Michael Meacher - Labour's Future

The problem for New Labour after Crewe is that there is a large and growing section of the population which is increasingly disenfranchised because it feels no party that is likely to be in power represents its interests and will tackle the deep-seated problems that now afflict Britain. And this is widely seen as applying across the board, not just about the odd issue.

The biggest problem facing Britain today is averting recession brought on by reckless bank lending exacerbated by the packaging of near-worthless mortgage assets into tradeable products. The government has pumped nearly £100bn into trying to unblock financial markets, but the underlying causes have not been tackled.

Structured investment vehicles, which spread the sub-prime mortgage contagion across the world, should require approval by a revamped Financial Services Authority to prevent their poison contaminating future markets. Credit agencies should no longer be paid by the companies whose creditworthiness they assess, as (amazingly) they now are. Banks should be required to hold robust capital reserves to discourage excessive lending driven by the out-of-control City bonus culture. Investment banks should be made separate from commercial banks.

But, sadly, New Labour is very unlikely to carry through these reforms because they conflict with its light-touch, deregulatory policy towards the financial markets and its commitment to City interests. Conservative policy would take deregulation even further.

Housing is where the credit crunch will strike hardest and where help is most needed. There are already 4 million applicants for council and housing association accommodation, plus 80,000 registered homeless. To prevent this huge pool of housing need expanding, houses at risk of repossession could be bought up by public authorities, their owners being converted to tenants until they are able to buy again. And to tackle the enormous lack of social affordable housing, housebuilders could be required to build at least 15% of their houses for this sector.

Yet neither New Labour nor Cameron's Tories will envisage market intervention of this kind, whatever the housing misery. New labour proposes to build an extra 15,000 social houses a year by 2016 (though that is less than half of what is needed to clear the backlog), as well as providing an extra £200m now for housing (welcome, but little more than enough for 1,000 more houses), together with more shared equity (almost irrelevant to the core of housing deprivation today). The Conservatives have made clear they would build no new council housing at all. Both parties are obsessed with home ownership - fine if you can afford it, but for the quarter of the population who can't, a cavalier dismissal of their needs.

Inequality, already extreme, is set to get worse. New Labour, originally relaxed about people becoming "filthy rich", notoriously still celebrates wealth over fighting poverty, presiding over a quadrupling of the wealth of the top 1% since 1997. In a series of U-turns easing tax liabilities for the rich over inheritance tax, non-domicile status, capital gains tax for private equity, tax-haven loopholes, and now foreign earnings for multinationals, it has bent over backwards to accommodate the super-rich.

It has indeed also reduced child poverty by 600,000 over the last decade, but this remains stubbornly very high at nearly 3 million. The Conservatives, who tripled poverty and unemployment in the 1980s, can only be expected to build even further on this structure of deeply unequal Britain.

Flexible labour markets - a euphemism for unfettered hiring and firing - have scarcely changed since Thatcher steamrollered market power over employment rights. To our shame, the charter of fundamental rights, which all the other 26 EU states accepted without demur, is still blocked in the UK by New Labour. At last Gordon Brown's legislative programme for next year is proposing increased rights for temporary and agency workers, but only subject to the agreement of the CBI. Against this background of New Labour concurrence with market forces the Tories are already talking of eroding basic employment protections still further.

The same picture applies across the whole political landscape. The privatisation of industry was forced through by Thatcher in the 1980s; New Labour has pushed through the privatisation of major areas of public service which even Thatcher drew back from. PFI, a variant of privatisation which offers poor value for money and compromises public expenditure for 30 years ahead, was developed by the Tories in the 1990s; it has now been extended by New Labour to over £100bn of public contracts, committed or planned.

The Tory war-cry "public sector bad, private sector good" has been underlined by New Labour in the light of the Northern Rock collapse, the Metronet scam on the London tube, the scotching of the Serious Fraud Office inquiry into alleged massive BAE corruption, the MRSA bug and contract hospital cleaning, and the loss of vast quantities of sensitive personal data by private contractors.

So in making a choice between New Labour and the Tories, the only two contenders with a chance of power, where's the beef? At a conference I addressed a week ago, a man came up to me afterwards in despair: "After 20 years of Thatcher Toryism and 10 years of New Labour, all we're offered is a return to Cameron. When are we going to be given an alternative we believe in?" That alternative is social democracy. New labour has taken us back a century to Edwardian-style inequality, the prewar dominance of private markets over public justice, and the centralisation of power in the hands of the financial, industrial and political elites, unprecedented since the 1930s.

Labour will not revive until it addresses the profound needs of Britain today rather than reinforcing a neoliberal paradigm which derives from the raw capitalism of its political opponents and which anyway has had its day and is now being buried under the chaos of the financial markets and the coming recession.

Social democracy has always been the answer to the failure of private markets, and so it will be again. It means a rebalancing of tax, income and wealth between poor and rich, a proper and necessary regulation of financial markets, a radical restoration of public accountability in parliament and throughout public life, a new and just settlement for civil liberties in society and for rights at work, and a fundamental reformulation of energy, environmental and climate change policies that can genuinely offer hope of human survival. It's what a good half of Britain is desperately waiting for.

This article appeared on 27 May in Comment is Free: http://commentisfree.guardian.co.uk/michael_meacher/2008/05/the_social_democratic_solution.html