Time for Labour to cut to the chase

Tony Blair certainly knows how to put the cat among the Labour party pigeons. His 5,600-word essay on the future of Labour, published late last Tuesday, sparked furious debate and a flurry of responses. Leadership hopeful Andy Burnham hit back in comments to The Observer’s Rachel Sylvester. Wes Streeting published a critical piece in the Guardian. Keir Starmer provided his own lengthy response on Thursday via Substack. Numerous other ministers, MPs and grandees weighed in, making use of the time on their hands during parliamentary recess. Blair provides a response to these responses in today’s Observer.

The Labour party may have shied away from a battle of ideas while in opposition, but it is certainly having one now – and arguments over various aspects of economic policy have loomed large. So, in response to Blair’s essay, who thinks what?

“The second [epochal change happening in the world today] is the technology revolution led by developments in artificial intelligence, which will change everything. I mean everything”

This passage speaks to Blair’s view of the significance and inevitability of the AI revolution – a theme that runs right through his essay. In his telling, it is coming whether we like it or not, and the government needs to embrace this reality, ensure regulation is favourable to the tech sector and reorganise itself “around the harnessing of the 21st-century technological revolution”.

This is reminiscent of the former prime minister’s view of globalisation in decades past: that too was an unstoppable force the UK could do nothing to hold back. He is now arguing for a similar playbook: ride the wave, exploit the opportunities and use policy to distribute the proceeds more fairly (though the latter barely features in his essay).

According to his critics, what this misses is the importance of control.

Writing in the Times, Burnham stressed the importance of “strong public control” of the enablers of a more productive economy, and warned of the dangers of failing to regulate big tech. On Substack, Starmer argued that an economic plan to fight populism demands “a government that uses its power to give people agency and control”.

Writing in the Guardian, Streeting highlighted “the real dividing line in modern politics: between those who believe the future can still be shaped democratically for the common good – and those content to leave it to markets, monopolies and fate”.

A plethora of essays and reports from Labour MPs and affiliated organisations similarly argue that the state needs to be more active, more muscular and more willing to intervene upstream, rather than simply devoting its efforts to mopping up problems after the fact. There is little desire for a state that simply tries to get out of the way and do its best to compensate the losers. The talk is instead of the importance of agency, of AI sovereignty and the need for the government to shape technology, not be shaped by it. Blair’s proposal for a permissive, tech-company-first approach to AI is firmly at odds with this strain of thinking.

“...business and entrepreneurs need to know government is on their side, removing obstacles to business growth – not creating them as they go through this massive process of adjustment”

Blair’s essay is excoriating in its criticism of the Starmer government’s record. He argues that it took into power manifesto commitments that undermined its rhetoric around growth and harmed business confidence: the new workers’ rights laws; net-zero acceleration and the phasing out of the British oil and gas industry; the uplift in the minimum wage beyond inflation; and non-dom tax changes. To secure goodwill from business, he argues that Starmer and chancellor Rachel Reeves “should have said right at the outset: these are commitments which economic circumstances have rendered unwise to proceed with” in order to prioritise growth.

The response from Burnham and Streeting was: what about inequality and living standards? Streeting argued inequality is “the defining issue of our age” and that “economic growth without social justice is ultimately unsustainable”. In an interview in today’s Observer, Burnham criticised Blair for not mentioning inequality in his essay, and he wrote in the Times that the failure to recognise falling living standards as a central issue was a “gaping omission in his analysis”. Neither meaningfully engaged with Blair’s specific arguments about this government’s policy enactments.

Living standards matter, of course. But ultimately, the UK’s problem here is a growth problem. Living standards have stagnated because growth has stagnated. The only way to secure sustainable improvements in living standards is to grow the economy.

Blair is right, therefore, to stress the importance of economic growth. To jump straight to questions of how to distribute the proceeds is to put the cart before the horse. A better argument his critics could have made is that his prescription for growth is too thin, and rests too heavily on deregulation and potential gains from AI.

Burnham, for his part, pays lip service to “the need to build a higher-growth economy”, and presents a competing vision for how to make it happen, based on a very different view of the role of the state. It rests heavily on the idea that “you can’t just leave to the market”: he instead argues that “maximum devolution of power” into the regions and strong public control of transport, energy, water, education and housing will lay the foundation for what he calls “good growth”. Burnham suggests that Manchester’s relative economic success is the result of local government “being very interventionist and intentional”. Elsewhere on the campaign trail, he voiced opposition to housebuilding on the greenbelt – not, it must be said, the rhetoric of a politician laser-focused on growth as the country’s central challenge.

“‘Reindustrialising’ the north …will come through first-class infrastructure, education, freedom from bureaucracy, and government working in partnership with the private sector”

The IFS Deaton Review, which recently concluded after six years of painstaking research, found that of all the forms of inequality, the British public are most exercised about the gaps between poorer and richer regions. The need to tackle this is a point of consensus across the various Labour party thinkers.

The centrality of infrastructure to the economic prospects of cities outside London is another important point of consensus – as pointed out by Treasury minister Torsten Bell in a response to Blair’s essay, also noting that the former prime minister had previously placed more weight on the importance of skills when in office. This furious agreement speaks to the influence of research from Anna Stansbury, Dan Turner and Ed Balls (yes, that Ed Balls), which highlights inadequate transport infrastructure as the key factor limiting growth in cities outside the capital. Here, continuity is the order of the day.

“Our aim, for the long term, should be a Reimagined State in which taxes and spending can be lower, productivity higher and government seen as enabling not directing”

Blair’s essay touches on some of the forces pushing tax and spending higher. He highlights the rapid increase in spending on incapacity and disability benefits, and the fact that spending on those items could exceed defence spending by the end of the decade (“No serious country can do that”). He flags the state pension triple lock as unaffordable in the long term.

But he largely ignores what are the most significant forces at play. He doesn’t engage with the soaring debt interest bill, or the health and social care costs of an ageing population, or the question of how substantially higher defence spending ought to be funded. The implicit argument is that AI will somehow square the circle and allow for lower taxes and better services. Nobody knows how the AI revolution will play out, but this strikes me as wishful thinking. He also seems to imply that making preventative NHS products (such as weight-loss drugs) more widely available will reduce spending – similarly wishful thinking, which goes against the prevailing evidence.

Another form of wishful thinking prevalent within Labour is the idea that the government can meet the myriad spending pressures it faces – those coming from ageing, net zero and geopolitical rupture – without either rolling back state responsibilities or raising taxes on average earners. Taxes on median earners are low by international standards. And, contrary to popular belief, taxes on low-to-middle earners have fallen steadily over the past few decades – an unspoken truth in UK politics.

This is one reason why the Labour manifesto promise not to increase any of the “big three” taxes (income tax, VAT and national insurance) was so unwise: there is only so much that can be squeezed from the taxes that remain – from companies and the richest – without doing meaningful economic damage. Burnham has since reaffirmed this unwise promise. Should he take power, he would soon face the same fiscal constraints making life so difficult for Starmer and Reeves.

“We must prioritise cheaper energy and electrification over net zero and use what is left of our North Sea oil and gas resources”

This argument of Blair’s reflects a longer strain of thinking promoted by his institute, not spelled out properly in the essay: that the government is too focused on achieving clean power at any cost, and should instead take a more pragmatic approach to the net zero transition. The contention is that by making electricity too expensive, the UK risks slowing the uptake of electric vehicles, heat pumps and industrial electrification – thereby spreading the fixed costs of the system over a smaller base, keeping prices high and exacerbating the problem. Rather than focus on clean power, the argument goes, the government should prioritise cheap power – which means, among other things, utilising what oil and gas is left in the North Sea.

This is less an argument about the UK’s energy end point: there is general agreement, within Labour at least, that electrification is the future. It’s more about the path between here and there, and about whether the UK is going faster than is economically and strategically necessary – especially when oil and gas will remain a critical part of our energy mix for decades to come.

Nobody sensible thinks that the North Sea is the answer to our energy challenges. It’s a mature, declining basin. But, as I’ve written previously, there’s a pragmatic argument for extracting more gas, in particular, on the grounds that it would provide a modest but helpful boost to energy security, tax revenue, the balance of payments and the value of the pound during the transition to an electrified economy.

There are compelling arguments to be made against, especially on the carbon and climate impact, as we live through an uncharacteristically hot May. But there are no win-wins here. This is an argument the Labour party – and the country – needs to have.

Illustration by Phillip Lay/Observer Design, Andy Hall, Getty Images