Labour Affairs opines:
In his speech in Manchester on 29th June, Andy Burnham made some interesting proposals.
He wants all parts of the UK to be able to take greater public control of essential services like water, housing, energy and transport. He also pledges 10-year plans to bring down the cost of these essentials to individuals, families and businesses.
He proposed that regions would be supported to set clear and credible industrial ambitions, with support to achieve them, encouraging more cross-UK partnership between places with complementary industrial clusters. He also wants to shift public procurement so British-based companies are in a better position to win contracts and to protect sovereign manufacturing and production capability across the country in critical sectors like steel, defence, energy, food and farming.
He plans the biggest council house building programme since the post-war period, using vacant public land to reduce costs. This is framed around adopting a national Housing First philosophy pioneered in Finland, plus higher density residential development in towns and business rates reform to support community-building pubs and high street businesses. He linked this to childhood memories of a “secure” council home as a foundation of working-class aspiration that has since been lost.
On education, he calls for ending a school system configured almost entirely around the university route, building instead genuine parity between academic and technical education. He also wants more 45-day work placements and apprenticeships for young people.
Would the outgoing Starmer/Reeves administration have had much disagreement with proposals like this? Probably not with the objectives themselves, but it would have had grave concerns about the methods used to deliver them. According to Burnham, the overarching mechanism is a new “No. 10 North” operation based in Manchester, intended to redistribute power from Whitehall to the regions and nations of the UK.
It is certainly true that progress in improving living standards outside London has been dismal. Burnham associates this failure with the concentration of power in a remote and poorly informed Westminster and Whitehall. Yet this mistakes the symptoms for the underlying cause.
The central problem is not that too much power resides in Westminster. It is that Westminster has voluntarily made its own power dysfunctional by adopting a set of fiscal rules that prevent it from using the capacities that come with issuing the nation’s currency. These rules are a political choice rather than an economic necessity. They treat the British government as though it were financially constrained in the same way as a household, a business or a local authority. It is not.
We saw this clearly with Reeves’ first Budget, where it was argued that winter fuel payments for most pensioners had to be abolished because otherwise the fiscal rules would be breached and confidence in the economy undermined.
Reeves’ entire argument has been that she would like to do many worthwhile things but unfortunately “there is no money.” This ignores the constitutional reality that the United Kingdom is a currency-issuing state. The British government can never run out of the currency that only it can issue. It can always meet liabilities denominated in sterling. It is therefore not financially constrained in the way households, firms or councils are.
This does not mean there are no limits to public spending. There certainly are. But the relevant question is not “Where is the money?” It is “Where are the workers, the skills, the materials and the productive capacity?” The real constraint on a currency-issuing government is the availability of real resources and, ultimately, the risk of inflation if public spending outpaces the economy’s ability to produce goods and services.
Once this distinction is understood, the limitations of Burnham’s proposals become much clearer.
Indeed, an argument could be made that there has already been too much devolution in Britain. Under Margaret Thatcher, and successive Conservative and Labour administrations, much of the state’s capacity to shape economic development has effectively been devolved to private markets, often with disappointing results. The consequences are visible in stagnant regions, deteriorating public services and the growing electoral appeal of parties such as Reform and Restore.
The Bank of England is legally required to ensure that payments authorised by Parliament are settled. Parliament is the legislature of a currency-issuing state. It never has to ask whether sterling is available before authorising expenditure.
Devolved institutions occupy an entirely different position. Councils, combined authorities and any new regional institutions are currency users. Before they can spend, they must first obtain sterling from taxation, borrowing or transfers from central government. Unlike Parliament, they cannot create the currency they spend.
This distinction is fundamental. Devolution may redistribute administrative authority, but it does not redistribute monetary sovereignty. Unless Westminster provides the necessary financial resources, devolved institutions remain constrained by budgets over which they ultimately have little control.
Burnham largely glosses over this distinction. He speaks approvingly of “sound public finances” and of operating within “our current fiscal rules.” Yet these concepts are appropriate for currency users, not for the issuer of the currency itself. For the British state, the relevant question is not solvency but inflation and the effective mobilisation of real resources.
One has the impression that Burnham recognises there is some tension here but has yet to resolve it. By accepting the existing fiscal rules as fixed constraints, he inadvertently accepts the very doctrine that has starved the regions of investment over the past fifteen years.
When implementing the New Deal during the Great Depression, President Roosevelt faced a related administrative question. Large sums were allocated by the federal government to states and counties, but local institutions frequently administered the programmes themselves. Administrative decentralisation proved entirely compatible with monetary centralisation because the financing always came from the federal government, the issuer of the dollar.
One suspects that Burnham has something similar in mind. If so, he must remain absolutely clear about where the money comes from. It comes from the central government, and only the central government, as the issuer of sterling, can focus primarily on mobilising the nation’s real resources rather than worrying about finding the money in advance.
There are at most three years until the next general election. Creating the network of devolved institutions Burnham envisages is far from a trivial undertaking. One suspects that a groan may have gone through the hearts of working people in the impoverished regions when they learned that they would have another layer of bureaucracy to deal with. Many people living in Britain’s struggling regions may reasonably wonder whether another layer of bureaucracy is what they most urgently need. They want secure employment, affordable homes, reliable public services and opportunities for their children.
Devolution may improve democratic accountability and enable policies to be adapted to local circumstances. But it cannot by itself overcome Britain’s economic malaise if the institutions receiving these new powers remain financially dependent upon a central government that continues to behave as though it were financially constrained.
The decisive question is therefore not where administrative authority is exercised but where monetary sovereignty resides. Unless Westminster abandons fiscal rules that treat the issuer of sterling as though it were merely another currency user, no amount of constitutional redesign will produce the transformation that Burnham seeks. The deeper risk is that, by accepting those rules as immutable facts of economic life rather than political choices, Burnham ends up legitimising the very doctrine that has prevented Britain’s regions from flourishing.
And:
If Andy Burnham is to have any hope of reversing the decline of the Labour Party he needs to have a fairly simple but compelling story. One good story would be inequality. He could say that he is going to reverse the inequality that has developed in the UK in the 47 years since Thatcher first came to power and set about destroying the post WWII political consensus of full employment and good public services.
Such a story would have an immediate appeal to those sections of the working class who are drifting in desperation but somewhat reluctantly towards Reform. It’s also a story in which there is a lot of interest at the moment. Readers will likely be aware of the numerous podcasts by ex City trader Gary Stevenson on the matter.
Stevenson’s message is that all the assets of society (houses, water, energy, transport etc.) are being bought by the super-rich who then give working people access to these resources at the maximum rent they can extract from them. The super-rich have wealth far in excess of what they can spend in consumption. They use their excess wealth to buy anything that’s for sale. If you sell your house, a super-rich person will always be able to outbid anyone else who’s interested in buying it and then let you live there at an exorbitant rent. Stevenson argues for a wealth tax as a first step towards reducing the inequality that he believes is destroying British society.
Stevenson’s message has been taken up by Zack Polanski, leader of the Green Party which seems to favour a wealth tax. Stevenson and Polanski both promote the works of the French economists Gabriel Zucman and Thomas Piketty in this area. Indeed Zucman has just produced a book with the name ‘We need to tax billionaires” in which he proposes an annual wealth tax of 2% on wealth above £100 million.
A tax on the super-rich would certainly be seen as fair. But it would not reverse Labour’s decline unless working people saw a real improvement in their standard of living. There is no obvious reason why a wealth tax would improve their standard of living.
How will a wealth tax allow people to own where they live or to rent good accommodation at a fair price? How will a wealth tax give people secure well paid employment? How will a wealth tax provide the infrastructure that communities need – affordable energy, good transport links, good education and health services?
It won’t. It may reduce the consumption and asset buying powers of the rich a bit, and that is to be warmly welcomed, but it won’t build houses, it won’t make energy cheaper, it won’t refurbish schools and reduce NHS waiting lists. These are problems that can only be addressed by reclaiming the state as a central organizing force in society. Thatcher handed the organization of the essentials of society over to the private sector. The private sector failed to deliver in many areas. Working people have wonderful communication devices but nowhere to live. Burnham must reclaim the role of the state if he is to seriously reverse Labour’s decline. A wealth tax would be a small part of any solution.
In fairness to Burnham, reclaiming the role of the state does seem to have been an important part of the way he went about solving problems in Manchester. His powers to do that would have been limited in Manchester where he would have been financially constrained. In other words, resources may have been unemployed but he would not have had the money to acquire them. But now as the prime minister of a currency creating state he is not financially constrained.
His problem is not where does the money come from. Any expenditure approved by Parliament will be made by the Bank of England. In Manchester, Burnham could see unemployed resources that he did not have the money to employ. Now his problem is where are the resources to do all the things that need to be done to reduce inequality and improve the lives of working people. Where are the builders, plumbers, electricians, roofers to build new homes? Where are the doctors and nurses to improve NHS care?
Rachel Reeves’ great failure was that she saw little role for the state in solving these problems. She relied almost completely on the private sector. She justified the inability of the state to do anything by saying she had no money. Working people saw little improvement in their prospects and in the prospects of their children under Reeves’ tutelage. They registered that fact in the May local elections and within a matter of months Starmer and Reeves will have gone from high office.
Consider the matter of making energy affordable. It should first be noted that energy prices have increased because of the war in Ukraine. That war is a result of the eastward expansion of NATO. The cost of energy has been further exacerbated by the US and Israeli attack on Iran. It would make sense for the UK to try to wrap up the Ukraine war. It is unlikely that Burham will have the ability or inclination to counter the Russophobia that grips the political elite. Burham probably supports the eastward expansion of NATO and agrees that Britain needs to rearm against a revanchist Russia. A first real test for Burnham will be the “Moscow test” – whether he goes further into turning the economy into a war-time one or commits to focussing on social spending. Burnham’s social agenda will be seriously damaged if he does not address the total costs of the UK’s participation, active and passive, in imperial wars.
Consider the matter of making home ownership and renting affordable. A huge home building program would be required. Who would organize it? If Burnham relies on the private sector then homes for the super-rich will be built. Does Burnham have the ability and inclination to reclaim the role of the state in ensuring that there are sufficient good quality affordable homes available? Here we think he may well have the inclination to do something useful. But only if he recognizes that the problem is resources, not money.
Burnham should insist that every secretary of state should have Keynes’ famous dictum hanging on their office walls: “Anything we can actually do we can afford,” meaning that if the resources required to do something exist and are unemployed then the state can always afford to buy them and put them to good use.
If the resources exist but are being used by the private sector what should the state do? For instance if the state needs builders to build social homes but they are all being used by the private sector to build luxury homes for the rich, the state could simply outbid the private sector for these workers. But that would have inflationary consequences which are best avoided. The correct thing is to use regulation or taxation to reduce the demand for these builders by the private sector. It’s often not a simple matter to free up the resources that the state needs to implement what it sees as desirable policies. But the first step is to recognize that it’s a resource problem and not a financial problem.
A lot of what is needed takes time e.g. training construction workers, regulating private house building etc. This is not to say they should not be done but the working class will expect to see some positive results coming through quickly. Among these could be an emergency work programme for unemployed young people and a rapid improvement in bus services. People will notice this and it will make a difference to their lives. Restoring the education maintenance allowance for 16+ youngsters might be a winner along with a campaign to get more SMEs to offer apprenticeships (60% of the workforce, 37% of apprenticeship places).
Burnham should make ending inequality his main public agenda. But he must understand that reclaiming a primary role for the state is his main tool for realizing that agenda. If Burnham makes the same mistake as Reeves, if he refuses to reclaim a much bigger role for the state in organizing the resources of society then the decline of the Labour party under Burnham will continue.
While Damian Smith is being deliberately more, well, see for yourself, but he still makes some important points:
Alarm bells are now ringing loudly over new prime minister Andy Burnham’s lack of any detailed vision for Britain. Yet amid the vague promises of ending the politics of division, and the usual platitudes that Burnham has somehow managed to rebrand as ‘doing politics differently’, he has offered one relatively clear new proposal. Namely, that the UK would have a second No10 in Manchester, and Whitehall’s power would be decentralised and dispersed across the regions. It is, in short, a vision of a devolved and federalised English state.
This is a peculiar prescription for the nation’s ills. No one has asked for such a radical constitutional shake-up. Nearly 30 years of national devolution in the UK have achieved little beyond emboldening regional nationalists who loathe England and Westminster intensely. And beyond Andy Burnham himself, few see local government as benevolent, and certainly don’t want to give it more power.
Indeed, local government is renowned among the British public for its inefficiency, unaccountability and pettiness. I speak daily to hundreds of members of the public in my job in broadcast media, and people certainly get vexed by, say, the senseless handing over of the Chagos Islands, or the appointment of Peter Mandelson as US ambassador. But it’s the issues that materially affect people’s day-to-day lives that really get people angry: infrequent bin collections, overzealous parking restrictions sold off to detestable third-party enforcers, 20mph zones, ULEZ, low-traffic neighbourhoods (LTNs) and being fined for pouring coffee down a drain. And yet it’s the bodies responsible for these policies that are to be given more control over our lives under Andy Burnham’s Labour.
I suspect that there are very few members of the general public who want to increase local-government power. Once people realise that Burnham’s devolution plans entail exactly that, they will soon run out of patience with a PM who promises to do things oh-so differently.
Burnham’s plans for English devolution will also further fragment the nation, one already struggling with regional disparities in industry, population, wealth and resources. The reasons why certain towns and areas are poorer than others are complicated, multifaceted and historic. It’s not clear how Burnham’s devolution vision will change this. What sets back Middlesbrough, Blackpool and Redcar now will not change when councils or regional mayors have the ability to tax local residents further.
Furthermore, the consultation process for councils to inform and ask the public what they think of the proposals is desperately wanting. Councils are not required to advertise the consultations, nor are they legally bound to follow the public’s findings. A broken local-media landscape means there will be even less accountability.
Britain is in trouble. The economy is seemingly endlessly stagnant, and sources of common national identity are increasingly thin on the ground. Devolution for Scotland and Wales, and the endless erosion of England’s institutions, mean there is even less to unite the regions today. Burnham’s ultra-regionalised national project will surely only make that situation worse.
The risks of these devolution plans are myriad. If MPs want to get a sense of them, they could do worse than look at the fate of the Federal People’s Republic of Yugoslavia over three decades ago. While Britain and England are very different historically, culturally and politically to Yugoslavia, the break-up of the latter during the 1990s should still serve as a partial warning.
In the mid-to-late 20th century, Yugoslavia faced some of the same problems that England faces today. As the Yugoslav economy struggled during the 1960s, Yugoslavia’s leader, Marshal Tito, set up a centrally planned federal wealth fund which slowly ate the country alive from the inside. Wealthier regions paid extra in taxes to give dispensation to the poorer regions. Over time, this simply increased the gap between the rich and poor. Moreover, the wealthier regions of Slovenia and Croatia began to resent the poorer eastern and southern provinces, where abject poverty persisted. By 1980, Tito was dead, and with him a belief in Yugoslavia, and its regional and federalised structure. He left a nation whose constituent parts were increasingly at odds with each other. The writing was on the wall, long before the bloody break-up of the 1990s.
And so a nation vanished, amid economic decline and a rapid deindustrialisation that the state could no longer support. The People’s Republic failed its people and gave way to a vicious ethno-nationalism.
Burnham, of course, is no Marshal Tito, and Britain and England are not Yugoslavia. But in an economically challenged nation, riven with regional disparities and tensions, Burnham’s plan for devolution is only likely to power those forces that would tear us apart.
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