New Labour in the UK Era of Neo-Liberal Consensus on Economic and Social Policy free essay sample

Dhruva Murugasu Christ’s College Part I Economics â€Å"Under New Labour, Britain is witnessing a new era of neo-liberal consensus on economic and social policy. † Discuss The election of Tony Blair in 1997, it is commonly said, brought about a new era in Britain’s Labour party, with the party moving to the centre of the political spectrum and adopting very similar policies to the preceding Conservative government. Tony Blair coined the term New Labour to distinguish his government from the more socialist ones of earlier Labour governments and adopted a largely neo-liberal stance, similar to that of Margaret Thatcher. This ideological shift was actually already in motion after Labour’s heavy defeat in 1983, which was due to their extreme-left manifesto which was later referred to as the longest political suicide note in history. The Labour party more or less accepted that the median voter had shifted to the right, as suggested by Knight, and responded to that by doing the same. We will write a custom essay sample on New Labour in the UK: Era of Neo-Liberal Consensus on Economic and Social Policy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page In most senses, there was a neo-liberal consensus, especially outwardly, although this was not always true as close examination of Labour’s policies will reveal. I will approach this essay by first outlining the main characteristics of the Conservative policy during the Thatcher and Major administration and then proceed to point out the similarities and differences between these policies and those employed by New Labour. No particular effort will be taken to discuss the desirability or effectiveness of the policies implemented but rather whether or not there was a consensus and whether it was based on neoliberalism. First, let me deal with economic policy, which can be divided into demand-side and supply-side policy. In terms of demand-side policy, there was a clear shift from Keynesian demand-management to Friedman’s monetarism with the coming to power of Thatcher. This also involved a shift in the focus of economic policy, from full-employment to the maintenance of stable prices according to Knight. A somewhat balanced budget obviously followed on from this and that was the core of the demand-side economic policy. On the whole, there was a consensus with New Labour on these issues. The creation of an independent Monetary Policy Committee (MPC) by the then Chancellor of the Exchequer, Gordon Brown, was, according to Knight, due to the reputation that Labour had for ‘poor economic management’. This act essentially removed monetary policy decision-making from the hands of the government, with the exception that the Chancellor still set the inflation target the MPC had to hit. This move, in my opinion, indicated that the government acknowledged the fact that monetary policy was ‘the principal instrument of macroeconomic policy’ (Knight) as the government saw the need for its determination to be independent and separated from the government’s poor reputation. In terms of fiscal policy, New Labour, outwardly at least, maintained the notion of fiscal prudence, and actually accepted the Conservatives’ spending plan for the first two years in power. The Chancellor’s introduction of the ‘golden rule’ illustrated this. This rule stated that the government’s expenditure, without its capital expenditure, must not be in deficit over an economic cycle. However, the ‘tax and spend’ policy was not fully absent from New Labour’s policies. While they did not raise direct taxes, they did raise indirect taxes in an effort to finance public spending. This was referred to as a stealth tax as it was much more subtle and less often blamed on the government as opposed to direct taxes. The golden-rule was also, as Knight argues, not as it was made out to be. In 2005, Brown extended the business cycle from 7 to 9 years allowing the government to borrow additional sums for current spending without violating the golden-rule. Thus, in terms of demand-side policy, there was some sort of a consensus but it was far from perfect. Next, let me deal with supply-side policy. The Thatcher government, and to a slightly lesser extent the Major government, were both in favour of supply-side policies, which it is argued, can improve productivity. This has the twin benefits of expanding supply allowing the economy to grow while stemming inflation. These policies included restricting the power of trade unions, privatising nationalised industries and reducing the top rate of income tax from the 98% it had been under labour to 40%. All these encourage work effort and remove inefficiencies in the market allowing the economy to become more productive, and are all consistent with a neoliberal stance. From a point of view of the taxation system, New Labour’s policy was widely onsistent with that of the Thatcher government. Brown did not raise the level of direct taxation after the election as promised and in fact cut the income tax and National Insurance Contribution of the lowest paid workers in an effort to encourage employment as opposed to living of security benefits. As mentioned earlier, this did not mean the end of the tax and spend policy as the government did seek to raise taxes through other means including windfall tax on privatised utilities and indirect taxes on consumption (most notably fuel). Nevertheless, what was more important is that these increases had a negligible impact on incentives to work unlike an increase in direct taxes and the increase in indirect taxes was actually undertaken by the Thatcher government as well to finance cuts in direct taxation without requiring additional borrowing. Thus, in terms of taxation policy, it would be quite fair to argue for a neoliberal consensus In terms of the labour market, Labour did maintain most of the policies of the Thatcher government, with a few exceptions. According to Steven Fielding, voters concern was mostly of a repeat of the experience from 1974 to 1979 which were dominated by unions. Blair quickly decided to distance himself from this claiming that his government would not be ‘held to ransom’ by trade unions. He also promised to maintain the legislation he inherited from the Conservative government especially the 1982 Employment Act, in which union funds were liable to sequestration if they undertook any illegal actions during a dispute (Taylor, 2001). Essentially, the Blair government initially adopted all Conservative legislation on this respect which constrained the influence of unions including postal ballots, the abolition of closed shops and secondary picketing. However, the Blair government did have to give in to the pressure of union lobbying and ended up releasing the Fairness at Work White Paper in 1998. This was strongly resisted by employers who had been used to the freedom they enjoyed in the Thatcher government. Nevertheless, after intense lobbying from both employers and unions, the 1999 Employment Regulations Act was passed. The recognition process was made more difficult due to employer lobbying but unions nevertheless were given more power than they were during the Thatcher government. In terms of the EU, one of Blair’s first acts in power was to accept the European Union’s (EU) Social Chapter. The Major government had opted out of this on the grounds that it resulted in labour market regulation (regarding unpaid leave and work councils among others), making it a threat to efficiency. Blair nevertheless promised to oppose any other measures that might undermine the flexibility of the labour market in an effort to assure the employers and opted in to the Social Chapter. New Labour was thus obliged implemented a minimum wage of as part of the Social Chapter, despite initial, opposition from employers who cited the possibility of a higher unemployment. This would clearly be against a Conservative policy of labour market flexibility and could be seen as leading to labour market imperfections as well as structural unemployment. Actual data however, showed there was no appreciable impact on unemployment and in fact, the national minimum wage only involved 4. 5% of the labour force. As a whole, while as a whole we see a policy stance quite consistent with that of a Conservative government, close inspection will suggest that yet again, the consensus was far from perfect. In terms of privatisation, it is a well-known fact that the Thatcher government actively pursued this policy on the grounds of efficiency, arguing that a privately lead company would probably be more efficient as it seeks to maximise its profits, unlike that of a nationalised industry. Thatcher privatised all principal industries except the railways (which were privatised by Major) and the Post Office. Her privatisation policy was thought to be largely successful as it the sale brought about income for the treasury (? 90 billion), most industries went from loss-making requiring subsidies from the government to profit-making ones, consumers benefitted from imported services as well as lower prices and managers were allowed to make investments without the constraints of the Treasury. The Blair government thus made no attempt to renationalise these companies and even privatised the air traffic control system, clearly supporting the privatisation policy of the Thatcher era. Only a series of rail crashes force it to set up ‘Network Rail’ which was a not-for-profit organisation and not a nationalised company to take over from Railtrack. No shift was made back to that of ‘Old Labour’ who sought to nationalise major public utilities. While Labour did accept the notion of the market operating these services better than if they were in public ownership, the Blair government id indeed call for regulation of these industries, which serves again to indicate that while there was a general neoliberal consensus, minor differences did still exist in economic policy as a whole. Next, let me move on to social policy, the first of which will be healthcare. Healthcare in Britain is and has been provided by the National Health Service (NHS) ever since the N ational Health Service Act of 1946, where health care was provided and paid for by the sate being free at the point of delivery. As argued by Knight, the Thatcher government realised that privatising the NHS would have been a highly unpopular policy (it would mean the service would no longer be free at the point of service) and did not seek to do so despite its otherwise neoliberal stance. However, the government did try to improve efficiency of the system by creating quasi- or internal markets, which essentially separated the demand (purchase) and supply (provision) sides of the market for these health services. This meant that District Health Authorities (DHA) would still purchase the health service from the tax pool but with NHS hospitals competing to provide the service. This competition between NHS hospitals as well as the fact that the DHAs were now monopsonies in the market suggested that this would reduce costs. Allowing NHS hospitals to acquire trust statuses (and the fundholder status for GPs) essentially made these hospitals operate like commercial businesses with ‘a high degree of autonomy’ (Knight). While Blair initially opposed these quasi-markets, he did later proceed to extend it. He further decentralised the NHS and had the Department of Health set national standards and undertake inspections. He also introduced the National Institute for Clinical Excellence to ensure cost-efficiency of drugs, set up Primary Care Trusts (in 2002) to replace DHAs and Fundholding practices, introduced foundation hospitals and created league tables for hospitals. The most notable of these is probably the foundation hospital which was accountable to a stakeholder board rather than the government. These hospitals enjoyed much greater flexibility and could raise capital in the financial market, sell land associated with it and retain the revenues as well as set up joint-ventures with the private sector (Knight), thus operating much more like a commercial firm. The main difference between Blair’s and Thatcher’s policy is that Blair’s health policy was designed to be patient-driven, in the sense that patients were given the freedom to choose where they obtained their health services from and the money essentially, followed the patients. All these policies were, in essence, extending and in some cases outdoing Thatcher’s semi-neoliberal policy of quasi-markets and there was a significant consensus on this although this consensus was not fully neoliberal as the NHS was still, in actual fact, not privatised. The only difference in the health policy is the fact that the Thatcher government was very much concerned in balancing the budget and thus sought many cost-minimising measures whereas New Labour, in 2000, did introduce a plan to increase spending on the NHS by 50% within 5 years. In all other aspects, there was a partially neoliberal consensus on healthcare in Britain during the era of Tony Blair and New Labour. A very similar picture appears when we consider education. Again, the Thatcher government, as we shall see, chose not to privatise education as that would mean it was no longer free at the point of delivery, but did implement other measures very similar to those done in healthcare. The Blair government again, chose to maintain these and further them slightly. Thus, it is more important than ever to consider the policies Thatcher implemented as they were subsequently accepted by Blair. The Thatcher government introduced the 1988 Education Reform Act in order to decentralise decision making in education. She created the Local Management of Schools (LMS) which meant that schools could apply to manage their own affairs and removed from the management of local education authorities (Knight). Knight suggested these could also have had political purposes rather that one purely for the sake of a better education system (local education authorities had become increasingly controlled by the Labour Party) but he also agrees that this policy was intended to improve the efficiency with which education could be delivered. The fact is that the LMS turned schools into quasi-businesses, just as Thatcher had done with the trust status for hospitals, and this meant that each school had a decentralised decision-making process, leading to what was believed to be better efficiency. Thatcher also removed the spatial monopolies of schools allowing parents to choose which school they wanted their children to attend, which would probably be those schools with the best reputation for education and discipline (Knight). The money then followed the demand, with funding being provided based on pupil numbers, similar to Blair’s healthcare policy. This competition it was suggested, encouraged schools to become more efficient in providing education and the less-efficient schools would probably end up closing. School league tables as well as a national curriculum both served to further this objective. The Blair government, while at first opposed these policies, basically eventually accepted almost all the policies of the Thatcher/Major government and this says a lot about New Labour’s stand on the issue. At first, Labour abolished the LMS or grant-maintained schools on the grounds that it was divisive and against the desire for social inclusion. Labour nevertheless eventually reversed this decision to improve the standard of schools and once again made decentralised decision-making a key characteristic of education policy (Knight). In facts, Blair even sought to further these policies of Thatcher. He introduced the City Academies which were well-resourced schools with partially private sponsorship and the rest from the state. These schools were allowed to set their own curriculum, pay scale as well as controlled the school’s assets, further reducing the influence of local authorities and continuing the de-centralisation process (Knight). On the whole, they seemed an extension of Thatcher’s City Technology College which were based on a similar principle (which Labour opposed on the grounds of its divisiveness) and the Labour Party had more or less embraced the policies of the Thatcher government. As Knight argued, in 2005, the Labour Party went a step further announcing that all secondary schools were to become independent, self-governing academies or trust schools by 2010. Parents were given the power to determine the curriculum of the school, to dismiss the head teacher if the school under-performed and even create a new school if they wished. Local authorities’ power was reduced further and the Blair government had essentially gone significantly further than the Thatcher government in this respect despite the initial opposition. In terms of higher education, both the Conservatives and New Labour sought to increase the proportion of children in higher education with the Blair government setting a target of 50% of young people to move on to higher education, and encouraged that through the system of university top-up fees. As a whole, it would be quite safe to conclude that there was a consensus on education policy which was mainly neoliberal with the exception of the fact that it was financed out of the tax pool so that education was free at the point of delivery. Lastly, let me discuss the policy on social security and pensions. Here, the Thatcher government was unable to reform the social security budget much as there was very high unemployment in the 1980s and more people thus claimed social security benefits. It did however, make several changes. Firstly, benefits and pensions were indexed to the inflation rate rather than the rate at which averaged earnings increased, which was the higher rate. This obviously widened the gap between the employed and the unemployed (and those on pension) but it did provide an incentive to search for employment as well as reduced the necessary government’s expenditure on this service. The Thatcher government also changed the basis on which these benefits were provided, from a more universal one to a means-tested one (Knight) and private pension schemes were encouraged as a result as opposed to the State Earnings-Related Pension Scheme. Major introduced a jobseekers allowance, a flat-rate benefit for single people above the age of 25 actively seeking work, to replace unemployment benefits, probably in an effort to encourage an incentive to work. He did however; introduce statutory sick pay, maternity pay and an incapacity benefit (for long-term illnesses) all of which are hardly consistent with a neoliberal stance. The Blair government, in essence, made not many changes to this. There was an acceptance of a shift from the socialist ‘equality of outcome’ idea to ‘equality of opportunity’, where inequalities on the basis of effort applied were justified (Knight). The indexing of benefits and pensions to inflation remained although it was promised that pensions will be indexed to earnings by 2012. The jobseekers allowance was maintained as it was very much consistent with New Labour’s stakeholder notion (people should have an obligation to contribute to society rather than just take what they could get from it). Jobseekers had to attend an interview to determine they were indeed actively-seeking jobs and had to sign an agreement they would continue to actively seek employment in the specified sector with the help of the Employment Service. The New Deal was also introduced where people who had been claiming jobseekers allowance for 6 months had to accept a job subsidised by the state, work in a voluntary organisation or attend a training course or else, have their benefit cut. Again, this was very much consistent with the partly neo-liberal stance of Thatcher, although this policy was of limited success as many people chose to accept the reduced benefits. Similar encouragements were made to encourage single parents and the disabled to do the same but this was even less effective as there was no reduction in benefit for those who ignored it. Tax credits were introduced for those with children and those in employment but in low pay. In terms of pension schemes, the Turner Report suggested raising the age of pension entitlement to 68 by 2050, thus encouraging the people to work longer and reducing the cost of the pension scheme (people paid more contributions as well as received benefits for a slightly shorter period of their life). The National Pension Scheme was also introduced for those without secure private pensions or those ineligible for pensions at all. As a whole, the social benefit and pension policy was largely similar between the two partied. The consensus however, does a slight hint of socialism about it although many efforts were made where possible by both the Thatcher/Major and Blair governments to apply neoliberalism to it so as to reduce the overall cost of maintaining the system and to ensure there was minimal disincentive to work. In conclusion, in terms of economic policy, there was a consensus, although it was far from perfect, based on mostly neoliberalism between the Thatcher and Major governments with that of Tony Blair. In terms of social policy, the consensus was, it appears, slightly stronger, but this was based on partial neoliberalism in order to maintain the fact that health and education was free at the point of delivery as well as to maintain the benefit and pension system. As a whole, there definitely was a consensus to quite an extent over social and economic policy based on neoliberalism. Bibliography Knight, Governing Britain since 1945, 2006 Fielding, The Labour Party; continuity and change in the making of ‘New’ Labour, 2003 Powell, New Labour, New Welfare State? , 1999