EVEN before votes in the Makerfield by-election are cast or counted, progressive voices are pinning their hopes on Andy Burnham returning to Parliament and rescuing Labour. It’s a big ask.

Without a doubt, Burnham has done an impressive job as the mayor of Manchester. Restoring public transport services has been the big peg his reputation has been built on. But it’s more than this. His manner is clear and authoritative. He speaks without fear. And most important of all, the public like him.

Whether this means Burnham deserves the epithet of “The King of the North” is another matter. What does matter is the fact of being liked: not a quality you would attach to Labour’s existing leadership. What has yet to be seen is whether this would be enough to save Labour.

Recent events suggest a different analogy. Those who have read TH White’s classic Once and Future King will know that Arthur’s childhood, under the magical guidance of Merlin, was a far cry from the realities he faced on becoming King. His Knights of the Round Table weren’t always useful and weren’t always loyal. So it would be for Burnham. Already two knights would pull him in very different directions.

The first is Sir Tony (Blair). Blair was always good at spotting a moment of vulnerability and his critique of Labour being lost is spot on. Blair’s problem is that he only ever grasps half of the problem. And, invariably, it is the wrong half.

Blighted lives

I always put this down to the crisis in Blair’s own childhood. He went from being a privileged kid at the Fettes school to being a charity kid, rescued from the collapse of his family fortunes. The result was to leave Blair overly beholden to the owners of wealth and power. This seemed to be what lay behind his retreat from socialism into social-ism. He was good at the superficial but never grasped the structural. So it is now. None of his criticisms go to the heart of why we have an economics that steals the life prospects of a whole generation of young people.

Before reading the Blair report, listen instead to the voices of the one million young people currently ditched by the labour market and struggling to even get replies to their job applications.

These aren’t work-shy kids. Some 84 per cent are hungry for work. Many are graduates or young people desperate to make a contribution, but for whom all doors seem to be closed. The fault isn’t theirs. It isn’t even Keir Starmer’s. The responsibility goes back to Blair’s time… and mine.

It was the failure of my generation of politicians to confront the ways in which speculative capital was allowed to distort our thinking that has taken us into the mess we are now in. The fault wasn’t too much socialism but too little.

Blair didn’t create this crisis-in-the-making. He inherited it from Thatcher. Labour’s problem was in not understanding how the shift from production capitalism into finance capitalism would pillage conventional economics itself. This is where we have to start.

Paradoxically, progressive “moderates” like Burnham might help shift the dial. I might have to say the same about Alan Milburn, as long as I can push his enthusiasm for outsourcing NHS services to one side. But this too is part of ditching Britain’s “productivity” and “growth” delusions.

Industry, under pressure to become more “productive,” has been pushed to swap labour for machines. AI is putting this on steroids. You can see it in supermarkets and banks, in factories and farming, in every part of the productive and service sectors. Even worse has been the effect of rapacious freedoms given to speculative capital in the world of takeovers and asset stripping. Good businesses are fleeced (and jobs ditched) in the interests of short-term shareholder returns. This is where the challenge lies.

Casino rules

The world of speculative finance can be mesmerising and baffling. Financial traders appear like pinball wizards, bouncing money around the globe with astonishing ease. The economist James Tobin wanted the World Bank to levy a fractional tax (0.01 per cent) on speculative capital movements. It would have had no effect on long-term investments, but could have funded the entirety of World Bank programmes. Only the gamblers would have paid. But the money markets would have none of it.

Instead, they were busy lobbying to make themselves increasingly exempt from tax. In Britain, the rot began with a quiet reconfiguration of tax rules under chancellor Norman Lamont.

British banks began to launch private equity funds, supporting venture capitalists in taking over established firms, asset-stripping them and dumping the remains. It was good for short-term profiteering but disastrous for everyone else. What the banks wanted, however, was to avoid being taxed on their profiteering. Lamont, duly obliged.

‘The carry’ and the burden

New Treasury guidelines were issued to tax inspectors, allowing fund managers to avoid paying income tax on the vast amounts paid to themselves in leveraged buyouts (which the industry calls “the carry”). Instead, they would only be subject only to a lower rate of capital gains tax.

To you and I, this would have meant very little. But to the casino it was a green light. Asset-stripping was dressed up as a new era focused on improved efficiency and productivity. But, as Hettie O’Brien explains in her marvellous book The Asset Class (Wiedenfeld & Nicolson), this didn’t produce economic growth at all. Instead, it created a “billionaire factory,” producing a new class of ultra-rich individuals gambling with other people’s money. Today, it is the welfare costs of the super-rich that Britain cannot afford, not those of the poor.

For the Labour government, it became the tune that Treasury thinking would dance to. All the public-private partnerships, all the sales of public assets and utilities, all the incursions of private finance into public services, are underpinned by an expectation that private equity will be paid paid more than 10 per cent interest before a single good or service gets delivered. This is not the way to run an inclusive economy.

Controlling the money-go-round

If Labour wants to revitalise Britain it has to set new constraints on speculative capital rather than setting benefits claimants against each other. This requires a courage Blair never had. It also needs a plan, beginning with a new role for the Bank of England. Fortunately, there are policy fragments from other countries that we could draw together to explain this.

Following the 2008 financial crash, British banks are required to hold 12.5 per cent of their deposits as “reserve ratios.” This is as a cushion against the panic meltdown that took place. There is no reason why a slice of these these could not be held directly by the Bank of England (at 1 per cent interest) and loaned back out through a climate/development bank.

Germany did something similar through its KfW Development Bank. This underpinned the commitment to its Energiewende — clean energy — programme. Finance was made available, at 1-2 per cent interest, via the same high street banks. Transformation, not exploitation, was the name of the game. And it generated tons of jobs and skills training.

Slaves to the system

The Bank of England might also be reminded that it has not always balked at taking on long-term debt. In 1837 it committed the equivalent of 40 per cent of government tax revenues as payments to slave owners under the Slave Compensation Act. It took over 175 years before final payments from the bank ceased. Not once did it suggest cancelling the deal and telling slave owners to get off the benefits bandwagon. Today, it would take a lot less time to build a sustainable, circular economy with an abundance of jobs.

Private equity would scream, howl and threaten to disappear into tax havens, but there are answers to this too. There is enough money going into insurance schemes and pension funds to underpin a shift from short-term profiteering to long-term economic security.

Then the bank could restrict access to low-cost development funding to those unconnected to the use of tax havens. Labour could reinforce this by debarring those using tax havens from holding public office in Britain. Goodbye Farage and Rees-Mogg. Tears would flow. And it’s at this point that another knight might come to Britain’s rescue.

Sir Gareth to the rescue

Sir Gareth (Southgate) may not be Merlin but the work he is doing understands that magic begins by listening to young people, then constructing a different economics that includes them from the start. From the making of sustainable energy systems, to the reconstruction of public transport networks, from restoring nature to the pursuit of localised food systems, this is where Merlin would seek to work his magic today … and so must Burnham.

In turning his back on the knights of corporate greed, Burnham needs to remember that King Arthur’s forum for policy-making was the round table. And that’s what tomorrow’s economics will have to look like. Circularity is the key, not today’s asset-stripping that would destroy us all.


That’s where the magic begins.

Alan Simpson was Labour MP for Nottingham South from 1992-2010.