Sadiq on the future of our economy

This article was originally published on Labour Uncut - in response to a post by John Woodcock MP about Ed Miliband's labour market views.

Well worth a read!

Sadiq Khan rebutts John Woodcock’s critique of Ed Miliband’s labour market views

For those who say that there are no issues at stake in this leadership election, I strongly encourage you to read both Ed Miliband’s speech on the future of Social Democracy and John Woodcock’s critique on Labour Uncut.

They show that far from this being a contest of just personalities, there are real issues of substance beneath the choice that Labour makes about who leads it into the next few years.

Ed’s speech argued that whilst the economic model of the New Labour years delivered some important benefits for our country and our society, we must also accept its limitations. Particularly the impact which very flexible labour markets have on the type of jobs the UK attracts and the quality of life outside of work for hundreds of thousands of workers.

John’s riposte is a defence of what can be achieved through flexible labour markets – the argument that in a globally competitive world, we must ensure labour costs remain as low as possible to boost the chances of British people getting those jobs, rather than seeing them going abroad to countries with increasing numbers of high-skilled graduates but lower costs than the UK.

I profoundly agree with Ed and I disagree with John, but I welcome both contributions – this is a debate the party must have and we will be stronger for it.

Why do I think this is so important, indeed one of the defining issues of the future of our party? Well, for two reasons.

First, I think Ed is right to argue that we have seen and experienced the limits of a high degree of flexibility in our Labour markets; and I think that the UK’s future economic success depends on recognising this.

This clearly doesn’t mean that we should become flippant about placing new costs on business. But it does mean that we need to rethink the idea that every form of regulation destroys prosperity, growth and harms people’s life chances.

Over the last twenty years, the drive towards a more flexible labour market has increased the use of short-term contracts, agency work, subcontracting and the hiring of those who were “self-employed”. The model encouraged job creation and immigration into Britain, but left the British workforce one of the worst protected in Europe.

Hilary Metcalf and Amar Dhudwar have written powerfully for the Joseph Rowntree foundation of the problems of the low pay-no pay cycle and the problem that businesses able to employ staff on highly flexibile conditions are less likely to invest in their skills, too often trapping preventing them from progressing to higher pay. The very job insecurity that they face prevents them from working their way to more highly paid, more secure employment.

John in his piece for Labour Uncut argues that we must be globally competitive, and indeed we must. But if our flexible labour market means that our global competitive advantage is in low-pay, low-skill jobs then we shouldn’t be surprised that our growth industries are those which demand harder work for longer hours at lower pay.

Instead, I believe we must start to think about the way in which government can create the right incentives on employers to aim for high-skill, high-pay work. This is where Britain must seek its competitive advantage.

Rather than seeing the state as solely clearing up the problems left by the economy and labour market, we must – with care but also determination – see the state as shaping and creating an economy and labour market which serve the interests of Britain’s working people.

New Labour has never tolerated poverty, particularly in-work poverty. Our record in government of lifting families out of poverty is one of our proudest achievements. Tax credits and effective welfare payments were crucial in this; but it is also right to ask ourselves now whether we were over-reliant on government redistribution and under-reliant on fostering the industries and economy which would have avoided the need for such extensive redistribution. Ed’s campaign for a living wage is a case in point. Have we at times allowed our tax and benefit system to substitute for good employment rights and fair pay?

But, second, I think understanding this challenge is fundamental to Labour’s future political renewal. At the election in May we saw more than a million low and middle income voters desert the Labour party – some abstaining and some switching directly to our opponents. This was most pronounced in the South and South East, where voters are the least likely to have benefited from new public sector jobs and from tax credits and a minimum wage, both of which are set nationally rather than on local wages.

It is essential to Labour’s prospects for winning back power that we reconnect with this group – that we show how our values are their values – that we understand and share their aspirations for themselves and their families.

Put simply, the New Labour economic model of flexible labour markets combined with redistribution through tax credits and the benefits system looks unable to do this. These voters don’t want state handouts, they want good quality jobs. They don’t want an economy where they have to work harder for longer for less; they demand an economy in which hard work and skills are rewarded, in jobs where it is possible to get on.

If Labour is to show once more that is the political force most able to meet these aspirations we will need to revisit some of our established assumptions about the economy we are shaping and building. I welcome the leadership campaign embracing this debate.

Sadiq Khan is Labour MP for Tooting, where he has lived all his life. He is shadow secretary of state for transport.

Promoted by DJ Bellamy on behalf of Sadiq Khan and Tooting Labour Party, all at 273 Balham High Road, London, SW17 7BD.
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