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The case for a ‘New Labour’ third term

John Denham


First published in Renewal Vol. 12, No. 4. (2004)


Rather than attempt to extend elements of social justice into the private sector economy we have preferred to run social justice and the market as parallel activities.


In truth, it’s getting quite hard to disentangle contesting views of a Labour third term. The same issues come up time and time again with different emphases: what is the proper the role and limits of markets; how do we create a space for non-market activities; when do we see people as consumers and when as active players in shaping society. But it’s hard to pin down the arguments in the absence of a powerful set of values to test policies and proposals.

While some people have stopped saying ‘New’ Labour, I believe the set of values New Labour expressed still provides the best value framework for the future. If I talk in the past tense it is because what New Labour has done in government has too often drifted away from its own values. Understanding why is key to getting things right in the future.

As a working politician in southern England, I’ve always found New Labour values challenging, radical and, no less important, pretty much in tune with the values of the voters we need to attract. In the South we’ve always had to combine an appeal to our traditional voters with one to the somewhat more prosperous and aspirational voters who don’t enjoy a history of identification with Labour. We’ve recognised that those voters have issues – workplace stress, environment, family, education, law and order – which need to be addressed directly and in their own right. We’ve also insisted that our ‘traditional voters’ share pretty much the same aspirations as our newer voters and want a Labour government that helps them realise those aspirations, not keep them where they are.

New Labour values were a core guide to policies and politics to bring this electoral coalition together. Balancing rights and responsibilities, giving equal weight to fairness and opportunity, using collective strength to achieve individual aspirations, bringing together sound economics and social justice, made sense. And, as I’ve written elsewhere recently (‘The Fairness Code’, Prospect, June 2004), these core values are still deeply held. The electorate has not moved away from those values, but in practice we sometimes have.

New Labour was once worried about fat cats and unfair, unearned wealth. It promised a high skill, high wage, economy. We talked of radical welfare reform, with a hard-edged toughness in relation to responsibility and conditionality, but also a real commitment to making security and independence achievable for all. We had a core promise in Tony Blair’s 1997 vision of ‘a welfare state dedicated to social inclusion, founded on rights and responsibilities going together and designed to give every individual the chance to earn a living, support a family and enjoy security in retirement’.

How far have we drifted from the earlier model of New Labour? The party that criticised fat cats has, today, rather less to say about extreme wealth than the Victorians, who at least preached a philosophy of social obligation to the rich. We hear less of the high wage, high skill economy and rather more of the working family tax credit. At the same time, the competitive labour market we have championed seems to undercut pensions, security and benefits for many in work. Hard work does not yet always deliver the returns Tony Blair set out seven years ago

Significant welfare reform has been undertaken, but as the vast majority of younger workers head towards a means-tested retirement, we are perceived as having done too little to reward hard work and responsibility. We still face a system that can feed dependency for the poorest and create complexity for the better off.

At its most powerful, New Labour is a progressive ideology that cuts across traditional boundaries. So it should be no surprise that the forces that blunted New Labour’s cutting edge have come from more than one direction. Coming from one direction (and the most important because it is least debated) are the consequences of the attempt to run a pretty liberal free-market economy alongside a more generous and redistributive public sector. From other directions come the contrasting effects of both an over-traditional approach to welfare and a poorly designed marketisation of public services.

On the first issue, Labour has largely accepted the argument that constraints on a free-market economy undermine our commitment to a sound economy. Interventions like the minimum wage or new employment rights have had pretty limited impact on most but the worst employers. Rather than attempt to extend elements of social justice into the private sector economy we have preferred to run social justice and the market as parallel activities, relying on the free-market economy to provide the wealth from which the social justice can be created.

This twin-track approach has produced significant growth, employment and taxable wealth for public services. But the limits are also becoming clearer. Too much of what we are as people is defined by the work we do and the conditions in which we work. Sound and stable growth has also brought, for many people, long working hours, huge pressure on private sector pension provision, a growing low-reward ‘tax credit economy’ and a hard to shift economically inactive population.

We have mitigated many of these effects, particularly for the worst off, and the gains to public service have been real. But it may not be surprising that the most recent polls suggest that many people are not convinced that the social gains outweigh their workplace experience. There are signs that, to the extent that people feel they are paying more tax, they are not convinced the deal has been a good one.

Nor can we be sure that this approach is building the long-term sustainability that our economy needs. Investment is still sluggish, productivity lags behind competitors, and the breakthrough on skills has yet to take place.

The twin-track strategy of a neo-liberal market economy and an expanded public state also assumes that progressive values need to be rooted largely or solely in and through the public space rather than in the private sector (which, no doubt, is why fat cats are not mentioned any more).

The truth is that some of the most important features of a social democratic society occupy a hinterland between a liberal market economy and the public space. Occupational pensions, the training of apprenticeships and time off for the public duties of councillors and magistrates – to name but three – are all examples of aspects of private sector companies (until the fairly recent past) which never made strict market sense but which contributed to a more secure, more progressive and ultimately richer society.

The neo-liberal agenda introduced by the Tories ignored or derided the value of such activities. New Labour has not challenged this approach head on, but has tried to ameliorate its effects in other ways. But it is now clear that it will be difficult simply to take ameliorating action to offset the decline in pension provision, employer support for training and other changes. For a progressive consensus to take hold, we have to have elements of progressive values operating within the market economy as well as in the public space. The relationship between markets, the state and institutions like occupational pensions is complex. State action can foster or destroy progressive institutions in a market economy. There are signs – in talk of requiring employer support for training, for example – that the government is beginning to recognise that the current approach is not sustainable. The recreation of progressive institutions in the market economy will need to take centre stage in a New Labour third term.

The need to have progressive values operating in the market sector should be reflected in our approach to private involvement in public services. While there has been a debate about the boundaries of public and private provision, less attention has been given outside the trade union movement to the nature of the private sector involvement.

The extension of private sector involvement into the provision of public services has certainly had advantages in expanding capacity and introducing contestability to conservative services. But the private sector has often demanded that it brings with it private sector conditions of employment and a narrow, contractual view of their relationship with the public service. Thus, for example, there is something contradictory about reducing pension provision for people who are employed by the private sector to provide public services, whilst at the same time building the state’s commitment to reducing pensioner poverty through tax funded pension credits.

And if the role of private sector organisations is defined purely by their contractual relationship with the public service, or the market relationship with individual users, they will never be able to offer the quality of service and commitment that defines the public service ethos. In other words, if private providers cannot embody public service values, they will never be effective service providers.

The Warwick agreement marks an important rowing back from the early enthusiasm for the crude cost cutting of private sector involvement, but Labour’s third term will make this a positive agenda. A note of realism about the benefits will help. There have been significant early successes with Labour’s strategy of encouraging diversity, innovation, contestability and choice through initiatives like specialist schools and diagnosis and treatment centres. But I suspect these will turn out to be less easy to replicate. The early specialist schools have had the best leadership; the early DTCs have tackled the most arrogant abuses of consultant power. Whether either will prove to be such a significant long-term solution is less clear.

From a different direction, Labour’s attachment to a rather traditional social democratic model of the welfare state, focused on redistribution and bureaucratic administration, has closed off more radical and empowering approaches. The dynamism of the New Deal, with its combination of the responsibility to look for work and the right to support into work, is not yet typical of Labour’s welfare system. The extensive system of working tax credits does not yet provide a springboard into better paid jobs, whilst administrative problems sour the experience for a minority. Those living and working in the tax credit economy do not yet see Labour as the party with the ambitions for them and their families that New Labour once espoused.

Pension Credits, though admirable in their redistributive spirit, raise all sorts of problems of fairness and the proper reward for responsibility. Many pensioner households are certainly better off but the pension system as a whole does not promote the combination of both security and reward for hard work that was central to New Labour.

Like other Labour MPs I have supported both policies as the best available short-term measures, but neither provides a genuinely long-term New Labour approach to welfare. And there are too few areas where Labour has made it easier for people to organise and shape their own provision, rather than rely on others. An expanded capacity in public services should go hand in hand with greater control and empowerment. Choice over the location of elective surgery is valuable, but less important, perhaps, than the ability to plan the care of your elderly parents without the bureaucracy currently involved.

Middle-income families have undoubtedly gained form the general investment in health, education, police and other public services, but the third term must do more to increase security and personal choice for middle-income families in the way New Labour values promise.

Ironically, the pressures from Labour’s approach to the market, to welfare and the public services have produced the biggest squeeze on the newer voters whom New Labour won in 1997 and 2001, and on the nascent aspirations of more traditional voters. It is these hard working families who may say they see a tough life at work, too little personal benefit from welfare reform, and too little progress as yet in public services for which they feel they are paying.

In truth, Labour has made sufficient progress – and the alternative parties of government are so weak, implausible or reactionary – that Labour deserves a third term. But a successful third term means addressing some of the problems I have outlined.

It has often been assumed that the broadening of Labour’s appeal in the 1990s was dependent on a shift to the right, disguised by the language of the ‘Third Way’. The experience of the past seven years provides strong evidence that we genuinely do need a ‘Third Way’.

New Labour’s promise was not to reduce the state’s role per se, but to redesign it for a modern economy and society. A return to old forms of state-centred economic management is neither desirable nor, in a globalised economy, feasible. But it should be possible to design state interventions more precisely to enable individuals to achieve outcomes they could not manage on their own.

Take pensions as a complex policy area. Few individuals can organise their own pension, because a successful policy depends on transactions across generations, between those on different incomes and between individuals, employers and the state. It depends also on an economic policy that sustains rather than undermines good pension provision.

The state should not try to organise all pension provision, but only the state can create the conditions in which sound pension policy can develop. In the current context this means ensuring over coming generations that the tax/NI funded state pension system is sufficiently generous to lift increasing numbers of newly retired people above the basic level of means-testing. By thus ensuring that additional savings are theirs to enjoy, the state can set new rules for personal saving and employer contributions. In the process, light regulation can minimise the extent to which market competition forces employer provision below an acceptable minimum standard. Incentives can assist employers and individuals to go beyond the minimum. A simple change in regulation to require all jobs to be advertised with a combined salary/pension value, not just headline pay, would reward employers who made the better provision with the best staff. At the same time, we might limit the extent to which company directors can enjoy tax relief if their pension provision is vastly different to their employees

The point of this example is simply to illustrate what happens if we let a core New Labour value drive pension policy through both the private market economy and the public sphere. New Labour’s promise was both that if you work, you would enjoy security in retirement and that personal effort and responsibility would be rewarded. This vision on the one hand insists that we reduce means-testing and on the other that we target state interventions that limit the impact of unbridled market competition on pension provision. And these values require us to assert responsibilities on the rich and powerful as well as the many, but also to look at ways of rewarding employers who recognise broader social obligations.

‘Opportunity for all’ and ‘sound economic management’ require new interventions. Successful policy has to raise aspirations, raise skill levels, and change employer attitudes towards both training and employment rights. As I’ve described elsewhere (Making Work Work, Fabian Society, 2004), for many people, particularly in the tax credit economy, the path to a better rewarded job is complex and difficult. So a network of advancement agencies able to work with individuals and their employers to raise skill levels and ensure employment rights are respected should be part of our response. If the state is paying for skills training, we should try making this money directly available, as a right, to individuals. Let them represent a cash value to those employers often most reluctant to support training. Individuals able to make their own choices about the right type of training for them, and the development of a more powerful employer and employee market for training, would challenge some of the rigid provider dominated training we have at present.

Such an approach would bring real advantages to employers as well as to their staff, but it should be balanced by a reassertion of the responsibilities of employers. Advancement agencies should enable people to enjoy the working rights Labour has introduced. And those companies that can afford to pay more than the lowest wages should be challenged to do so. In legislative terms, there may not be much to add to the minimum wage framework, but couldn’t Labour in power at least express sympathy for the ‘living wage’ campaigns like those run in East London.

As with pensions, it is a question of the values that drive this mix of policy into private and public spheres. Our commitment to opportunity cannot let us rest with millions in the tax credit economy; and our commitment to sound economic management requires us to challenge market failure when it occurs as clearly as it has with skills training in the SME sector.

Running through both policy suggestions is the priority that New Labour’s ideology always gave to enabling people to have control and choice over key decisions in their lives. It is one that we need to extend more radically through our public service and welfare reform. Choice will increase control in some services like elective surgery, or schools. But in other areas we should aim to give people the power to tailor services more directly to their own needs. Care for our older relatives, child care, and the provision of post-18 education, are all areas where a direct transfer of financial resources and control to individuals and families should be undertaken. (Imagine for example how the debate about access to higher education would be transformed if every adult received, at 18, a lifelong learning fund that they could choose to use, as they wish, on higher, further or vocational education.) If we cannot quickly re-establish NHS dentistry as a comprehensive public service (my preference) we should look at how we could enable all adults to have access to health dental insurance at a vastly reduced cost.

New Labour’s values suggest that welfare and security should not just be for the poor. The British electorate won’t support the level of personal taxation needed to restore a universal insurance system against the possibility of sickness, unemployment or unexpected care needs. But this doesn’t mean that nothing can be done, or that it is up to individuals to provide for themselves. Housing capital now represents substantial wealth for many families but it is hard to access efficiently or cost-effectively through existing equity release products. State regulation and partnership could allow the costs of equity release to be reduced, enabling many families to produce their own personal security insurance.

If we go down the road of linking personal security to housing capital, then we have to make home ownership a real possibility for more families every year. In addition to extending current low-cost ownership initiatives, we should be enabling working social tenants to share in the equity value of their homes.

It’s in the nature of New Labour that those who might applaud what I say about market failure will not like the extension of personal control or ‘buying power’ over personal public services, and vice versa. But that was and is New Labour’s potential strength. The more valid criticism might be that what New Labour has done in power has strayed too far from its roots and it is now a damaged brand. But it’s not the label that matters. The set of values associated with New Labour remain core British values on which radical and progressive politics can be built and that is the challenge for a third term. 

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