative community’.

Fish Island was originally a small industry town established by the Gas, Light and Coke Company in 1865. The redundant areas and abandoned buildings of the industrial era are being turned into post-industrial spaces for networks, start-ups and enterprises. The Trampery is part of London’s creative, vibrant modernity. Non-profit and working for the social good; it is operating between the market and the state at the leading edge of the new economy.

But the Trampery doesn’t need me to boost its exemplary brand. I mention its success because it stands in such sharp contrast to the economy I want to talk about today and so to the divisions in our country that are the consequence of the long period of neoliberal economics.

I am not going to talk in this speech about the bright future of cutting edge creative industries, but about an economy that lies unnoticed in their shadow. It is the man stacking supermarket shelves at 4am this morning, taking the night bus home. The cleaner hoovering at 5am. The mother of three taking her children to school and working the till at Tesco during school hours. The woman caring for dementia patients in a care home. The bus driver on his late shift. The nurse caring, the porter wheeling the trolley, the shop worker, the nursery worker, the migrant worker picking raspberries, the fulfilment centre worker walking and packing and being monitored, the delivery driver checking his app.

Ordinary, taken for granted, hard work by under-appreciated people often earning a meagre amount of money and struggling to get by. Without them our new start-ups would founder. The City of London would seize up. The sick would be left untended; the streets unswept, and the bins uncollected. Our schools, nurseries, care homes, warehouses, food processing centres, supermarkets, hotels, cafes and restaurants, and hospitals would close. The utilities, broadband and our public service infrastructure would fall apart.

This is the forgotten and neglected everyday economy: the low wage, low productivity sectors of retail, food processing, hospitality and supermarkets. A combination of private, public and social sectors in every region of the country whose services, production and social goods sustain all our daily lives. The foundation of our country.

The Centre for Research on Socio-Cultural Change at Manchester University came up with the description of a foundational economy and they calculate that it employs one third of the workforce of England and Wales.

A Labour political economy must begin with this everyday economy of work, family and the places where we live.

Economic failure

First I want to talk about what has gone wrong with our economy.

Over the last forty years of globalisation we have benefitted from the growth in trade and lower prices and for the majority we have become a better and more prosperous country.

But we went further in the liberalisation of our economy than our European neighbours. Our football clubs, power-generating companies, airports and ports, water companies, rail franchises, merchant banks, top-end houses and other assets have been sold off to foreign owners.

Markets expanded into society. Nature, knowledge, social relationships, vast swathes of our personal data, have been captured by corporations and commodified. Privatisation and outsourcing created a crony capitalism.

Companies like Carillion established themselves as corporate partners of the state, avoiding market competition while their directors enriched themselves on a steady flow of tax payer guaranteed revenue. The market reform of the NHS now allows private companies to cherry pick its most profitable parts. The internal market has created a huge bureaucracy consuming billions of pounds of tax payers money as contracts are negotiated and monitored, and data harvested.

The balance of power between capital and labour has shifted decisively away from working people. According to the TUC, wages suffered a 10 per cent fall between 2007 and 2015.
Household debt is rising while the saving rate has fallen. In contrast company directors paid themselves in share options and took huge increases in their income while their productivity failed to improve.

We have become an economy of wealth extraction rather than wealth creation. The banks pursued ever higher returns for their shareholders who included their own management. They borrowed too much and they gambled too much to do so, and they caused the financial crash.

They then starved small businesses of investment in order to rebuild their balance sheets and now they have returned to solvency, it’s as if nothing ever happened. Building companies took a similar approach and rebuilt their balance sheets after the crash using their land banks. What mattered more was the price of land not building homes.

And in the new gig economy, the business model of companies like Uber and Deliveroo shifts the burden of flexibility and risk onto their workers and so sheds all responsibility for them. But it has been the monopolies of the new platform capitalism – Google, Facebook and Amazon – that have been the most voracious: exerting monopoly power over knowledge and information; blocking competitive markets; avoiding taxation; extracting and commodifying information about the personal life and identities of consumers; apparently enabling unscrupulous interests to influence election results by exploiting that data. And whilst these platform businesses make life easier for all of us as consumers, many subject their employees to levels of control and injustice that should shame us all.

And in the old industrial regions once the manufacturing powerhouse of the economy, jobs have been exported to low wage economies or lost through new technologies. Communities have been devastated. The pride and dignity of work however hard was lost to unemployment and poverty. A hidden Britain has grown up in the shadow of the new economy. A country of high levels of chronic physical and mental illness. People working hard for their poverty. Families living in cold and damp homes. Children going to school hungry. The Institute for Fiscal Studies projects that a record 5.2 million children will live in poverty by 2022.

We are a country divided, by age, education, class and region. The EU referendum and the 2017 General Election exposed the gulf between people in the globally connected places of the economic winners, and people in our towns and rural areas, often characterised by low skill, low wage economies.

Our cities and university towns have reaped the benefits of globalisation, but workers in the everyday economy find it ever harder to meet the exorbitant cost of living, especially housing in those places. Meanwhile, many people in our towns fear the redundancy of their way of life and feel disenfranchised and excluded. Schooling and the housing market reproduce segregation based on class and education, and the cultural divide widens as marriages, friendships and social occasions across classes become rarer.

Our economy has provided the majority of us with an abundance of choice in consumer goods.
We can get what we want with a click and have it delivered to our door. But the price of our affluence has been the loss of economic security, the erosion of trust in our institutions, and an angrier and more intolerant society. We are wealthier as a country but more divided and unfair, freer but lonelier, more plural but less sure of who we are.

Britain needs change

We remain a major European power. Our freedoms, our history and our culture are the envy of millions who would want to live here. But we have become stuck in a mood of decline and pessimism that does not reflect our potential. We need change to restore Britain’s role in the world and to safeguard the good in our society. We need a programme of national renewal to grow our economy and to spread our wealth more fairly.

A post-Brexit political settlement. Labour’s task is to build bridges between leave and remain voters, and between the younger and older generations. Joining our cities with our towns and rural areas. Reaching out beyond our metropolitan strongholds, and opening ourselves to those who do not share all our values. A plural and democratic politics of the common good governed by reciprocity- do not do to others what you would not want done to yourself. A patriotic cause against the injustices of unrestrained capitalism.

What would an agenda for the everyday economy look like?

And this settlement needs a new political economy to heal our divisions. We can begin by making sure that our political priorities are the things that really matter to people: decent work and wages, secure families and households, safe and flourishing places to live.

Work defines Labour’s purpose which is to represent the labour interest. Good wages are the principal means of distributing the rewards of economic prosperity and ending poverty. Families in all their shapes and sizes are society’s most precious assets. Love and relationships are what matter most to all of us, and stable households are vital to economic prosperity and security. Place is important because it is where we make our homes and form a sense of belonging. Where we live helps define our life chances. Geography matters.

Industrial Policy has had little or nothing to say about this everyday economy. Our models of industrial strategy concentrate on the cities as engines of growth, on property development,
technological innovation and the high productivity trading sectors.

They neglect the middle and low paid in the low productivity, non-traded sectors. They neglect the civic infrastructure required to develop research and innovation across the whole economy, not just in the high performing firms. And they tend to exclude rural areas and towns from the wealth creating activity they are promoting.

George Osborne’s Northern Power House remains tightly controlled by the Treasury, granting limited powers, and lacking a joined up national plan. The Government’s narrow approach targets only 10 per cent of our manufacturing base. Its focus on research and development largely benefits facilities in the affluent South.

We need a national plan for improving the quality, pay and productivity of jobs in the everyday economy. So I want to focus on three areas of policy which add up to a Labour agenda for the everyday economy.

Work and wages

The majority of people enjoy their work. But too many companies have lost their sense of common purpose and workers increasingly lack protection in the workplace. Many are anxious about decisions that will change their status, increase their workloads or change the tasks they do, and automation is looming as both a promise and a threat.

Labour needs to help people take back more control in their workplace. At least two elected employees should sit on company boards, preferably one third of the total, with similar representation on remuneration committees.

Stronger rights to collective bargaining are vital. We need to support Trade Unions as they innovate new models of labour solidarity to protect workers in the gig economy. New Royal Colleges in sectors such as social care can improve standards and enhance status. And it’s time to end the neglect of our school leavers who don’t go to university and invest in a high quality national system of vocational education and in-work training. And not just for those aged sixteen or eighteen, but throughout our working lives.

As we leave the EU, now is the time for reform for higher wages, and investment in technological innovation and skills.

Families and households

Second let’s talk about families and households. Stable family relationships are the foundation for a successful life. The household is a source of love and care, but also where a huge amount of unpaid labour takes place. It is a vital part of the everyday economy and where we as a society pass on our moral and cultural inheritance – where we share our stories and beliefs and teach our children the importance of sharing, empathy and cooperation.

But austerity, low wages and the burdens of care are putting millions of families under pressure. This can put relationships under strain, and all too often the consequences of pressures hurt children, increasing their chances of suffering poorer employment outcomes, higher levels of smoking, substance abuse, obesity, and poorer mental health. The health and wellbeing of our citizens must always be our first priority.

Labour needs to prioritise care both in the early years and in a properly funded elder care system. We need a fully functioning mental health care service with talking therapies, and a long term strategy to tackle the rise of chronic illnesses such as depression, obesity and diabetes.

It will mean improving funding for the NHS but also switching resources from the high cost of caring for symptoms, to the prevention, reduction and patient led management of their causes.

Labour needs to protect those services that support families and do much more to eradicate child poverty which is rising under this Conservative government. It should also revive family policy development to promote the security and flourishing of family life and kinship.

Place

Britain is one of the most centralised states in Europe. Labour must break with traditional top-down, command and control politics and devolve decision making, resources and tax raising powers to our English cities, towns and counties.

Involving local communities and their insights will lead to better policy, and more responsive and cost effective public services. Policy for helping to develop social integration and a sense of belonging is vital for both an inclusive society and economic development. Effective devolution demands a radical change in how government works.

The state must act strategically for investment, and guarantee citizens with a Universal Basic Infrastructure – the provision of high quality hard infrastructure and access to human capital-building universal services – while genuinely sharing power with local places.

A Unit for Local Wealth Building at the centre of government could create a national economic plan to build local capacity, and organise the cross departmental collaboration necessary for its implementation. We need to spread capital and power across the country. We can do so with a British Investment Bank or the partly nationalised Royal Bank of Scotland or a decentralised Citizen’s Wealth Fund providing commercial loans on a long term basis.

‘Anchor institutions’ such as hospitals, universities, large businesses and schools can be used to help develop local economies through their procurement policy, by driving up wages through Living Wage deals, and by spreading innovation and good practice through their supply chains.

We do not have to wait to be in national government to start work. Preston is pioneering a new model of Labour statecraft. Greater Manchester Pension Fund invests in local infrastructure and housing schemes. Nottingham has set up Robin Hood Energy to tackle fuel poverty and provide local people with competitively priced gas and electricity. And Leeds’ Neighbourhood Networks allow elderly people to live independent lives, contributing to their communities while combating loneliness and social isolation. We can act now.

Tax and spend

These policy strategies offer a joined up approach to improve our everyday economy. Labour can develop these strategies to broaden its electoral coalition and win the next General Election. But we must also win the trust of the voters that we are a responsible steward of their taxes.

Over the next thirty years, the Office for Budget Responsibility forecasts a widening gap between expected public spending and tax revenues. It will create, they say, an ‘unsustainable fiscal position over the long term’. At the next election, voters will be more alert to the levels of borrowing and debt each party will incur. And yet we must have more money for investment in transport, health, schools and housing.

So we need a radical overhaul of the tax system. Half of Britain’s wealth is owned by just ten per cent of adults.

So here are a few suggestions.

Council tax is long overdue a re-evaluation and revision of its existing bands. Or we could replace it altogether with a local property tax.

The 2015 reform to inheritance tax was unfair. It needs to be reset or we should consider a new tax on the receipt of any gifts throughout a lifetime. It would make a tax on all gifts equal, and avoidance more difficult. A land tax could raise funds more fairly from the 0.6 per cent of the population who own 69 per cent of the UK.

40 per cent of UK wealth is in private pension funds. We could restrict higher rate pensions contribution relief. Legislation could require that 20 per cent of all pension contributions be invested in infrastructure development in exchange for tax relief. This could start with local authority pension schemes, as in the case of Manchester.

To help reduce inequality we could increase the tax on the savings and investment income of higher rate taxpayers.

Capital Gains Tax can be reformed by halving the annual allowance, having it paid at income tax rates, and improving tax compliance and collection.

Companies should report on their pay ratios. The differential between their highest and lowest paid could be linked to the level of corporation tax they pay.

These reforms could raise an annual £20bn plus of tax revenues and £20bn of investment funds, which could be used to build up a Sovereign Wealth Fund.

All these ideas need further thought, but if we want to invest in public services, we need to raise money in a fair way to do so.

Labour’s purpose

It is worth reminding ourselves about the history of political economy. Political economy came out of our British Enlightenment and debates about social virtue and the relationship of individuals to society.

The Scottish philosopher David Hume argued that people’s feelings form the basis of our moral values and provide the expression of social bonds that join individuals together into society. His friend Adam Smith argued that sympathy – fellow feeling – is the necessary moral foundation of a commercial society.

For me this social ethic, of fraternity or fellowship, is what defines our labour movement. Its values have been family, work, equality and fairness. In its scepticism of grand theoretical design, and its popular attachment to ancient English liberties, it has always been rooted in national popular life.

The Labour movement built its political power around the everyday economy of work, clean water, utilities, housing, education, and social services, workers education and organisation through trade unions. It grew its roots in local places protecting working people, their neighbourhoods and their family life. A politics of community and belonging was forged alongside workplace struggles.

Labour’s historical role is to be the party of the labour interest. To stand for the common good and to redress the power of capital. Times have changed, we are living in a digital age, but the task remains the same. It is an undertaking for a generation.

Thank you.