Good afternoon from New Economy Brief.
Last week, the Prime Minister outlined his ‘Plan for Change’ in a major speech at Pinewood Studios. Seen by many as a reset moment, the plan adds ‘measurable milestones’ to the government’s existing missions, with the aim of delivering ‘real, tangible improvements’ to people’s lives over the length of this Parliament.
Keir Starmer set out six new milestones for his government to be judged against, and this week’s NEB explores one of them in particular: a pledge to ‘raise living standards in every part of the United Kingdom’. We take a closer look at what this new focus on living standards means, and why the government has chosen to prioritise it.
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How did we get here?
Most New Economy Brief readers will be pretty familiar with Labour’s missions by now, but there’s no harm in a quick recap. The ‘mission-led’ approach was popularised by economist Mariana Mazzucato and formed the basis of Labour’s election manifesto and subsequent approach to government. The five missions are: Kickstart economic growth; Build an NHS fit for the future; Safer streets; Break down the barriers to opportunity; and Make Britain a clean energy superpower.
More than missions. As we covered back in July, Mazzucato herself has warned that mission-driven government could become a case of “old wine in new bottles” if not properly executed, arguing that improving the NHS and boosting economic growth should not in themselves be missions. Instead, individual strands or sectors of public policy should be seen as contributors to bigger missions such as tackling the climate crisis. As the report explains, “missions replace sectors as the vertical aspect of industrial strategy.” Similarly, the Institute for Government (IfG) has argued that manifesto promises are not enough to direct government action, and that a detailed programme is needed.
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The milestones.
The government says its six new milestones will help track progress towards achieving its missions and provide accountability to voters. They are:
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It’s all about living standards.
One of these milestones has received particular attention since the announcement last week: the new living standards target. And this should come as no surprise, given the re-election of Donald Trump as US President last month.
As we covered in our write up of Donald Trump’s election victory (parts one and two), the Democrats’ fate was sealed by failing to take enough action on the cost of living. While major policy interventions like the Inflation Reduction Act aimed to boost household incomes and deliver security, this simply didn’t happen fast enough. It’s no wonder, then, that Starmer has used his Plan for Change speech to shift the focus onto how his government will “deliver real, tangible improvement to the lives of working people across the country in this Parliament”. But how will he do that?
Measuring improvements to living standards. Campaigners have long argued that there is no point in aiming for growth without a plan for how it will be distributed. By adding the living standards milestone to its growth mission, Labour appears to have listened. The government says it will measure progress against this milestone through higher Real Household Disposable Income (RHDI) and Gross Domestic Product (GDP) per capita by the end of the Parliament. It plans to track this at both regional and national levels.
The ‘absolute bare minimum’. But as the Resolution Foundation points out, RHDI and GDP per capita are not exactly stretch targets – they are the “absolute bare minimum”. The former has been achieved in every parliament since 1955, and the latter in all but two. The think tank explains that as RHDI and GDP per capita are aggregate measures, they can conceal the big differences between households that are doing well and those that are falling behind. Likewise, the Joseph Rowntree Foundation (JRF) has argued that action on living standards needs to be more targeted at low-income households. The bottom 40% of incomes are on average around £300 worse off per year than they were before the COVID-19 pandemic, and JRF forecasts this will rise to £750 by 2029.
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A good start, but more needed.
Living standards have been stagnating, and sometimes even falling, for years. And as we’ve seen in the US and beyond, voters often punish governments that fail to tackle this. It’s clear Labour has realised that if it wants to secure a second term, it urgently needs to switch things up.
But the scale of action needed on living standards mustn’t be underestimated. For the first time since 2008, Child Poverty Action Group’s cost of a child calculations show that no family types on low and modest incomes can meet their costs or reach what the public deems a minimum acceptable living standard. Last week, Keir Starmer said that the route to better living standards is a better economy and better jobs. But as JRF argues, a strong economy can increase wages and employment but will not in itself reduce poverty. It suggests that without additional actions, poverty and deep poverty won't start to fall until late 2028, even if the UK has the highest GDP per capita growth in the G7.
The Plan for Growth shows that the government understands that living standards (as well as public services) are a priority for the public. And civil society groups have particularly welcomed the fact that the milestone applies to every part of the UK. But without a plan for social security, a plan to support the millions of households who cannot afford basic essentials, or measurements that go beyond RHDI and GDP per capita, campaigners argue that there’s still a long way to go.
Scottish Budget mitigates two-child benefit cap. The Scottish government’s latest Budget committed new funds to protect families’ incomes from being eroded by the UK-wide two-child benefit cap. The SNP want to ‘effectively abolish’ the policy’s effects in Scotland by 2026, which the Child Poverty Action Group thinks could lift 15,000 children out of poverty.
UK banks fail to support real economy. Analysis from Positive Money finds that “most new money created is directed to buy existing assets, particularly property, and not to expand the productive economy or improve wellbeing.” They show that UK banks lend more to other financial firms than to non-financial firms, and total lending to productive industries, such as manufacturing, construction and transport, has been declining for the past three years.
When public private partnerships go wrong... We Own it have published a league table showing how private finance initiative (PFI) deals between the public and private sector during New Labour “continue to cripple the National Health Service”. They are calling on Health Secretary Wes Streeting to reject the proposals made by the Independent Healthcare Providers Network (IHPN) and extend the Conservatives’ 2018 ban on new private finance in public services.
Reimagining childcare as a proper public service. The Institute for Public Policy Research (IPPR) and Save the Children are proposing a series of childcare reforms in England. They want to establish new not-for-profit nursery trusts “to rival private equity backed for-profit chains”, encourage more people to go into childminding with a long term strategy to improve pay and conditions, and more.
Building 1.5 million homes in five years? Commenting on Keir Starmer’s speech on the government’s new milestones, Common Wealth argued that achieving the pledge to build 1.5 million homes in five years will be impossible without public housebuilding at scale, and without “a bolder pivot away from the speculative, private developer-led model”. (The Spanish government is exploring setting up a publicly owned housing company to accelerate housebuilding across the country.)
Fiscal Framework Should be Revised to Reflect Climate Risks. Dr Jodie Carson’s analysis for UK in a Changing Europe argues that the government’s recent change to the fiscal rules was a “missed opportunity” to revise the fiscal framework to “capture the costs of climate inaction and thus substantiate preventative and strategic expenditure”.
