On Monday night, the Institute of Economic Affairs hosted a panel discussion on “Labour and the economy: addressing the cost of living.” It was chaired by Mark Littlewood (Director General of the IEA) and featured Dan Hodges (Telegraph blogger and columnist), Paul Ormerod (economist, author and entrepreneur), John Rentoul (chief political commentator for the Independent on Sunday) and Gisela Stuart (Labour MP for Birmingham Edgbaston). Prospect was the media partner.
We are putting up a blog from one of the speakers every day this week.
The nature of the Labour party, and of almost all other social democrat parties in the west, has altered fundamentally since the Second World War. Although the name remains unchanged, Labour is now essentially the party of the public sector professional middle class. This explains why it is so hostile to reforms of public services. It reflects the interests of its members.
The Attlee government of the immediate postwar period was the most left-wing government that Britain has ever had. The country had just emerged from a highly centralised war economy, rationing was still in place, and belief in the efficacy of socialist planning was strong. Even by the time of the first Harold Wilson government (1964-70), “socialism” was still espoused by many in the Labour party.
We can usefully compare the size of the state in the economy now with what it was under Attlee and Wilson. Public expenditure is made up of the wages and salaries of those employed in the public sector, public investment, and benefits. It is the former that reflects the immediate claim on resources from national output.
Under Attlee, employment in the public sector claimed 17.4 per cent of the resources of the economy. Under Wilson in the 1960s, it was 18.0 per cent. Under the wicked austerity government of Cameron it is 22.4 per cent.
These percentage differences may seem small. In cash terms they are not. If the amounts paid to public sector workers were the same proportion of public spending that they were under Attlee, public expenditure would now be £75bn a year lower.
Labour should go back to its roots and look after the interests of those it purports to represent, as opposed to those who have a lock on its membership.
Each item of public spending should be scrutinised from the following perspective. Does this serve primarily the interest of the producers, those employed in the public sector, or the consumers, the recipients of the service? If the former, it should be cut.
Claims on the economy from the public sector should be reduced to the level under Attlee, and the £75bn saved can then be used to reduce VAT and fuel duty. Perhaps some of the savings could go towards reducing the deficit, but both VAT and fuel duty could be halved.
More from this series:
Moonshine politics: Talking about a cost of living crisis is just another way of talking about the recession, says John Rentoul
Time to build: To lower living costs, we need more than just economic growth, argues Mark Littlewood
Rediscover town hall radicalism: Gisela Stuart on why Labour should focus on driving down the cost of goods