Unless the Labour party reconnects with its founding economic mission, they will merely lay the ground for a Nigel Farage Government.

Who would want to be in Rachel Reeves’ shoes, attempting to run a complex, fragile, fast-moving economy in a world of trigger-happy financial markets, climate change, Donald Trump and geopolitical unknowns lurking around every corner? But she took the job and on Wednesday will set out what she plans to do with it in her Spring Statement.

While Reeves should be commended for her fortitude, sadly, there is much that we can be critical of, such as the wild swings from downbeat pessimism over the summer to the pumped up optimism of the winter and ‘growth, growth growth’. But there is one fundamental aspect of Labour’s relationship to the economy that stretches back decades, that successive Labour Chancellors have got wrong, and that is the fundamental nature of the way capitalism now operates.

We’ve heard much over the last few weeks in the welfare debate about Labour being called Labour – that’s who and what the party is apparently for. But surely the definition of a party as being for ‘labour’ implies at least some critical relationship with ‘capital’. The Labour Party’s connection to capital has always been ambiguous, for a vehicle that contains social democrats, socialists, social liberals and pragmatists and careerists of many stripes it could be no other. Some in Labour’s ranks are anti-capitalist, and some very pro. But it is the absence of at least a critique of capitalism that now holds the party and the country back.

Of course, legislation like the New Deal for Workers bill re-balances the capital/labour scorecard somewhat, just as the minimum wage has. But as Stuart Hall acutely observed in 2003, Labour practises what he termed a ‘double shuffle’ when it comes to its relationship with capitalism, whereby it simultaneously reinforces neo-liberalism while appeasing some of its social democratic base. So, it cuts corporation tax, commercialises much of the public sector, goes heavy on so called ‘skivers and shirkers’, while introducing initiatives such as Sure Start. It can then be defended as ‘not all bad’.

What is in effect a supportive and subservient relationship to capital goes back to Tony Crosland’s important revisionist text The Future of Socialism written in 1957. In it Crosland makes the argument that the new job of social democratic governments was to more fairly and effectively share the proceeds of economic growth. But back then, it was assumed, capitalism had been tamed, not least because labour in the form of unions were still powerful and much of the economy was in the public realm and could be directed for social benefit. In the intervening decades, in the context of a globalised and financialized economy, neo-liberalism has privatised these public assets and smashed the power of the unions. It is society that has now been tamed.

From the 1970s onwards, Labour chancellors have felt they have no option but to ride the capitalist tiger by appeasing the markets. It inevitably ends up with the politics of deregulation, austerity and economic crisis, as capitalism freed from democratic oversight maximises the potential for profit until it crashes. Labour gets the blame and finds itself in political exile only until brief periods in which enough swing voters tire of the Tories and will vote Labour for a change – but only when nothing of significance happens to the economy.

Now, we may dream of some socialist nirvana in which the means of production are fully socialised and economic outcomes equalised, but we live in the real world where democracy has been captured by the markets. So, in that reality what could and should a Labour Chancellor do to make a more equal democratic and sustainable future?

Boxing Herself In

The first point is to play the long game. Reeves has boxed herself into a corner by making big spending decisions based on short-term fluctuations in the markets around borrowing costs. Second, she could be much more imaginative around borrowing and the fiscal rules. Look at what Germany’s has just done in terms of abandoning its post war orthodoxy when it comes to the debt break.

We don’t have to copy that, but we do have to bend the rules, just as a left-leaning group of economists have called for in a Fabian pamphlet demanding much greater macroeconomic policy collaboration via a new Economic Policy Coordination Committee.

In a new paper for Compass, called Paying for a Decade of National Renewal, Stewart Lansley sets out the case for a range of measures to boost the socially valuable elements of the economy and not just reward those at the top in vain hope that something, anything, might trickle down. Lansley says that the government should make greater equality one of its central missions and gradually shift the onus from taxing income to taxing wealth. Meanwhile, Gary Stevenson has been proving that alternatives to Treasury orthodoxy can make a breakthrough with the public.

And one critical area to boost is the alternative economy, of co-ops, social enterprises, employee-owned workplaces and initiatives like Stir to Action. Not only can these organisations help kick start economic renewal, but they can do so in a way that is fairer and more democratic. Reeves can help them through tax breaks, government procurement, support for initiatives like B Corp certification and generally speaking up and out for the democratic economy.

No one expects or wants some big confrontation with financial markets that could lead to economic and political ruin. Liz Truss has served her purpose well. But the steady and pragmatic building of economic alternatives to neo-liberalism must be one of the strategic goals of any social democratic government that wants to build a better society.

We all know how the Reeves story ends, we have been here before, pumping up the City and top-skimming the profits to boost growth and paper over the cracks of an economy and a society with deep structural flaws. The Government might get lucky for a while, as the natural cycle of the economy starts to pay off, but it won’t last and without more fundamental intervention will blow up. But this time it’s not some benign one nation Conservative waiting in the wings, it’s not even Jeremy Hunt, it’s Nigel Farage and the whole Reform circus.

This article first appeared in the Byline Times on the 25th of March 2025.