New Labour’s Political Economy: Anything Left?

Posted on June 7th, 2017 by Craig Berry

In the fifth of a series of blogs marking the 20th anniversary of New Labour coming to power, SPERI Deputy Director Craig Berry examines Tony Blair’s economic statecraft


On the eve of gaining his first landslide electoral victory in 1997, Tony Blair promised ‘a new Britain’. He told the Labour Party’s conference in 1995 that ‘I want [Britain] to be a young country again’. Well, twenty years on, Tony Blair’s Britain is all grown up. Few could have imagined how much the country has changed since 1997.


But there is perhaps a more acute question to be asked at this juncture: how much has Britain changed since 2007, when Blair resigned as Prime Minister just as the financial crisis began to gather pace? In other words, how much of the New Labour legacy lives on today in British economic statecraft?


We can only answer this question by first questioning its premise. As a historical reference point 1997 was of course not some kind of secular ‘year zero’ in Britain. New Labour’s economic statecraft explicitly accommodated the ‘neoliberal’ orientation of the Conservative governments of the 1980s and early 1990s. But it did so by developing a fairly novel set of social and economic policies in order to pursue a mildly progressive agenda without dismantling its Thatcherite inheritance.


The best example is perhaps the high level of public sector investment evident under New Labour. In macro-economic terms, this investment represented a significant economic stimulus for the deindustrialised Labour ‘heartland’ regions of the North, Midlands and Wales. Suffice to say, austerity – which Blair himself largely supports – has put a decisive end to this element of New Labour’s economic statecraft.


Arguably, however, Labour’s own validation of fiscal conservatism laid the groundwork for post-crisis austerity politics. As Chancellor of the Exchequer, Gordon Brown did a much better job of sticking to his macroeconomic policy constraints than George Osborne ever did. Would the Office for Budget Responsibility – an influential but largely toothless fiscal watchdog – now exist had Brown not championed his ‘golden rules’ or depoliticised monetary policy? Would public spending cuts have been the Conservative Party’s default reaction to the crisis had New Labour done more to explain its approach to public sector investment?


The financial crisis perhaps should have meant that the British economy’s reliance on the finance sector, which New Labour had largely failed to challenge, was reduced. But there is little sense of any such shift. While the coalition and Conservative governments have consistently promised to ‘rebalance’ the unbalanced economy they inherited from Blair and Brown, financial regulation has been limited, and manufacturing industries continue to decline.


There have undoubtedly been some moves towards a more active industrial strategy since 2010. Arguably, the scale of deindustrialisation under New Labour has destroyed all hope of a manufacturing renaissance. However, it is the remarkable recovery in one particular manufacturing industry in recent years – automobiles – is largely due to policy interventions under New Labour, albeit largely those undertaken after 2007 under the Brown premiership. If anything (and mirroring the apparent change in fiscal policy described above), while the Conservative Party has been a stronger advocate of industrial strategy than New Labour ever was, it has actually delivered rather less.


Much of New Labour’s approach to social security has remained firmly in place since 2010 – particularly the role of tax credits. While effectively obscured by headline-grabbing policies like the benefits cap and the national living wage, Britain is no closer to becoming the ‘higher pay, lower welfare’ society outlined by George Osborne in an attempt to distinguish his economic statecraft from New Labour. The minimum wage is increasing, but actually applies to an ever-smaller proportion of the workforce. The use of tax credits to supplement pay for those in work will be with us for a very long time.


One of the key planks of the New Labour agenda was to turn the perennial dilemma of being caught, politically and economically, between continental Europe and the United States into a strength for Britain. Blair was both a Europhile and an Atlanticist.


Clearly, the referendum result on 23rd June 2016 has changed Britain’s relationship with Europe forever. The centrality of single market membership to Britain’s developmental model cannot be overstated; most British industries are highly reliant on trade relationships with Europe, and many are acutely dependent on importing European workers. Far more than any policy of remainer George Osborne, Brexit has dismantled New Labour’s legacy for British economic statecraft.


That said, there is no doubt that Blair became increasingly reluctant to extol the virtues of EU membership as his premiership matured. As typified by the Iraq war in 2003, and due to his faith in the progressive potential of ‘globalisation’, Blair bet big on the value to British prosperity of maintaining Pax Americana, allowing a schism between Britain and the EU – more specifically, the Eurozone – to develop.


Five years after Blair left office, with the Eurozone struggling with a sovereign debt crisis and Barack Obama about to be elected to a second term, the bet appeared to be paying off. The United States was weathering rather well the global economic storm germinated in its own financial markets.


How different this picture looks now, another five years on. It would of course be unfair to blame Blair for Britain’s present predicament – there would have been no hand-holding in the Rose Garden had Donald Trump been elected during the Blair era. Nevertheless, the extent to which New Labour valued its ‘special relationship’ with the United States above all others is certainly part of the context within which Theresa May felt cornered into embracing the Trump presidency so warmly. This is not the Atlanticism Blair would have chosen, but that it is the one Britain is left with is among New Labour most significant legacies – resulting perhaps from its most profound miscalculation.


Craig Berry is Deputy Director of the Sheffield Political Economy Research Centre, University of Sheffield

Notes: This article gives the views of the author, and not the position of the Crick Centre, or the Understanding Politics blog series.

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