Labour’s first job is not to spend, but to fix the UK’s financial plumbing | Phillip Inman

Every time an upmarket home is bought in the UK, the new residents seem obliged to rip out the kitchen and install two bathrooms where there was only one.

It is almost a cast-iron rule that walking across the threshold means paying builders to rearrange what was there before, almost for the sake of it.

It is the same in government when Whitehall departments are merged or broken up. The difference is that the refreshed home will probably have extensive new plumbing to accompany the latest appliances and the state will not.

Under the surface sheen of the newly minted ministries, the old ways of working and outdated practices will dominate. To keep the plumbing analogy alive, the shower will be brand new, but the hoped-for jet of water will be a trickle, leaving users desperately unhappy and the state accused of incompetence, wastefulness or worse.

Labour is in danger of falling into this trap when it considers how to achieve net zero, overhaul the NHS, reboot the education service, build more homes and boost growth with its brand new, fresh-out-of-the-box national wealth fund (NWF).

A £7.3bn stack of cash, the NWF will be managed by the UK Infrastructure Bank (UKIB), which might be only a couple of years old, but says it is expert at the investment game, with billions of pounds of its own to distribute.

It sounds like the UK is off to the races, promoting innovation and the latest technologies to foster long-term growth. Yet the UKIB got off to a bad start under the Tories and it is not clear that anyone in Labour is analysing where it has gone wrong.

Last year, MPs on the public accounts committee, the main parliamentary spending watchdog, raised questions about the independence, strength and value of its first deals, adding that the organisation had played safe with investments that were in the same sectors favoured by high street lenders.

Another indication that the government has yet to grasp the need for improved infrastructure beyond simply pushing money out of the Treasury door is the decision to extend the Enterprise Investment Scheme and the Venture Capital Trust scheme. These are tax breaks for people starting companies. They offer people who start businesses a way to avoid capital gains tax and keep most of the profit from any subsequent sale.

They started in the mid-1990s, but the Treasury has conducted almost no research into the benefits brought by the subsidies, which last year cost about £3bn in lost tax – almost double the bill for restoring the winter fuel allowance.

Very little is understood about the effects of these giveaways. That seems especially true when the Treasury is asked how firms that claimed them had improved productivity (which could be by attracting higher skilled workers, raising exports or attracting outside private investment). To date, the research hasn’t been done.

Much the same applies to the 100% tax break for capital investment that companies now enjoy as a permanent right, after Labour said the Tory giveaway would be extended in perpetuity.

Jill Rutter – who worked at the Treasury and No 10 before becoming a fellow at the Institute for Government and, latterly, the thinktank UK in a Changing Europe – says the government “needs not just to start filling in the detail of its ‘missions’ but make sure those missions deliver tangible changes that people notice”.

In a blogpost for the thinktank, she says there is no indication yet that government departments are thinking about the end product.

Geoff Mulgan, the former adviser to Tony Blair turned academic, is more caustic in his analysis. He says the new government is in danger of forgetting about the need for good plumbing to accompany its investment initiatives, jeopardising any chance of long-term benefits.

In a post entitled “Not just rocket science – the vital missing fuel for Labour’s growth plans”, Mulgan says ministers need to think less about space travel and more about creating new institutions to help the UK adopt less glamorous, though no less important, technologies.

Mulgan says the UK should look at a German initiative born out of an admission by Berlin that it had fallen behind many other countries in the adoption of new technologies.

The DATI (Deutsche Agentur für Transfer und Innovation, or German Agency for Transfer and Innovation) will focus on helping the private sector adopt new methods in data, AI and other fields, but also support public services and civil society.

“The UK should be doing something similar too, and urgently,” he says. “If driving up adoption isn’t a central part of someone’s job, it’s unlikely to be done well.”

More than the person who decides on the level of investment, it’s the difficult job of taking charge of the plumbing that matters.