Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Comment
Editorial

The Guardian view on Labour’s plan for growth: the missing ingredient is clearly demand

Wes Streeting
‘Wes Streeting, the shadow health secretary, has suggested that the manifesto isn’t the last word on health spending. But, he said, it can rise only in line with growth.’ Photograph: Future Publishing/Getty

In the manifestos of both the Conservative and the Labour parties, there is a commitment to implementing the NHS long-term workforce plan to ensure that the country will be able to populate the health service with UK-trained doctors and nurses. However, neither of the parties are suggesting that they will fund the £30bn it would cost to employ the tens of thousands of staff they say they will train. Instead, voters are expected to believe that the confidence fairy will turn up when the next government arrives – and businesses will invest, leading to economic growth.

It is magical thinking to believe that, without actually doing anything, private spending in Britain will be stimulated to such an extent that it will more than compensate for the anticipated public sector cuts that depress it.

Labour has realised the need for a more ambitious programme. Wes Streeting, the shadow health secretary, has suggested that the manifesto isn’t the last word on health spending. But, he said, it can rise only in line with growth. What determines this will be productivity, which allows living standards to rise and determines Britain’s global trading position. This country’s economic stagnation can be traced to having the lowest investment rates in the rich world. To that extent, Labour’s promise of a “modern supply-side economics” – by embracing a green industrial policy – is a necessary step in the right direction. But it is far from sufficient.

This was made clear by University College London’s Craig Berry in a paper last December for the Institute for Public Policy Research. Dr Berry points out that for a firm to improve its productivity it must invest. But it is less likely to do so if it is “uncertain about future demand for its output because the upfront costs of investing might never be fully recovered”.

Since 2010, firms have sought to grow by hiring workers – rather than via capital investment – on “flexible” terms, which means jobs can be cut quickly if demand fails to materialise. This is bad for workers – who have less secure employment – but also for firms, which miss out on improving its productive output. The size of this policy failure can be seen in the record 4.1 million people in insecure work and the UK’s productivity falling behind rival nations.

Dr Berry calls for a Labour government to not just increase the supply of skilled workers and high-value goods but to create the demand for them with an “egalitarian social policy”. What the UK needs, he correctly surmises, is “a fiscal framework that recognises not only the value of public spending but also the dangers of under-spending … Good public services and social infrastructure, and a robust welfare system, are part of how we invest in productivity and innovation.”

It is worth noting that in the rest of the world, there’s a jobs boom, with employment rising, while in the UK it’s falling so much that more than a million people are not in work. Labour’s fiscal rules should be subtly recast to allow for greater government day-to-day borrowing that supports and sustains private investment in secure jobs and skills, and generates productivity growth and rising wages. Sir Keir Starmer should realise that being an optimist is not enough. He’s not the only politician who wants voters to take their claims on trust alone. The Labour leader should, however, understand that while confidence can affect government decision-making, it does not affect the results of decisions.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.