Britain's Labour can be a government of growth – but not like this

CapX

This column was first published by CapX, the online newspaper of London’s Centre for Policy Studies. It was written for a British audience, but its central argument comes from this side of the world. New Zealand's Fourth Labour Government and Australia's Hawke-Keating Labor government showed that centre-left parties can use market reform to achieve progressive ends. This piece suggests Britain's Labour Party should borrow that tradition.

“It is time for Whitehall to accept that growth cannot be ordered from the top down,” Andy Burnham said in his first major speech since returning to Parliament. “Instead, it can only be nurtured from the bottom up.”

He is right. The man about to enter Downing Street has seen what much of his party denies: prosperity is grown, not decreed, and the hand that tries to direct it from the centre usually throttles it instead. But the premise has a second half Burnham flinches from.

If growth cannot be commanded from above, the cure for Britain’s cost-of-living crisis is not to pull energy, water and transport back under public control. A centre that cannot create growth should surrender the levers, not seize more of them. The road Burnham should follow leads somewhere British Labour has spent forty years refusing to look: to a Labour government that began with the failure of central control and did not stop halfway.

One of the most sweeping market reforms in the democratic world was not the work of Margaret Thatcher or Ronald Reagan. In 1984, New Zealand elected a Labour government facing a run on the currency and an economy strangled by controls that successive governments had built to protect workers. Its finance minister, Roger Douglas, started from Burnham’s premise and took it further: if the state could not direct growth, it had to stop pretending it could. So, Labour let the market back in, stripping out regulation, opening the country to trade, cutting subsidies and eventually selling the state’s trading arms. It did not betray Labour’s ends; it pursued them by means that could deliver them.

The antipodean Labour governments of the 1980s understood what British Labour has forgotten: a party of the people must be a party of growth

Australia’s Labor government of the mid-1980s reached the same point under Prime Minister Bob Hawke and Finance Minister Paul Keating, floating the dollar and cutting tariffs, but through an accord with the unions so that reform carried consent.

The lesson is not to copy the antipodean programmes. It is to recover the seriousness beneath them: find what is strangling the country and remove it, while carrying people with you rather than ambushing them.

Here lies the contradiction at the centre of Burnham’s programme. In the name of giving power away, he wants to renationalise and control. Water, already private, he would take into public hands over a decade, with energy and more to follow.

Douglas and Keating were Labour reformers who privatised and freed. Burnham would go the other way.

His own record should give him pause. The Bee Network brought Greater Manchester’s buses under local control, with routes planned by the city-region and run by private operators, cheaper than before. Burnham treats this as proof of public ownership. It is nothing of the kind. The buses improved because knowledge, authority and consequences were brought closer together: the city now designs the network, answers for failure and keeps the gains from success, while private firms still compete to run it. What changed was not ownership but accountability.

Renationalise water, the grid and public transport and Britain will not get more Bee Networks. It will get bigger institutions with power detached from consequences. Thames Water is the example Burnham’s allies reach for, and it looks damning. But its lesson is not that private ownership fails. It is that a monopoly insulated from loss grows complacent, whether its shares sit in pension funds or in a ministerial portfolio. The failure that runs through poorly governed systems is invariably the same: too few of those who decide bear the consequences of bad decisions.

That is the test Burnham should apply across government. In housing, councils decide whether homes may be built, but capture too little of the gain from the families and businesses that follow, so saying ‘no’ becomes rational. In infrastructure, every veto player can slow a railway, reservoir or pylon, while the cost of delay falls on commuters and firms. In the health service, a hospital answers upward to NHS England for failing national targets, while the patient who waits bears the cost of missing them. The three look like separate crises, but they are one institutional failure: authority sits in one place and consequences fall in another.

Changing ownership does not fix that, and can make it worse, concentrating authority in bodies even further from the costs they impose. The remedy is to reunite power with responsibility: let places that permit growth share in its proceeds, and judge institutions by outcomes rather than spending.

Burnham already sees part of this. He talks about land value capture and retaining more of the business rates his city generates: not statist instincts but institutional ones, putting idle assets to use and rewarding places that grow. My colleague Eric Crampton at the New Zealand Initiative has proposed ‘devolution by contract’, letting councils depart from national rules where they agree on measures of success and share in the gains. The Adam Smith Institute reaches the same place from another route, replacing discretionary planning permission with stronger rights to build. One begins with fiscal incentives, the other with property rights, but both put the decision in the hands that bear its consequences.

This is why Labour may be better placed than parties on the centre-right to free growth rather than direct it. A Conservative who says the planning system keeps young families from owning a home is suspected of bad motives. When Burnham says it, it lands as common sense. That licence is precious, and the centre-left has spent it before, in Wellington in 1984 and Canberra under Hawke and Keating. It is wasted if used only to run the old machine more gently.

Burnham was half right, then, but the half he missed is the half that matters most. Once it is admitted that growth cannot be ordered from above, politics changes: governments stop asking only how wealth should be distributed and start asking why it is not being created. The antipodean Labour governments of the 1980s understood what British Labour has forgotten: a party of the people must be a party of growth.

Burnham has glimpsed the truth in Manchester. The question is whether he trusts it in office. He can repeat the boldest move a Labour government has ever made: letting go, and watching an economy grow. Or he can grip tighter, preside over a smaller pie, and wonder what went wrong.