A plan for Britain

An aspiring literary man, who went on to become prime minister, once wrote that “a Lancashire village has expanded into a mighty region of factories and warehouses. Yet, rightly understood, Manchester is as great a human exploit as Athens.” This was Benjamin Disraeli, in his novel Coningsby. Manchester, Disraeli went on to say, was “the philosophical capital of the world”. In the days when Marx and Engels met in the library of Chetham’s music school to put the finishing touches to The Communist Manifesto, Manchester was the city of factories. It then became the city of free trade as the Anti-Corn Law League led liberal economics towards bringing down the price of bread for the industrial worker. 

In recent times, Manchester has once again laid claim to being a philosophical capital. This has not meant public ownership, as its mayor Andy Burnham sometimes suggests. The revived Manchester of Richard Leese, the former head of the council, and his chief executive, Howard Bernstein, is a city of public action and private enterprise working in concert. Here, the state does fewer things but does them at the dosage the problem requires. It builds institutions and then steps back to let them operate. It knows when to regulate and when to deregulate. It is willing to make hard fiscal choices out in the open, rather than smuggling them past the country. 

In this Manchester, we can find the basis for what this country needs. If Burnham wins the Makerfield byelection, Britain may soon have a new prime minister. Yet this alone will do no good. The country has had a new prime minister every two and a half years on average since 2010. The common critique of Keir Starmer from Tony Blair, Burnham and Wes Streeting is that the prime minister took office with no plan for government. Philosophically and practically, the government seems adrift. The question facing the Labour prime minister, whoever it turns out to be, is therefore this: what should they do? This essay is an attempt to answer that question. 

Market socialism

The first thing to do is to set a direction. Blair’s call for a “radical centre”, a term coined by Roy Jenkins in his 1979 Dimbleby Lecture, and Burnham’s “Manchesterism” both seek to transcend left and right. But both are better at stating what they are against than what they are for. In fact, Labour can create a synthesis out of traditions usually treated as incompatible. From liberalism, an understanding of how to disperse power and the irreplaceable role of markets in coordinating decisions no central body can make well. From social democracy, a belief in the active central state as the primary institution capable of shaping markets. From Marxism, an understanding that capital, left to itself, does not merely create growth; it accumulates power, concentrates ownership and bends markets and politics towards those who already hold wealth.

This mix, going beyond left and right, is already visible in the world. China’s remarkable success in clean technology comes from its industrial policy. The state set a clear direction, then used regulation, subsidies and infrastructure to direct investment, so that batteries, electric vehicles (EVs) and charging networks could develop together. But the less comfortable story for the left is that the Chinese state did not anoint a single national champion and protect it. It backed the transition, then let brutal competition decide who survived. Remarkable global companies, such as EV manufacturer BYD, emerged from that unusual marriage of muscular collective action and cut-throat competition. India’s digital public infrastructure took the opposite route. India built a public layer for the digital economy—digital ID, payments, data-sharing—rather than leaving the private sector to build it. Where China was opinionated about the destination, India was opinionated only about trying to prevent a private winner emerging. It now has a vibrant market—in which private firms and public bodies compete—rather than one dominated by a few platforms. 

This is far from the digital vision designed and delivered by Palantir, Oracle or Uber; but nor is it British Leyland. Call it positive-sum progressivism or market socialism. The question is not how much state to subtract from the market, or how much market to subtract from the state. The real question is: what kind of state action expands the space for private initiative, competition and common prosperity? 

In the UK, it has been best embodied, as Burnham has rightly argued, by the economic revival of Manchester. The right reference point for “Manchesterism” is not postwar nationalisation of key industries. It is the combination of public action and private enterprise practised by Leese and Bernstein in the city’s own regeneration. They were ruthless pragmatists who saw that an expanded role for the state can also lead to greater competition and more private activity. It is not a zero-sum game. One helps the other and this combination is the thread that should now run through everything Labour does. 

Growth

Keir Starmer and Rachel Reeves were right to argue that their success rested on economic growth, but growth has proved elusive. Labour needs to develop a theory of where growth comes from and then to attend to each of the factors which helps produce it. 

There are two ways that an economy grows. First, you help firms at the frontier of the economy—in life sciences, quantum computing, professional services, the creative industries—to develop new products, technologies and business models. These firms spread their invention through supply chains, labour markets and the ideas that leak out. A recent McKinsey Global Institute study of 8,300 large firms across the United States, Germany and the UK found that fewer than 100 “standout” companies accounted for roughly two-thirds of productivity gains. Second, you help the rest of the economy catch up with the frontier: the gap between the best and the rest is wide. Britain’s productivity weakness is therefore also an opportunity.

The constraint on cutting-edge firms is not a lack of ideas or founders. They need the practical conditions that allow them to scale. A life-sciences company needs lab space, access to NHS data and a route into clinical adoption. An AI company needs computing power, data and housing for its workforce. Once these firms take venture funding, they also need growth capital that is patient enough to support continued R&D before profits arrive. Firms behind the frontier face a different problem. They are usually not trying to invent something new, but to adopt what already works: better management, digital tools, automation, AI, logistics or use of data. What they often lack is practical knowhow and capacity: help to choose the right tools, reorganise work, train staff and finance the change. 

We produce talent and ideas at a level most countries would envy

This points in two directions. One is to strengthen the institutions that make industrial strategy real. The binding constraints on growth are usually sector-specific: clinical adoption in life sciences, grid connections in clean energy, data and computing power in AI, skills and supply chains in construction. Removing them requires institutions with the expertise and authority to coordinate regulation, investment, standards and procurement. And because these constraints play out in particular places, advocates of devolution such as Burnham are right: combined authorities need more power to align housing, transport, skills, infrastructure and local economic strategy.

But there is more to growth than devolution. Getting power in the right place is one of the seven conditions for good growth, but a serious government needs to attend to the other six. The UK needs to attract world-class talent, to build enough homes in productive places, to provide cheap electricity, to mobilise long-term capital, to create digital infrastructure for data and AI, and to create a simpler, fairer tax system. This is the start of a prospectus for Britain.

Talent

The UK’s most valuable economic asset is its people. We have a strong science base, four of the world’s top 10 universities, an improving school system and world-leading creative industries, professional services and AI research. We produce talent and ideas at a level most countries would envy. But we fail in two ways: we let too many young people drift out of work and learning altogether, and we do too little to attract the best from abroad. A million people aged between 16 and 24 are not in education, employment or training. Anyone at risk of drifting out of the labour market should now be given a guaranteed work opportunity and an apprenticeship. 

In terms of attracting talent, the ground is shifting in our favour. The US is becoming meaningfully less open to global scientific and technical talent for the first time in modern memory, and those people are now actively looking elsewhere. Labour should set an explicit target to recruit 20,000 exceptional scientists, engineers, founders and technical leaders over the remainder of the parliament. At the edge of an economy, small numbers of exceptional people have outsized effects: they build labs, found companies, attract teams, raise capital and train others. The offer should demonstrate that the UK wants to be the home to the world’s best talent—it should include lower visa costs, faster settlement and relocation support, as well as potential access to research and startup funding. 

The political space to do that has to be earned by ending the visible failures at the border. We should show, like Joe Biden did in the last year of his presidency, that it is possible to reassert control over immigration by striking international agreements and deals, not by ripping them up. We need deals to facilitate new controlled asylum routes in exchange for returns of those who arrive irregularly. We should start with the EU, offering a generous Youth Mobility Scheme and accepting asylum seekers from the existing Solidarity Pool, in exchange for irregular arrivals to the UK being returned to the EU. The goal is not the end of asylum in this country. It is the end of small boats as the best means to claim it. Accepting refugees should not mean attracting fewer doctors, AI engineers and tradespeople. A serious country can do both.

Housing

A serious country can also house its people, and this is where a good blend of state and market can help. Housing is arguably the largest single drag on British economic growth. High housing costs in productive cities lock young people out of home ownership, and force firms to pay wage premiums. The cities where the UK should be growing fastest—Cambridge, Oxford, London—are precisely the ones where housing costs are the highest. The fiscal cost is also rising sharply: councils now spend £2.8bn a year housing 131,000 homeless households in temporary accommodation, a bill that has more than doubled in five years and that buys nothing lasting.

The state can also be more ingenious with social housing. Whenever Burnham talks about social housing, which he does a lot, he sounds nostalgic for an era long gone. But there is no need for social housing to be a relic. Decades of under-building have pushed demand into the private rented sector. The £2.8bn annual bill for temporary accommodation would come down if councils and housing associations could build new homes. If they were able to borrow against the future savings they would make, a stream of wasted rent would be converted into an asset. Done at scale, this could fund tens of thousands of new social homes a year without adding to current spending. 

More social housing will not be enough to get Labour to hit its headline target of 1.5m homes this parliament, though. Getting even to the underlying run rate of 300,000 a year, up from around 220,000 today, will require much more powerful policies on building more private housing. The state must intervene and withdraw at the same time. State delivery and deregulation are not in competition. They simply tackle different bottlenecks. State action handles the things the market cannot, such as land supply, infrastructure and social housing. Deregulation handles the things the state should stop doing, such as the line-by-line negotiation of every scheme, the gold-plating of rules we no longer have to follow and the standards that add cost without commensurate benefit. 

If Manchester fails to build because of local opposition, London should force it to do so

Central government should require local authorities to identify 10 to 20 years of land supply, not the current five, and dial up the incentives and sanctions behind housebuilding targets. If targets are missed, a portion of funding should be withheld, forcing councils to either raise council tax, cut services or take politically difficult planning decisions. Councils that persistently fail should lose their planning powers altogether to an expanded Planning Inspectorate. Larger developments—above a threshold of 50 or 100 homes—should be automatically called in for decision by central government, so that local opposition is taken out of the equation. If Manchester fails to build because of local opposition, London should force it to do so. 

The quid pro quo should be that councils are able to capture more of the uplift in land values that planning permission creates. Today, that windfall flows entirely to landowners. Under a community land auction system, councils would specify the homes they need, invite landowners to bid for the right to sell and buy an option on the chosen land at the agreed price. Once permission is granted, the council should pocket the difference between the auction price and the market value. This is money that can then fund the infrastructure that is too often lacking around new developments.

Beyond this parliament, the government may need to be even more radical and introduce a zonal system to speed up planning. Decisions should be made over whole areas rather than site by site and made upfront when the plan is signed off, rather than relitigated later. The plan should set the core parameters—density, environmental mitigations, design codes—and any project that complies can proceed quickly. Labour should pilot the approach now in Cambridge and the proposed New Towns, where the scale of building makes the savings most valuable. Without it, the government will end up subsidising homes in places where the market should be able to build unaided, leaving less subsidy for the places that genuinely need it. 

Energy

The nation also has serious energy needs, which will only contribute to economic growth if the sources are cheap and secure. The energy crisis resulting from the Ukraine war has cost UK taxpayers £75bn. Iran is now showing that we cannot afford to expose our economy to such huge geopolitical vulnerabilities. This is often translated, as Blair recently hinted, into an argument for drilling more in the North Sea. There are arguments for and against doing this. New extraction will not meaningfully reduce energy prices, as the increased supply will do little to shift the European price, but it will capture some tax revenue, support growth, and is less environmentally damaging than importing liquefied natural gas. The more important point, as Adair Turner has argued, is that this is a marginal debate: these are mature fields in structural decline. The only real question concerns the rate of that decline.

It would be better to concentrate on electrification. Today, electricity makes up just 20 per cent of UK energy use—the rest is oil and gas. We need to push that towards near-total electrification. This is the route to energy security and to a far more efficient system: EVs are roughly three times as efficient as combustion-engine cars, and heat pumps are four times as efficient as gas boilers. The only way to make this shift happen at pace is to make electrons cheap enough that electrification is a financial argument, not a moral one. Cheap electricity should make data centres and energy-intensive industry viable here rather than somewhere else.

The first obstacle is the price of electricity itself. Electricity bears an accumulation of levies—-emissions trading costs, a carbon price floor, historic renewables subsidies—that gas largely escapes. At 3.6 times the price of gas, electricity is too expensive to make electrification the obvious economic choice. Removing around £1.7bn from electricity bills would bring that ratio to roughly 3 to 1—the threshold at which heat pumps and EVs become unambiguously cheaper over their lifetime. A gas price stabiliser would prevent temporary falls in global gas prices from undermining the message, capturing the windfall and recycling it to electricity bill payers. And then we should make electrification upgrades for home free at the point of delivery, repaid through bills over the lifetime of the asset, but guaranteed to be cheaper than the gas alternative. 

The UK now has a centrally planned energy system. The government determines what gets built, at what price, on what timeline. The trouble is that no single body has been optimising the system. The result is that wind farms are paid to switch off while gas plants are paid to switch on elsewhere, because the grid cannot carry the power to consumers, who end up paying twice—once for generation and again for the constraints. The new National Energy System Operator was set up in 2024 to address this. But the planning decisions that shape the energy system are spread beyond it, from the siting of offshore wind farms and district heating to the charging infrastructure for EVs. What we need is a genuine system architect: a body with the authority to make the decisions that shape everything else—where transmission lines run, where major generating assets sit, and where the grid needs reinforcing for electrified industry, transport and data infrastructure. These are not decisions the market will make well and, once taken, they cannot be easily reversed. 

Alongside the architect, the state itself should be willing to co-finance projects. The capital intensity of the transition means projects are far cheaper when the state co-invests, as it is now doing at Sizewell C nuclear power station. Under the government’s new fiscal rule, which scores financial assets against liabilities rather than treating all spending as straight debt, this should be possible. Investing in a project with a guaranteed revenue stream creates an offsetting asset on the public balance sheet rather than simply adding to the debt burden.

But the state should not try to direct every decision. Once the big structural choices are made, pricing does the work that planning cannot. Prices that properly reflect the location and time of electricity use signal to generators, investors and large industrial users where and when power is structurally cheaper—pulling storage, generation and energy-intensive businesses towards the parts of the system that need them. Time-of-use tariffs do the equivalent job for households and smaller businesses, rewarding those who shift consumption to
off-peak hours.

Energy is the clearest case for ending zero-sum thinking about the state and the market. A more active state—choosing the architecture, co-financing the assets, setting the price signals—is entirely compatible with deeper use of market mechanisms and with crowding in far more private capital than we manage today.

Investment

The state can sometimes act as the provider of patient capital—the kind of longterm investment that can take decades to pay off—but we need to create market institutions that do the same. Britain has 800 venture-backed tech companies with revenues of more than $25m, two-fifths of Europe’s total. Where we fail is in scaling them up: American investors part-owned 42 per cent of UK tech funding and 58 per cent of late-stage rounds above $100m. We invent and found companies; others end up owning them.

You might think this is because Britain lacks the capital. In fact, we have about
£3 trillion in pension savings and one of the world’s most successful financial centres. The problem is not the absence of money; it is that the system we have built does not put that money to work in backing British companies. The City is brilliant at moving other people’s money through other people’s funds for a fee. Ownership is different: an owner holds an asset for years, sits on its board, and keeps the returns when it succeeds.

The British pension system has stopped behaving like an owner—not through bad management, but because the rules make it impossible. Funds are too small to invest directly. A fee cap rules out the higher-returning assets, and a requirement to value everything daily makes patient holdings unworkable. The result is that the share of British savings invested in British companies has collapsed from around half in the early 2000s to roughly 4 per cent today.

The damage runs beyond the companies we fail to back. Government debt was once bought and held by domestic institutions—the same pension funds and insurers. As they shrink, overseas investors and hedge funds take their place, and they charge more to hold the same risk: according to the Office for Budget Responsibility, this is expected to add £22bn a year in extra debt servicing. The country that cannot own its own companies also cannot fund its own government cheaply. Pension reform and the public finances are not two problems, but one.

Other countries show it does not have to be like this. Canada built a pension fund that now holds around CAN$714m—an eighth of Britain’s entire pension system in a single fund. It has achieved a double dividend: higher retirement incomes for ordinary workers, and a vast pool of patient capital invested at arm’s length from government. Australia did the same with a system built, like ours, on individual pots rather than guaranteed pensions.

The lesson is not simply that bigger is better. Australia’s funds outperform not because they are large but because they are run for their members and left free to invest for the long term. The Pension Schemes Bill takes the first step, consolidating savings into larger funds—but size alone is not the point. Unless those funds also have the independence and the mandate to behave like genuine longterm owners, the UK will have built bigger funds that still cannot do the job.

The sector should be consolidated—faster than the current Pensions Bill envisages—into a small number of large funds with statutory independence. Then we need to reform the rules that lock funds out of longterm assets and build a British growth-equity vehicle, modelled on that of Canada. It took 15 years for Canada to get to the right place. With statutory backing and aggressive hiring, the UK could do it in half the time. The test of whether Labour means what it says about growth is whether it builds the institutions that turn British savings into British prosperity.

Digital sovereignty

Andy Burnham has argued that 40 years of privatisation have hollowed out essential services and that public control needs to come back. But the debate now should not be myopically focused on last century’s models of ownership for last century’s technologies. Public control can and should look different to the digital forces that will shape this century. The new model is that the state should own and mandate the common standards and infrastructure on which a competitive private market grows. This is where we can learn from other countries. 

In 2022, an app called Namma Yatri launched in Bengaluru, developed with the city’s autorickshaw drivers’ union and built on top of India’s government-backed open digital infrastructure. It connected drivers and riders directly, charging no commission. Drivers kept the full fare and passengers paid less. Within two years, Uber had been forced to stop charging drivers a daily commission. The platform no longer had the market dominance to squeeze drivers or riders, because the Indian government had built an open digital highway on which any developer could build a competing app. The state did not ban Uber or fund a public alternative. It built the infrastructure, and Uber’s ability to extract rent collapsed of its own accord.

Britain has already shown what doing it right looks like. Open banking, launched in 2018 when regulators required the major banks to open access through common technical standards, now serves 15m people a month—to budget, switch mortgages, share data with their accountant, or make payments without going through a card network. A £4bn ecosystem of new providers has grown up, all meeting a common British standard. The banks were not nationalised. The citizen holds the consent. Britain did this first, and the world has been copying it ever since.

The next decade will require both higher taxes and harder choices

Nowhere is the potential larger than in health. The UK has the richest national patient data anywhere—60m records, decades of longitudinal depth. The gut-hormone research underpinning the GLP-1 revolution behind weight-loss drugs was built on decades of British work. Yet between 2017 and 2021, commercial clinical trials in the UK fell by more than 40 per cent, and we slid from fourth in the world to tenth. We do the discovery; others capture the benefit. We have also shown the alternative works. During the pandemic, a system called OpenSAFELY let researchers analyse 60m NHS records without the data ever leaving the NHS. 

The pieces exist for us to create an equivalent of open banking for health. Open banking did not just let you see your bank balance more easily; it let you share your data, on your terms, with any provider that met a common standard, and an entire industry grew up around that right. The equivalent for health would let citizens consent to share their NHS records, wearable data and genetic information with trusted apps and services. It would crowd in a generation of new health companies and transform this country as a place to run clinical trials.

The UK is unusually well placed for this. We have the NHS as a single trusted custodian of health data at a scale no other democracy can match. And we have institutions like the AI Security Institute that show we can rapidly establish world-leading technical institutes.  

Beyond health, there is an even bigger principle at stake that could build Britain’s digital sovereignty: we should make public contracts conditional on openness. The government spends tens of billions a year on digital services. No major contract for data or AI infrastructure should be signed unless it uses open standards and includes a designed-in ability to switch providers. 

Tax

Of course, all this has to be paid for. Jean-Baptiste Colbert, finance minister to Louis XIV, said the art of taxation consisted “in so plucking the goose as to obtain the largest number of feathers with the least amount of hissing”. British chancellors of all parties have been Colbert’s most faithful pupils. The cumulative effect is a tax system that nobody designed, that nobody fully understands, and whose legitimacy has been quietly eroding for decades.

The fiscal reality is unforgiving. The UK has an ageing society, rising defence costs and a growth rate that has not been enough to fund either. Even with optimistic assumptions about growth, the next decade will require both higher taxes and harder choices about what the state does. The question is not whether, but how—and the Colbertian instinct is exactly the wrong answer. A party that believes in an active state has to be able to make the case for paying for it. The market socialism radical-centre alternative is to do the opposite: set out the principles of the tax system Britain should be moving towards, open up the choices to public debate and build consent for hard decisions.

The principles are not new, but they have never been stated as a programme. The tax system should not privilege one form of income over another: returns from work, self-employment, dividends and capital gains should be taxed at the same rate. The system should avoid the cliff edges that currently produce marginal rates of 65 per cent on earnings between £60,000 and £80,000 for families with children and a student loan, or 71 per cent on earnings between £100,000 and £125,000. Taxes on things we want less of—congestion, carbon, sugar and salt, harmful consumption—should rise, while taxes on work should fall. The system should become simpler over time. And powers to raise taxes should be devolved further to combined authorities and local government.

A government serious about this would publish a tax charter at the start of the parliament, setting out where it intends the system to move at each fiscal event. Most of the difficult, often recommended reforms—replacing council tax and stamp duty with a proportionate property tax, broadening VAT, equalising income and capital gains rates—cannot be done in a single budget. But they can be done in stages, transparently, with consultation, over a parliament. That is how you change a tax system without destroying the consent that lets you govern.

The same logic applies on the spending side. The triple lock guarantee for pensions is the clearest example. Reforming it is treated as politically impossible, but the politics here are widely misunderstood. The winter fuel payment cut hurt Labour because pensioners ended the year with less money than they had at the start of it. Reforming the triple lock is the opposite: pensions would still rise every year, just by less. Rather than pensions rising by the highest of inflation, earnings or 2.5 per cent, they should rise by the average of the three—with the savings hypothecated to the creation of a National Care Service that this country desperately needs and which Burnham has repeatedly pledged to carry out. 

But this essay does set out a governing philosophy so sadly lacking in the Labour party today. It puts forward a theory of growth and a set of high-dosage policy proposals to achieve it. Market socialism is not a midpoint between left and right. It is a coalition of ideas which combines liberalism’s respect for markets and dispersed power, and social democracy’s belief in an active state without which those markets cannot be shaped or sustained. 

All of this rests on a kind of state capacity the UK has spent decades neglecting. In some places, that capacity has been hollowed out. In others, it was never seriously built, such as the long-horizon investors in the pension system or the underwriters of industrial bets in the Treasury. The pattern is the same: a state that has come to see itself as a contracting authority rather than as an institution with its own competence. 

The talent, the science, the capital and the institutions in raw form are all here. What is missing is the will to assemble them. Labour’s travails are rooted in the fact that it stopped thinking. It stopped trying to create great human exploits and philosophical capitals of the world. Whatever the politics that follow, there is a policy course to chart. There are three years before the election. If the leader of the Labour party has the will, there is still time to find the way.