In the drama of British politics, a Labour tragedy is unfolding. A combination of strategic errors, political mishaps and bad luck has left the party in a vulnerable position. The economy is turning soft and the electorate sour. The focus, at the moment, is on the lead characters—Gordon Brown and David Cameron—rather than the stories they are telling. Of course they matter. Leadership is about character. But Labour's woes do not flow simply from weak leadership and poor politics.
Labour is failing to win—or even to grasp—the big political argument: how to ensure people are in control of their own lives. The government has tested, often to destruction, the idea that a bigger, higher-spending state can deliver a better society. It has enjoyed some success in rehabilitating the idea of the state as an enabler. But Labour has reached the limits of what can be achieved through central-state diktat, and is running out of money.
For New Labour to survive, it must become new liberal. The key dividing line in politics is no longer between left and right, but, increasingly, between liberal and authoritarian. The Labour government too often finds itself on the wrong side of this divide. One of the lessons Labour ought to have learned from 11 years in charge of the state is to be humble about the limits of that power. Another lesson is that the demands of individuals for more say in how public services are provided and delivered are growing stronger.
Labour is being left behind. The governing elites of the Conservative and Liberal Democrat parties have got the point—and may be planning to prove it together in government. Nick Clegg is more liberal than social democrat. David Cameron is right when he talks about the "post-bureaucratic age." (Although neither has yet developed a full programme, and both are hampered, to an unknown extent, by the parties they have to carry with them.)
There are shards of new liberalism in Labour's programme, some of which were in evidence in the recent Queen's speech preview. The government may extend the idea of individual budgets from social care to health care. And there are some steps, albeit small ones, to give more power to social tenants.
But, in general, Brown and his allies retain a benign view of the power of the central, expert state to build a fairer, better society. The government genuinely seems to believe that "Britishness" can be legislated for. It has a tin ear on civil liberties. The plans for regulating new casinos include a ban on paying by credit card. Ed Balls, the secretary of state for children and families, wants a national play strategy.
Labour has too often fallen into this trap: a list of the institutions created and abolished since 1997 represents a significant amount of "machine" money spent to little effect. Labour politicians too often see a social problem—obesity, children at risk on the internet or declining interest in high culture—and make two assumptions: first, that the problem is amenable to a policy solution; and second, that this solution ought to involve the establishment of a council, commission or task force. But many of the issues facing modern society are too complex and too cultural for such a wooden approach.
It needn't be like this. Labour is heir to another tradition too. Radical liberals, seeking to provide the conditions for people to live flourishing lives of their own choosing, drove many of the social advances of the 20th century. "New" liberals such as Hobhouse, John Hobson and Lloyd George recognised that the state had a role to play in creating these conditions, and that Gladstone's laissez-faire liberalism was defunct.
The break between Gladstonianism and new liberalism was the recognition that freedom was made, not born: that barriers to liberty, such as sickness and poverty, could be huge. A late-19th century editorial in the Progressive Review declared that liberals "must… assign a new meaning to liberty: it must no longer signify the absence of restraint, but the presence of opportunity."
But new liberals have also been wary of the dangers of the central state drawing power to itself. There are often good reasons why power should be collectively exercised through the state. The point is that this should be the exception rather than the rule. Unless there are strong arguments to the contrary, power should reside with individuals. The historian GDH Cole called this strand of thinking in Labour's theory "federalism"—which he contrasted to the dominant strain of "centralism." The Clause IV of 1918 was a centraliser's charter. The Clause IV of 1994 was a federalist work.
David Miliband has recently suggested that the future for the British left lies in a marriage of these two traditions. A nice thought, but the two traditions lead to quite different places: for example, on public service reform, the environment and taxation.
A new liberal starting point for the way public services such as health and education are organised is that the individual should be in charge. Politicians often say this; but they rarely mean it. The NHS is a great social democratic monument. But the truth is that it can only survive through the use of liberal principles. The range of medical treatments is too large, the population too old and their expectations too great for the NHS simply to carry on as it is. As healthcare becomes increasingly about chronic care, control over funding and treatment has to pass from the profession to the individual. This will make the care people receive more appropriate and more cost-efficient, while institutions will join up, finally, around the patient. Passing control to individuals means they can spend their NHS entitlement on double glazing if they think it a better treatment for their asthma. Such a service is designed to produce good outcomes, because individuals are granted as much control as possible.
New liberals also part company from New Labour on the environment. They back strong state intervention, in the form of more aggressive "cap and trade" systems, as John McCain wants, but also tighter regulation of and higher taxation on emissions. This level of intervention is not only permissible on liberal principles, but is required by them. Liberals have always insisted that actions become subject to legal sanctions if they harm others. It is now irrefutable that the emission of greenhouse gases, mostly by rich nations, is causing climatic changes which will harm those in the low-lying, equatorial nations, which are mostly poor: a clear form of "passive killing."
Labour has just abandoned plans to give each person a tradable carbon allowance on the grounds that the idea is "ahead of its time" and would cost too much to implement. Of course the politics of the environment are hugely difficult. And the call for more action is not a liberal monopoly: many social democrats, especially on the continent, back a greener position than Labour. The point is simply that new liberals, bound by the harm principle, can clearly see the case for radical change.
There is no advantage in fiddling with the tax system for short-term political gain. But the government urgently needs a clear direction of travel and a real argument about the moral and philosophical basis for taxation. A new liberal fiscal policy would be based on two clear principles. First, tax "bads" (like carbon) not "goods" (like work). Second, tax "unearned" rather than "earned" income. The distinction between earned and unearned was developed by new liberal theorists such as Hobhouse and Hobson and brilliantly politicised by Lloyd George in his "people's budget" of 1909.
The application of the principle raises a whole host of questions, of which the most difficult concerns the degree to which wage inequalities represent real differences in "earnings." Has the hedge fund manager "earned" his £100m?
Nonetheless, the broad implications are clear. The riches flowing from inheritance or soaring house values should be taxed more heavily than at present. While people should be able to take some increase in the value of their house free of tax—up to, for example, what they could have received from a risk-free investment like a gilt—anything above that should be subject to substantial taxation. On the other hand, income in the form of wages, especially at the bottom of the pile, should be taxed as lightly as possible, if at all. But new liberals worry about the 40p tax band too, which now kicks in far too low. Liberals instinctively dislike income tax; Fabians will always see income—especially high income—as ripe for state confiscation.
Labour has been in thrall to the Fabian branch of its history for decades, even as its purchase on the world has loosened. It is telling that there has been no big work of social democratic theory since Crosland's The Future of Socialism in 1956. Labour's future, after three terms, looks bleak. The only hope for the party is to excavate its liberal treasure. The choice is stark: liberalise or die.
