Economic Justice Commission

Liam Byrne Excerpts

Tuesday 11th September 2018 Westminster Hall

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I beg to move,

That this House has considered the final report of the Economic Justice Commission.

It is a pleasure to serve under your chairmanship, Mr Hollobone. I hope that you will forgive me if I start with a short hymn of praise to the Archbishop of Canterbury. It was actually at his behest that, two or three years ago, I and others founded the all-party group on inclusive growth, which I chair and in which I declare my interest. His Grace helped to inspire and mobilise the Institute for Public Policy Research’s Commission on Economic Justice.

I congratulate the commission on producing a seminal report. Michael Jacobs, Tom Kibasi and the entire team of commissioners deserve our gratitude for sharing with us in detail a blueprint for reconnecting wealth creation and social justice. The mission is ultimately a moral mission and a righteous ambition. His Grace reminded us in his first major speech to the all-party group that Jesus was a wealth creator:

“Jesus worked for his living and created wealth for ninety percent of his life”,

so he would be unlikely to be much impressed by a country that grows both the number of billionaires and the lines at our food banks. The Archbishop continued:

“the foundations of a Good Economy are given in the nature of human beings: creativity, gratuity, solidarity and subsidiarity”.

We do not have enough of that today.

Branko Milanović, the New York economist, recently published an extraordinary book in which he set out what exactly has happened to the fruits of growth over the past 30 years. The extraordinary statistic that he revealed was that an incredible 44% of the absolute gain in total wealth has gone to the world’s richest 5%. What that means for us here in Britain, as Oxfam and others tell us, is that the richest 1% of the UK population now owns more than 20 times the wealth of the poorest 20% combined. On the streets of my constituency, therefore, among the homeless, the hungry, the young people in despair and the disabled struggling for their social security, I see, feel and share pain—pain that should not exist in the fifth richest country in the world.

The point of the Economic Justice Commission’s report, however, is not to kick off a slanging match; it is to kindle a peace match, an adult conversation that might grow in strength and one day foster something akin to the cross-party consensus that we had on economic policy after the second world war. In that spirit, therefore, I want to begin my remarks with some self-criticism about the past to steer us in the future.

Labour achieved many fine things between 1997 and 2010 but, with a lead that was greater than Attlee’s, we left a legacy that was considerably less. In power, we failed to tame and reform capitalism, and to bend it to the people’s purposes. That is what we must seek to do in the future. There was of course the tragic scar of errors in Iraq, but elsewhere we rolled forward public finance instead of reinvigorating a new public ethos, and our party was too top-down when we should have renewed bottom-up. That, in part, explained why we acquiesced in too much financial engineering and not enough real engineering.

In the face of the China shock, therefore, which unfolded after China joined the World Trade Organisation, and of the doubling of the size of Europe after the Berlin wall came down, we let too many communities deindustrialise. Yes, we created jobs, but we did not create enough good jobs. Former manufacturing powerhouses such as Burnley or Barnsley fared very differently from Berlin or Beijing, which took a different way forward. We allowed too much globalisation without compensation. In the spirit of that self-reflection, I hope that Ministers will accept that we cannot go on with today’s economic muddle when what we need is to agree a new economic model, one that will take us to a different kind of country in which we are better at creating wealth and an awful lot better at sharing wealth.

Today we face a triple curse: growth is too slow, with rates that are far slower than the trend rate of growth achieved in the new Labour years; productivity is too weak, with rates of productivity growth lower now than they were at the end of the 1970s, when it was known as the “British disease”; and, despite today’s news, wages remain much too unfair, as we continue to face the largest squeeze on wages since the days of Charles Dickens.

Ministers need to confront what the capitalism around us has become. In our workplaces, our workers now face a smaller and smaller group of companies, the great technopolies created by the $20-trillion merger wave of the past 30 years. Those companies now power world trade and dominate world technology. They use that power of technology, trade, automation and outsourcing to hold down wages. Ultimately, that is why we need a different economic model in this country. Hitherto, we have failed to create what the IPPR commission calls “a new economic constitution”, and that is what Britain needs.

The linchpin of this very fine report is what the commission called a “mission-oriented industrial strategy”. This debate is the Minister’s first outing—we welcome her to her post—but I suspect that she will say that Her Majesty’s Government do indeed have such an industrial plan. However, we must be honest with ourselves in this Chamber: the industrial strategy that we have is nothing compared with the $300-billion “Made in China” programme, Narendra Modi’s “Make in India” campaign, or the new $100-billion Vision Fund of Japan’s SoftBank. We need an industrial strategy financed on a wholly new scale.

We must therefore have new fiscal rules to guide our budgeting, so that we drive up public investment in things such as infrastructure by an extra £15 billion a year. We need to leverage that with a £200-billion national investment bank with strong regional investment banks on the ground, much like the KfW model that was such a success in post-war Germany. We need new economic governance systems—such as the four new economic executives proposed for England—tasked with ending the regional imbalances that have cursed our country for decades. Crucially, we need to leverage that with change to the Bank of England mandate, as I have argued for a number of years now, so that it seeks not simply price control but unemployment and underemployment as low as possible.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

The right hon. Gentleman mentioned subsidiarity and the question of regionalism. One of the things that struck me on reading the full report, which he has on his desk, is that in terms of gross value added over the past decade Scotland has far outperformed all the regions of the United Kingdom except for London and the south-east. Scotland, of course, has control over economic development—it has economic powers—so will he join me in asking the Minister what assessment her Department has made of Wales’s potential to increase GVA if Wales had the economic means to do so, as is advocated in the report?

[Liam Byrne]

One of the great achievements of Labour’s time in office was the devolution that allowed different economic models to begin to emerge across the United Kingdom. Although there has been interesting and impressive growth in parts of the country, it is nothing compared with what we need for the years ahead. Let us be honest; it will be impossible to match what is happening in the east, in Asia, unless we put behind a strategy the real power of fiscal, banking and monetary policy.

To rewrite the rules of our labour market, the commission proposes a real minimum wage of £10.20, set 20% higher for anyone on a zero-hours contract—an important, interesting and innovative idea that should command our attention—and it proposes New Zealand-style rights of access for trade unions, crystal-clear rights to join a union and trials of auto-enrolment in unions for workers in the gig economy. Why are these things so important? They are important because of the power that is now exercised by giant firms in our economy. Over the summer, The Economist reported that the $5 trillion merger wave in the United Kingdom is, adjusted for scale, 50% greater than in the United States.

According to the International Monetary Fund—of all people—that rise in market power is much more pronounced in the UK than it is elsewhere. It looks at price mark-ups as a proxy to judge market power. The mark-ups it found in the United Kingdom are about 60% since 1980. That is way ahead of the average for the advanced economy. We are more dominated by technopolies than many other countries, and the price for that is paid not by shareholders or chief executives but by workers. That is why we need to rewrite the rules of the marketplace, to rebalance power in the marketplace.

In the boardroom, we should finally privilege those with a genuinely long-term perspective—also known as workers —by putting them on boards. The IPPR proposes at least two on every company board with more than 250 staff. Why is that important? The chief economist of the Bank of England recently reflected that once upon a time the average length of a shareholding in a British company on the stock exchange was something like six years. Now it is only six months. Shareholders are no longer the long-term stewards or guardians of a company’s interest. It is the workers, and very often suppliers, who have the longer term interest. We need workers on remuneration committees, to stop the ludicrous expansion of chief executive pay. Crucially, we need to change section 172 of the Companies Act 2006, which we wrote, in order to ensure that directors have a fiduciary duty to have regard to the long-term interests of a company and the welfare of all stakeholders, not simply the stakeholders known as shareholders.

In the capital markets we need new fiduciary duties for asset managers and priority rights for long-term investors, like the rights that are enjoyed by shareholders in France. America and Italy. We need new tests for takeovers, plus crucial reform of competition law to introduce a new public interest test to check today’s uncontrolled technopolies that are carving up the digital marketplace. Finally, to ensure that wealth is genuinely shared, we need a new £186 billion citizens’ wealth fund, in order to help redistribute wealth to our young people who are struggling under the burden of high debt, sky-high student loans and the challenge of saving to put down a deposit on a home.

To help rebalance the fiscal system and ensure that money is available, the IPPR proposes a total overhaul of our tax system, with German-style formula-based calculations of income tax. Crucially, we need the equalisation of income and capital gains tax—much as we had when capital gains tax was introduced in the 1960s—and new wealth taxes. It is extraordinary that the stock market is up by about 40% and the property market by about 25% since the financial crisis. The wealth of assets in this country has multiplied exponentially, yet wealth taxes are still only 5% or 6% of GDP—the level they have been since the early 1970s.

Let me conclude with a reminder of how much is at stake in this debate. Globally, Oxfam estimates that about half of global wealth is in the hands of the richest few. That means that, globally, 85 families own as much as the poorest 3 billion of our fellow citizens on the planet. We can have an argument about how we share the wealth that is on the table, or we can think afresh about the wealth that is to come. If the richest 1% carry on accumulating wealth at the rate they have enjoyed since the financial crash, they will not own half the world worth by 2030; they will own two thirds—two thirds of global wealth will be in the hands of the top 1%. It will be impossible for us to restore any meaningful measure of equality in this century if we allow that situation to unfold. What will affect inequality in the years to come is not simply the exponential rise in the wealth and assets of the richest—a rise that is forecast as up to £217 trillion in the hands of the luckiest few—but what will happen to the poorest and the working poorest in our country.

We need to zero in on what is happening in the automation of the world of work. At the World Bank and IMF meetings earlier this year, the chief executive of the World Bank was very clear that automation will hit people in different ways. Some people will be hit harder than others—young people will be hit hard, and the working class harder still. My research, undertaken with the House of Commons Library, shows that among the poorest 25% of the labour market—someone who is on less than £9 an hour—2.1 million jobs are at risk of automation. Why? Because automation will hit retail, transportation and routine manufacturing, where most of Britain’s working class happen to work. If we lose those jobs, the impact will be five times bigger than the shutdown of the coal and steel industries put together. Think about how those communities are still scarred today by the seminal changes during the 1980s. We can see these changes unfold in our economy. Those workers will be left behind in tomorrow’s economy unless we change strategy.

We have to answer the question: are we prepared to stand by and watch this happen? We cannot and we will not. We need to have new ideas and turn them into action. We have a blueprint for those ideas today. I want the Minister to tell us just what she disagrees with in this seminal report.

[Several hon. Members rose—]

--- Later in debate ---

[Liam Byrne]

I did not expect to intervene, but my hon. Friend makes an incredibly important point. The case he makes has been rehearsed by the Opposition for some time, but it has now been endorsed by the International Monetary Fund, which reported over the summer that the dismantling of labour protections accounts for a huge slice of the fall in labour’s share of national income. That is not just our view—it is now the IMF’s view.

[Justin Madders]

I did not think I would quote the IMF today, but my right hon. Friend is absolutely right about the share of income that goes to labour. I found that statistic in the report staggering. It is clear that the direction of travel will only continue downwards. We must find a way of reversing that decline. We like to say in this place that economic growth is the answer to all society’s problems, but that growth has to be shared by everyone, and it clear that that is not happening. If we do not solve that puzzle, we will have failed our constituents.

We must also tackle the myth propagated from time to time that an empowered workforce are a barrier to growth when, in fact, as my right hon. Friend said, all the evidence shows that they are an enabler. Many of the countries that outperform us in productivity have better paid workers and stronger workplace rights. The report states clearly:

“If both productivity and pay are to be increased, power will need to be rebalanced in significant ways from employers to workers. This will require stronger labour market regulation and strengthened trade unions.”

Sadly, the Government seem to spend a disproportionate amount of time looking to stifle and inhibit trade union activity.

There has been a lot of soul searching in the past few years about why people voted as they did in the referendum. I think many of the answers are in this report. I always maintained that the arguments advanced during the campaign about the threats to our economic security from Brexit would never work with people who already did not feel economically secure. As the report makes clear, the issues that have created the rampant inequality that fuels division and discontent in this country can be solved only by a Government who are prepared to tackle the root causes of what is a very lopsided economy. The lessons of the past tell us that things will change only if there is a political will to make that change. We will fail this country if we do not take the lessons in the report seriously.

--- Later in debate ---

[Liam Byrne]

A vote is imminent, so I shall be brief. I am not entirely convinced that the Minister has read the report. She did not say much about what she had learned or what she disagreed with; we heard a defence of everything in the Government’s platform. I do not think that the British public want an economic policy that is a nudge here and a nudge there. I think that they are looking for a much more radical transformation.

The Government have an opportunity at the G20, which is focused on the future of work, to make good on the commitments that they made when signing up to the 2015 sustainable development goals and the communique at the 2016 Hangzhou G20 summit. Those commitments were to creating a much more inclusive economy than today. That will not be delivered by a nudge here and a nudge there; it needs the radical transformation proposed in the report. I hope that the Minister reflects on the debate in preparation for another debate after the G20, when we will test her conclusions.

Question put and agreed to.

Resolved,

That this House has considered the final report of the Economic Justice Commission.