Torsten Bell Is Labour's Rising Star - He Could Now Be On A Collision Course Over Its Economic Policy

6th October 2024

The Labour MP Torsten Bell is widely considered to be a rising star of the party. His recent book, Great Britain? How We Get Our Future Back, provides a detailed description of what he sees as the key economic challenges facing the UK today and proposes a series of policy ideas to return the country to economic and social prosperity.

Bell has a background in economic policymaking and research. After working as a Treasury civil servant through the 2007-2008 financial crisis, he served as chief executive at the independent economic thinktank the Resolution Foundation.

Now he's the Labour MP for Swansea West after being elected in July 2024. But with its first budget around the corner, will his party adopt the policy approaches he so strongly advocates?

In his book, Bell describes a Britain facing major economic challenges. British households were poorer at the end of the 2019-24 Conservative government than they were at the start. This, he says, is the only time on record when that has happened between general elections.

Bell argues that more than 15 years of economic stagnation have not only held back living standards, but crucially, have undermined any hope that the future will be better. He writes of a risk that stagnation will become entrenched.

He says the austerity that followed the 2008 financial crisis was not only economically damaging, but also socially disastrous. And he argues that a "toxic combination" of high inequality and low growth left the UK more exposed to what followed - Brexit, a global pandemic and the biggest inflation shock for a generation. In particular, this negatively impacted both poorer and middle-class Britain.

Bell believes Britain, long a high-inequality country, has now also become a low-growth one. He points to the 1980s as the decade in which a gulf opened between the incomes (and wealth) of rich and poor. The number of children growing up in relative poverty more than doubled to 30% in the 1980s.

Economic growth is also a major concern for Bell. In the four decades before the 2008 financial crisis, GDP grew at a consistent 26% per decade, but this fell to just 6% in the 2010s.

Additionally, since 2010, the productivity gap in the UK has doubled compared to those of France and Germany. British workers produce in five days what their competitors produce in four. This has contributed to stagnant real average wages in the UK from 2008 to 2023. To view this in context, since the second world war, real wages have grown on average 50% every 15 years.

Rising property prices and rents are another issue. In 1980, the average family spent 9% of their income on housing costs. By the early 2020s that had doubled. The cost of housing in the UK is the second highest out of 38 OECD countries.

So, what can be done to address these issues? To begin with, Bell identifies good work and affordable housing as the two most important pillars of any shared society.

Investment spending - the only show in town
He sees ending Britain's stagnation as an investment project. For decades, Britain has had some of the lowest investment spending of countries in the Organisation for Economic Co-operation and Development (OECD). This has resulted in substandard water systems, transport and road infrastructure.

Bell calls for Britain to become a normal investor with a "golden rule" level of investment of 2.5%-3% of GDP every year and argues that the decarbonisation of the economy required in response to the climate crisis offers significant opportunities.

But reports have suggested that chancellor Rachel Reeves is demanding cuts to infrastructure of around 10% across a range of departments over the next 18 months. This is required to fill the £22 billion "black hole" in public finances that the Labour government inherited.

While this policy may please the Treasury bean counters in the short term, it is completely at odds with what Bell says is required to escape economic stagnation.

These short-term cuts, if they go ahead, could do Labour significant damage electorally. Britain is in a hole economically with creaking infrastructure. As Bell argues, a major investment programme is required now.

This makes public and private infrastructure spending the most interesting area to watch. Returns from higher investment in the form of increased productivity and growing real wages will take decades to realise.

Will the government commit to the golden rule target that Bell calls for? Higher investment levels as a percentage of GDP will help address the productivity gap relative to competitors. That means Britain can grow faster, certainly in the short term, so this argument may be used to "pay" for any such commitments.

Living with crumbling public services has further undermined public trust in the state's capability to deliver on just about anything. Bell highlights potholes as one example of the failure of government to achieve the very basics.

But Labour's economic policies need to succeed to ward off the threat from the far right. Fixing Britain's potholes may go some way to restoring public faith in government, and perhaps even (in Bell's words) to make Britain normal again.

Author
Conor O'Kane
Senior Lecturer in Economics, Bournemouth University

Note
This article is from The Conversation web site. To read it with links to more information go HERE