Category Archives: Labour

The new localists?

By Paul Hackett, director of the Smith Institute

The Labour Party has often talked up localism in opposition only to disappoint once in power. But current signals suggest an Ed Miliband government would radically change the way in which public money is raised and spent locally

Labour’s support for localism continues to gain momentum and was given a further push last week when Hilary Benn, the shadow secretary of state for communities and local government, called for a new English deal based on greater financial devolution.

At the launch of the new Smith Institute report on ‘Labour and Localism’ Benn said the case for decentralisation was now ‘overwhelming’ and that ‘money, and the power that goes with it, needs to be moved out of Whitehall and down to communities’. This sentiment was echoed in the institute’s report, which includes essays on local government reform by Labour council leaders and MPs.

With Labour dominating most of the big cities and hoping to do well in the forthcoming local elections, there is a growing feeling that the shadow team now get’s localism and sees it as integral to the party’s evolving narrative around reforming the state and rebuilding the economy.

Whilst it is true that Labour has traditionally talked up the English devolution story in opposition, often only to disappoint in government, there seems to be more than just mood music to the latest pronouncements from Ed Miliband about giving power back to local people and local councils.

This is re-enforced by the success of the Greater Manchester Combined Authority and the roll out of the city-regions concept to other Labour cities, such as Leeds, Sheffield, Liverpool and Newcastle. Richard Leese, leader of Manchester City Council, talks in passionate terms about dynamic economic geography based on sub-regions and comments in the Smith report that ‘the last Labour government took ten years to realise that it could not achieve its objectives through centralised, compartmentalised, nationally imposed programmes. We mustn’t make the same mistake again’.

As we move out of the depths of recession, Labour seems prepared to embrace a more asymmetrical system of government, with different powers transferred down to different councils at different times.

There’s still plenty of anger about the cuts in funding and the way fiscal austerity is disproportionately hurting those councils with the greatest need; and there’s plenty of concern across the party about postcode lotteries, the lack of co-terminosity in many places and arguably too many local agencies (like the Local Enterprise Partnerships) competing with each other. But many are now talking openly about a new more joined-up, place-based localist future and letting a thousand local flowers bloom.

The view from the majority of newly elected Labour MPs (many of them former councillors) is that the party’s past centralist tendencies are unpopular, unfair and unsuited to the new economy. There is also a realisation that any incoming Labour government will face a very tough inheritance and that distributing funding on a fairer basis will be difficult and expensive.

The authors in the report nevertheless argue that the current funding system has reached the limit of its capacity and needs more than just tinkering. That might not translate immediately into anything quite as far reaching as the local tax reform proposals in Boris Johnson’s London Finance Commission, but the idea of city local government having much greater financial self-determination and accountability is taking hold in the Labour ranks – even if business is opposed to local rate setting.

According to shadow local government minister Andy Sawford, Labour is embracing the power of localism and will radically change the way in which public money is raised and spent locally. Clive Betts, the Labour chair of the CLG select committee, claims there is no turning back and envisages a future under Labour where councils have much greater income-raising powers and much more freedom to borrow. He says that a proportion of the national tax take should go to local authorities by right, and not at the whim of the Chancellor.

Labour’s policy reviews are wrestling with the pros and cons of reconfiguring the relationship between central and local government and forming a new financial settlement. That won’t be easy, especially when so many Labour areas have a relatively weak capacity to raise taxes and are heavily reliant on central government to meet the (growing) demand for services. There are also limits to how far local taxes and charges can replace local grant, and reduce the common pot for equalisation.

The labyrinthine system of local government finance doesn’t help, but the elephant in the room is economic geography and uneven economic development, which is getting worse as London races ahead as Europe’s leading global city.

Labour wants financial devolution, but not to enable Westminster City Council (which raises almost as much in business rates as all the eight core cities combined) to declare total financial independence!  The Labour leadership will also have to think long and hard about reforming council tax and maybe embarking on an England-wide property revaluation, which is long overdue (the last rebanding was in 1991) but could cause financial pain for large numbers of homeowners and cost votes.

Many Labour council leaders acknowledge what has been achieved so far on a cross-party basis, but want a distinctive Labour localist settlement which goes far beyond the piecemeal approach advocated by the coalition and practised by the previous government. In place of policy triangulation the call from some quarters is for radical constitutional and financial change, with the Local Government Association taking responsibility for distributing government grant (as happens in Denmark) and cities having control over a range of property taxes.

How far will Labour go towards meeting the ambitions of Labour councils is still unclear. What is becoming more certain though is that Ed Miliband is going to have to offer them a lot more than his predecessors if he wants to present his party as the new localists.

This article first appeared on Public Finance



Will Labour invest big time in council housing?

By Paul Hunter, head of research at the Smith Institute

Back in 2009 John Healey, the then Housing Minister, consulted on reforming the way council housing was funded under the housing revenue account (HRA). This technical sounding reform was not on the party’s pledge card and never likely to get people marching in the streets. However it has since heralded a rebirth of municipal housing. The extent of this renaissance is at present small but has enormous potential.

Under a future Labour government councils all over the country could be building again at scale.

Until the end of the last Labour government council housing was seen as part of the problem. The Tories decimated the social housing sector with the introduction of Right to Buy (with few funds available to replace lost stock). New Labour’s preferred providers were housing associations who had freedoms to leverage in private finance while the policy focus was on ‘decent homes’ rather than new build.

The HRA reforms have started to reverse this trend, allowing council’s greater autonomy over their housing stock and freedoms to borrow to build. In our new survey (with Housing Voice) of councillors leading on housing, the HRA reforms have gained strong support (only 9% of those surveyed were dissatisfied). Moreover, the appetite for building is impressive with 93% stating that they were planning to build new council housing. Given the chronic undersupply of housing this should be a good news story, especially given that many of the most ambitious building plans have emanated from Labour controlled councils, such as Southwark and Manchester.

However whilst most councillors in the survey viewed building new social housing as the top priority, the numbers of homes local authorities plan to deliver still remains small compared with housing associations. The majority of councillors envisaged building less than 500 homes over the next ten years, and 40% thought that new build would not compensate for loss of stock through Right to Buy, void sales and estate regeneration.

The challenge then for Labour’s shadow team is how best to support councils to supply more homes at sub-market rent. Under the reformed HRA councils can only borrow up to a certain limit (far lower than housing associations, who can borrow billions off the public books through the bond markets). Maybe it is time to level the playing field?

Although much of the talk since the financial crash has been about deleveraging, for council housing the opposite is true. The problem is that a future Labour government will have to keep an eye on the deficit. Allowing councils to borrow more could provide much needed homes (78% of councillors said they would build additional new homes if the debt cap over council housing was to double) but equally by doing so it will push (as things stand) up public sector borrowing. This is, of course, a matter of political will and priorities, but movement on the cap would undoubtedly help increase supply. Moreover, it could potentially help reduce the Housing Benefit bill in the expensive private rented sector, provide new jobs and help dampen market rent increases. The extent of the gains is unknown, not least because a consequence of undersupply is overcrowding. Reducing overcrowding would come at a cost of increased Housing Benefit claimants and higher rents (i.e. moving from a two bed to three bed property). Nevertheless the economic and social gains seem compelling.

Increasing the ability to borrow clearly follows the line of reasoning of greater localism which was behind the reforms. But subsidised council housing will still need subsidy! If councils could borrow more those debts would still need to be serviced and paid down over the medium term. At present, sub-market rent levels fail to cover the build costs, with many social landlords turning to ‘affordable’ rent (up to 80% of market rent) and councils using planning gain (levies on private development) to cross subsidised new housing at social rents. There is a limit to the latter (and the former remains highly controversial) meaning new build housing requires grant funding to cover the shortfall.

Despite the Coalition’s talk of investing in infrastructure, grant for social housing (as opposed to ‘affordable’ housing) has been cut dramatically. Labour has pledged to invest more on housing, but how much more is unclear.

Labour councils are leading the way in delivering new council housing. However, the levels are unlikely ever to match the heyday of municipal housing, not least because of the mistakes that were made with system built tower blocks. However, councils have the potential to do much more if they have additional freedoms over borrowing. To expand still further, and to deliver genuinely affordable homes, will also require further public investment. The evidence shows many (Labour) councillors have a strong appetite to build subsidised council housing, but the extent to which this happens will depend largely on how much of a priority it is for central government.

Click here to read the survey

This article first appeared on LabourList

Fair Pay is Key to a Labour Election Victory in 2015

Blog by Paul Hackett (Director, the Smith Institute) 

Real wages are still falling and on current trends it may take a decade or more before living standards recover to where they were prior to the financial crash in 2008. “All pain and no gain” is hardly a winning slogan for the Coalition, and it could cost Cameron a second term.  The legacy of the wasted years will be more poverty and more in-work poverty, more unemployment and more under-employment, and widening income and wage inequality.  Labour is working on a recovery plan for jobs and growth, but it will also need an alternative strategy for the world of work which offers better pay for those on low to medium incomes.

Labour’s narrative and core values for a post-austerity age must be centred as much on sharing and redistribution, as it has been of late on growing the economic cake.  That has to include fairness at work and fair pay as well as fairness between the have’s and have nots and between the generations.  A distinctive Labour offer to improve pay and conditions will be critical to winning back the millions of blue collar workers who left Labour since 1997, particularly when contrasted against the Coalition’s wage freeze and Tory plans to promote insecurity at work by giving employers greater flexibility to hire and fire.

Voters are angry about high pay and unconvinced that low pay is the answer.  However, there is widespread cynicism about the ability of politicians to intervene in the market to make a difference. But this could change if the pay gap keeps widening. The latest IFS analysis forecasts that by the time the next General Election comes around, average pay and incomes could slip back to where they were in 2003. We are moving backwards at a quite alarming rate. So by any measure, there can be no speedy return to the status quo ante.

It is worth remembering that the fall in real wages and widening income inequality began under Thatcher in the 1980s but continued under New Labour’s watch. Despite some fantastic achievements (particularly the national minimum wage), real wages stagnated under Labour before the crash. Employment increased, and people were better off, but the bulk of the proceeds of growth went to the top 1%.  Labour did bring poverty rates down, but took its eye off income inequality.

The Smith Institute’s research shows that the reason for this was down to New Labour’s reluctance to support a wider range of interventions in the Labour market. The focus was all on improving the role of the tax and benefit system (especially tax credits), rather than how the market distributes its rewards through pay deals before the state gets involved. Labour was reluctant to challenge the employers’ organisations and make the necessary changes. This is a shame, because there was real repair work to do. The previous Conservative administration dismantled as many of the so-called ‘agencies of pre-distribution’ as they could lay their hands on. Their intention was to empower employers, while keeping the unions firmly in check.

But it wasn’t just the attack on collective bargaining which exaggerated the wage gap between the boardroom and the shop floor, but a deliberate rolling back of labour rights, wages councils and fair wages resolutions. Why Labour was so reluctant to redress the power imbalance at work is for the historians to debate. The key question now must be, what will a 2015 Labour Government do?

There needs to be a strong Labour counter on high pay, but capping top pay doesn’t deliver fairer pay for others. The rewards could just be shifted to shareholders and Sovereign Wealth Funds. Better pay transparency (as offered in the US Dodd-Frank Act) and better corporate governance will help, but if we want so-called “responsible capitalism” we’ll need more than that.

One potential route is to rebuild the unions and other organisations that engage with the workplace – particularly in the private sector. That’s easier said than done, but collective bargaining can make a big difference. Labour  also needs to consider other labour market interventions, such as fair wage clauses in public contracts. Employers will argue that they can’t afford it (as they did with the minimum wage), but the evidence we have shows that this approach works well in other EU countries, so why not here? We could also link fair wage clauses with the Living Wage and with so-called social clauses, which discriminate in favour of using the local workface.

Fair wage clauses are not a panacea to tackling in-work poverty, and will not of themselves narrow income inequalities, but they are a start, and would show that Labour is serious about tackling income inequality.