Starmer’s policy challenge: pensions, tax, housing

Most important politics is dull. That is why the story of one supposed Chinese spy roaming around Parliament gets ounces more attention than the fact that many schoolchildren cannot attend their schools because of widespread institutional neglect, and why speculative tales about Boris Johnson’s personal diary are given far more column inches than the pros and cons of new plans for restructuring NHS management.

There are many things to decry about Britain as it heads into an election year — among them, the lamentable quality of infrastructure outside of London, the frightening frequency of strike action and the lazy state of nationwide education. They are the issues which Sir Keir Starmer and Rachel Reeves will have to tackle head on over the next months as they plan some kind of manifesto. Solutions to these problems are perhaps not the policies that will take Labour back into government, especially not if they are merely garlanded with the sloganistic “13 wasted years of Tory misrule”, under which that Party has hidden any real attempts to grapple with Britain’s problems since 2010. Yet Starmer and his Shadow Cabinet could do worse than taking up the following three policies. They are not politically enticing, but they are important, and they make changes to most of our lives.

Firstly, pensions. One of the most startling problems facing Britain, the West and indeed much of Asia is the crisis of demographics. There are quite simply too many successful older people and not enough hard-working younger people to pay either for the expensive system of care for the elderly or for the benefits — home ownership being the most obvious — for themselves. What Edmund Burke called the contract between the generations — the societal glue which ensured equitable wealth and therefore similar systems of values were passed down —has been broken and its future is in deep trouble. So what, you may ask? The 1970s, when the boomers were nearing their prime, weren’t so great. But they did expect to surpass the living standards of their parents. Now we are bearing witness to a crisis in aspiration among a younger generation that has been relentlessly told that its prospects are not as bright as its parents.

The triple lock on pensions is economic folly and political genius. The lock ties pensions to whatever is higher out of inflation, wage increases or 2.5%. In a time of high inflation and surging wage growth in response, the lock reeks of special favours when many of those pay increases are going to a specific batch of public sector workers. Worse, it reveals much of the kind of defensive economic policies designed merely to secure the lot of the already comfortable: the word “lock” should be enough to tell us that this is a policy which could only work in a nation with the assets and the infrastructure to maintain it, not to mention the young people with sufficient willingness and ability to pay the extortionate taxes which support state pensions. The Britain of 2023 does not fit that bill.

The triple lock’s political value is that it defends the interest of the old (who are broadly more politically active), while doing damage to the levels of public money available to support middle-aged working people. Both groups usually vote Conservative, or have done, given a desire to conserve their assets. Hence the lack of action on this issue since 2010. Yet the triple lock is in many ways a template of the kind of the kind of profligate policies that Tories love us to imagine Labour politicians supporting. Whereas benefits for working people are essentially tied to wage inflation, the triple lock ensures continued growth by its three variables — 2.5%, wage growth and inflation — and its determination to follow whichever one sprints ahead fastest. As the Institute for Fiscal Studies has displayed in declaring labour costs, such a system creates long-term uncertainty as to the real cost of pensions to the state, thereby hindering any attempt at a broader approach to how such vast sums of the nation’s coffers are used. Our pension system is one of the most vulnerable victims of the electoral cycle. It is perhaps its most costly as well.

Scrapping the triple lock will not impoverish British pensioners. It will be a prudent piece of policymaking which saves billions, while providing the space for more long-term policymaking. Labour policymakers should consider what we would like the state pension system to look like, and what our financial situation — of slowly reducing inflation, high interest rates and persistent fears of recession — allows us to have.

The second policy is tax. It’s been said before, and it will always be said, but the British system of income tax is unfair. Worse, it again hits those same middle-age, middle-income workers. Income tax is by far the largest amount taken in by the Treasury: it comes to £248 billion out of the £910 billion which went into the coffers in the year 2022-3. As John Lanchester recently pointed out in a wonderful and wide-ranging essay, the highest effect rate of income tax is paid not by the most loaded hedge fund managers of the City or the wealthiest CEOs, but by single earners with three or more children earning between £50,000 to £60,000. They pay 68% on their income, having had marriage and child allowances taken away.

This is created by a cliff-edge effect as benefits disappear and income starts to rise: not a policy to be denounced in itself. The problem comes with the maths: the income tax system has been tinkered with beyond recognition, with those caught in the middle of the categories, variables and allowances, hit in a way that is unjust — but not only unjust. It is also counter-productive, as it does not encourage people to work harder. When a tax system starts encouraging its payers to slacken off, the whole system is in deep trouble.

Like the triple lock, the income tax system is not an ideological issue as much as an institutional one. The policies have been changed and diverted by different ministers and different governments: the short-term thinking which has become central to the problems faced by the Treasury and the whole economy since the financial crisis. It is also a product of over-complicated legislation, much of it from the era of New Labour. And it hits most harshly those for whom the system should be providing incentives: the younger families and the parents of moderately growing income. The solution is a restructuring which makes space for the changes of the last two decades by removing the anomalous hikes, while providing a long-term strategy for the tax system which encourages those on middle incomes to work more, and maintains a sufficient balance for those on large pay packets. It is not revolutionary change: it is a new, fairer system which clears a new path for policy from the confusion of previous years.

These problems come to a head in the third issue: planning reform. Britain has always needed to build more houses — urgently in the 1950s as population and prosperity grew, and since the 1990s in a more nuanced fashion, as the rate of building has kept steady while affordability has declined. Today, the problem lies in the willingness of government to build cheaply — to avoid unaffordable spikes in taxes — and well, in order to institute a quality of infrastructure along the lines of the European and Scandinavian models to which British planners have long aspired but never reached. Proper infrastructure and economic growth from stimulus has long been the aim: the reality has been a short-term strategy which avoided nationwide action, and a fickle property market.

The other stumbling block is once more that of excessive legislation: building an offshore wind farm in Britain takes thirteen years on average, even though the construction takes up only three; high-speed rail projects cost between two and five times the G7 average. The average time taken to clear the planning process has increased by 65% since 2012, the last time the system was reformed. One of the clearest differentiating qualities of the incredible growth of infrastructure in China, Vietnam and other growing Asian countries has been the effectiveness of their planning and the relative sloth of the Western equivalent. Britain is emblematic of that all-too-revealing comparison.

It must be said that Sir Keir Starmer is abreast of this problem, and has shown signs of some effective ways of tackling it. His pledge to back “the builders, not the blockers”, should be welcomed. He needs to be more ambitious: at present he hopes to reform planning to add an extra 100,000 dwellings a year to the present 200,000. Yet Harold Macmillan was given the target of 300,000 a year by Winston Churchill when he became housing minister in 1951. Macmillan treated this task as a “war job” and in 1953, 318,000 dwellings were built. His extraordinary success ensured Conservative hegemony for 13 years. Labour’s ability to present a bold programme, perhaps reaping the whirlwind of a calmer economic climate in a year’s time, may offer them similar rewards.

Starmer’s decision to promote a distinctly supply-side economic policy is central to his quest to convince voters, investors and commentators of his Party’s fiscal probity. This is good politics, and sound policy: probity will have to be the watchword for any future administration, by necessity rather than choice.

In the way of Labour’s plan comes gargantuan bureaucratic opposition and political expediency. Starmer’s announcement that Labour would build on green belt land should be a landmark policy, going as it does against the tepid promises of action from Conservative ministers afraid of a backbench rebellion and concerned about the threats to the countryside. The reform should be wider: the average speed for large-scale infrastructure in Britain is abysmal.

There is definite room for encouragement: Starmer’s policy team has no doubt been taking a highlighter through the proposals of the Tony Blair Institute for Global Change, the “more than a think-tank” organisation with many of the right proposals, people and programmes, and the worst possible name. In their words, “planning has become the epitome of democracy’s efficacy problem”. Their solutions — to modernise the definitions of nationally significant infrastructure, transferring consent on projects from a local to a national level and standardising the burdensome consultation process — are excellent. It needs only the teeth of legislative determination on the part of Labour’s new Shadow Cabinet to take them up. That such moves do not roll so easily onto campaign buses and TV debate slogans should not hinder their necessity to Labour’s much-heralded reforms. They are the vital smallprint to the big headlines of Starmer’s new “white heat”.

Such are three problems and three solutions for three institutional problems. Yet they reveal wider themes, themes which strike to heart of the decline of the West which Niall Ferguson defined in his 2011 Reith Lectures. Firstly, the generational gap, which offers a less aspirational vision for the generation which will be picking up the economic burden of an ageing and expensive population over the next three decades. Such a financial burden has the danger of being translated into a political one. For a country such as Britain, avoiding the danger of political alienation and greater impoverishment of state resources requires long-term thinking and uncomfortable financial action. Only rarely is either achieved.

The second theme is that of excessively complicated legislation: in tax as in planning. Not only does this damage trust in our systems, when its victims cannot understand how much and why they are paying, but it distorts the vital clarity needed in decision-making when a prospective government such as Keir Starmer’s comes along.

Related and perhaps more damaging is the lack of long-term thinking. What the Blair Institute’s recommendations do so well is to set the system of planning in a wider perspective, rather than in the bland terms of a general sense that Something Must Be Done which emanates from Labour’s current rhetoric. Starmer’s task and that of his Shadow Cabinet is to do something similar: providing a serious and fiscally prudent strategy for tax and starting a sensible conversation as to what the British state pension system should look like. Taking the long-view doesn’t have to be revolutionary. It most often takes simply a willingness to go beyond the electoral cycle of crisis and response.

The fourth theme is speed, or its lack. Politicians talk, think-tanks research, commissions are set up and white papers propose. Rarely do such processes turn into results, as the dismal story of HS2 reminds us. Institutional efficiency is not the most glamorous of qualities on which to base a programme for government. Yet the Labour Party could do much worse than that.

Keir Starmer has made a lot of speeches, and he has a fair few left in him before this time next year. If he can show that his government-in-waiting has anything like the mettle and acumen to tackle those four themes and prioritise our three solutions, he may end up seeming a lot more like the Tony Blair of D:Ream and Britpop rather than the Harold Wilson of seamen’s strikes and In Place of Strife which the early part of his leadership so often presented. He has the chance to fix many of Britain’s aching woes, and even to forge a long-term vision to replace the crisis response which has characterised our recent political history.

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