We can escape the state we’re in

Thirty years ago, The State We’re In was published. Baby boomers and generation X may remember it; millennials and gen Z are excused. You were either babies or not yet born.

The success of the best-selling economics book since the second world war bewildered its author (me), the publishing industry and Britain’s political class. It was all impossible. One reviewer captured widespread dismay, especially on the right, depicting me as the most dangerous man in Britain. I had dared to challenge the indisputable Thatcherite truth that her medicine had renewed Britain. Instead I argued that she had bequeathed a divided and weakened society that actually undermined the economy, and that the better route was a stakeholder, high-investment capitalism that put fairness at its heart. The danger was that the credulous and misguided buying the book in droves might even believe such nonsense.

Yet in 2026 we are where I feared in 1996 that we would be. Continued inattention to fixing the financial architecture in which our companies can grow and flourish has meant that many of our great businesses have been dismembered while others decay and stagnate. Too many young companies that might replace them are acquired or sold abroad. Societally, living standards are barely increasing while a century of improving public health and lengthened life expectancy is being reversed, especially in our former industrial heartlands. A great economy cannot be built upon a weak society. The nascent anti-Europeanism of the mid-1990s has morphed into Brexit. Internationally, the liberal order that underpinned growing postwar prosperity is being shredded.

So colleagues at the Fairness Foundation and elsewhere, dismayed at the plummeting standing of what on current trends could be Britain’s last Labour government, urged me to remake the arguments today. There are new threats: dangerous geopolitical rivalries, globalisation stopped in its tracks and the world dividing into rivalrous blocs. But there are also new opportunities: the fourth industrial revolution, Britain’s emerging strengths in science, technology and scaleups, and its strong venture-capital industry. Around the country there is a civic energy that expresses itself in our buoyant creative industries and sporting achievements. Although our situation is perilous, we are not done yet.

The same core propositions as then hold true now. Britain needs a financial and economic architecture that supports companies in their growth. This must be grounded in measures to keep our society as cohesive as possible by managing the dislocations and inequities of any dynamic growth process. Above all, there needs to be clarity about ends and means. Thus Escaping the State We’re In is born. Here’s a taster of a deliberately short paper, to be published online and free on Thursday.

Growth – getting behind the ‘800’
Although the national conversation does not recognise it, Britain is a country of entrepreneurs. We possess 800 high-growth tech scaleups that have reached the critical $25m revenue threshold. That’s two-fifths of all those in Europe, ranging from life sciences and advanced materials to robotics, quantum and defence technologies. If we want growth, we have to get wholeheartedly behind these 800, knowing that some of them will grow into the pillars of our economy.

This will demand up to five times the current levels of scaleup investment. Only the creation of up to 20 pension superfunds with the scale and appetite to back British entrepreneurial risk-takers, matched by an ambitious expansion of the British Business Bank and National Wealth Fund vastly beyond that currently envisaged, can deliver the necessary risk capital. A vibrant British venture-capital industry investing British capital in British scaleups is a necessity, to remove the reliance on American money. The aim must be to foster clusters of tech companies all round the country, linked to great research universities, and to create a trillion-pound tech economy before 2040. The government has started this work. It needs to be turbocharged.

Protecting and advancing the idea of the public company
If the great companies we develop are to stay domiciled in Britain with their shares quoted on the public stock market, so entrenching their accountability, the stock market itself needs to be more buoyant and attractive. Deterrents to buying shares, notably stamp duty, must be dramatically lowered. Pension funds should be incentivised to invest more in Britain. E qually, e very privatised utility should have a quarter of its shares quoted in the UK, with a constitutional obligation to deliver public benefit before profit. The worst performers – in the water industry, for example – have been wholly privately owned, with profit rather than service the overriding motive.

Incentivising the businesses we need
We need companies that innovate and create value rather than relying on extracting “rents” from their monopoly position or from property values. The tax code must distinguish between the ways profits are made. Capital gains tax on property disposals must be raised to align with higher-rate income tax, while the rate on disposals of businesses and shares in businesses would remain at current rates or lower.

A fit-for-purpose military in dangerous times
Defence spending needs to rise by £30bn by 2030. Issue tranches of inheritance tax-exempt defence bonds (as advocated in The Observer last week), so attracting a much-needed new category of bond buyer. The savings in lower interest rates would compensate for some of the lost inheritance tax; enhanced defence capacity is the greater good.

The society we need
Strong economies are founded on strong societies, the link being work that is creative and inspiring. Too much work in Britain is barren, tightly monitored and uncreative. One way forward would be to phase in the Danish system of “flexicurity”, recasting rights and responsibilities at work. In exchange for the promise of lifelong training and retraining, supportive management and high levels of benefit if unemployed, workers accept the need for flexibility in job roles, and even to move on if the company gets into trouble. Trade unions oversee the entire flexicurity system. It is scandalous Britain does not begin to reproduce any of this, especially for our 18- to-24-year-olds, nearly 1 million of whom are not in employment, education or training (the so-called Neets).

Ending the housing lottery
Affordable housing is a central component of any strong social settlement. Council-house sales that are not replaced should be banned. To support more home ownership, long-term, 25-year fixed-rate mortgages should be introduced, through a UK variant of the US’s Fannie Mae and Freddie Mac. This is especially important in Britain, as the bulk of mortgage borrowers use fixed-rate mortgages. Again, it is a disgrace that so many borrowers have been left stranded by the withdrawal of fixed-rate mortgage offers since the start of the Iran war.

Replacing the triple lock
Britain has to retain the confidence of the bond markets. Fiscal rules of some sort are thus non-negotiable, but alongside bold and innovative moves to find savings in public spending and how it is financed. The triple lock on pension increases implies that spending on pensions will explode. It should be replaced by an “average lock” (averaging earnings growth, the consumer prices index and 2.5%). If this had been implemented in 2011, the state pensions bill would now be £2bn lower. Pensions would still be generous but they would be affordable. This could be done in tandem with launching a long-term plan to create a fully funded state pension.

More is possible in the same vein: for example getting closer to Europe by offering to be the founder member of a European innovation zone, or by enforcing the regulations that could lower the estimated £71bn of various rip-offs suffered by the British consumer.

The attainable prize is the creation of a new model of capitalism that delivers “common good” economic and social outcomes. Britain could quickly possess the strongest 21st-century economy in Europe, becoming a reinvigorated society with rising living standards, a rejuvenated public realm, stronger defence and greater international standing. Within our grasp is the emergence of a less angry and fairer country that is prouder and more at ease with itself. Everything proposed is feasible. What is needed is the will to do it.

Escaping the State We’re In will be available through the Fairness Foundation from Thursday 19 March

Photograph by Getty Images