Gavin Kelly

Economics, politics and the reality of the 'squeezed middle'

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How seven years of cuts will transform the political landscape

The notion that a Labour government in 2015 would itself be a cutting government has yet to sink in.

When it comes to big political set pieces, like yesterday's Autumn Statement, the predictable somehow still manages to surprise. Everyone knew it would be bad; and we all knew it would raise big challenges for all three parties. Yet today, everyone is caught off-guard.

In part, it's because the unprecedented duration of the cuts -- until 2017 -- is now abundantly clear and longer than many had appreciated. Think back to 2004, when the economy was booming; a rising star of the Conservative Party, David Cameron, had risen to the lofty position of opposition spokesperson on local government; Nick Clegg had just stepped down from the European Parliament; and a young Treasury advisor by the name of Ed Miliband had just returned from a sabbatical at Harvard. Seven years really is a very long time in politics. That's how long we're going to be talking about cuts for, so we'd better get used to it. We also know that the pain on public sector pay will extend to 2015 (and probably longer). Household living standards won't start to tick up until at least 2014. The wages of the typical worker are unlikely to surpass their pre-recession levels until at least 2020. The roll call of long-term economic misery goes on and on.

Which is why all parties woke up today still trying to come to terms with what it all means for their central political purpose and pitch. For the Conservatives, who currently have a clearer account of how to traverse this new terrain than any other party, it is the final confirmation, if any were needed, that they are ditching their previous modernisation strategy. Turn the clock back just a few years and think about the core elements of Cameron's one-nation argument -- a strategy which was clear, politically potent, and created the space for the formation of the coalition. Demonstrate progressive credentials via a new Tory commitment to child poverty that was supposed to warm the heart of the likes of Polly Toynbee. Create a new base of political support within the public sector. Make headway in the north of England. Reach out to new and younger voters through a "vote blue, go green" message. Convert the Conservative party into a 21st century home for hard-pressed working women. Most of these claims are now in shreds; all are severely tarnished. In their place is a very big bet that they can win on economic leadership in tough times -- a bet that may still prove right -- but one that leaves the modernisation agenda as a relic of a bygone era.

For the Liberal Democrats, perhaps more than any other party, yesterday may turn out to be seismic. It will certainly be viewed by many of their members as the moment when a bunch of Treasury civil servants, together with Danny Alexander, blew a hole in their next manifesto. The central proposition of the coalition -- coming together in the national interest to tackle the deficit within the life of the current parliament -- is no more. Now the time-span of the shared central commitment to cuts has been cast forward into the latter part of the decade. And the Liberal Democrat leadership has pledged the coalition will undertake a spending review itemising cuts beyond the next election -- presumably cuts that will therefore have to figure in both the Liberal Democrat and Conservative manifestos (so much for the much heralded "differentiation" strategy). And all this without a trace of internal party discussion -- unless, that is, someone is going to tell us that Simon Hughes and Tim Farron happened to be sitting in on the Treasury's forecasting meetings. All of which poses a few questions: the balance between tax-rises and spending reductions? The political viability of seven years of austerity for an already weakened party, many of whose members self-identify as being on the centre left? But no need to debate these trifling issues, or so it seems.

And the implications are barely less far-reaching for Labour. Above all, the worse the economic news, the higher the stakes become -- and the louder the ticking of the clock as people wait for the party's polling numbers on economic competence to turn upwards. If that doesn't start to happen soon, more and more people will wonder quite what George Osborne would have to announce about the dire state of the economy before Labour starts to take a lead on these issues.

Last week in a speech Ed Miliband rightly struck a slightly different and more accommodating tone, seeking to persuade a largely unconvinced public that his party's economic argument was right for our times. He also went out of his way to stress that if elected he will embrace the challenge of governing under austerity, though in a different way to the coalition. That sentiment is now either going to be reversed (if the leadership decides it can't stomach the gritty reality of talking about cuts in the next parliament, which would raise huge questions about Labour's fiscal credibility) or, far more likely, it will have to become mainstreamed and echoed right across the party. And that means entering the day-to-day politics and vernacular of every shadow cabinet member. The notion that a Labour government in 2015, inheriting a greatly diminished public sector, will itself be a cutting government is yet to sink in. To put it mildly, it is quite a mind shift.

Make no mistake: even though yesterday sort of went as predicted, it also changed everything.

34 comments

Saralin's picture

The usual approach is that employees who do not want to join the union and support its political activities must opt out. The Supreme Court ruled five years ago that if a state chooses it can require that union members who want to participate in political activities must opt in, though that is not the law in California and several other states.

matthew fox's picture

The Autumn Statement was an admission of failure.

Failing tax receipts is in the small print.

I don't see any bonus in low income families being £200 a year worse off.

Lox's picture

Are you really Rik from The Young Ones, treborc?

Benn's picture

@DK

What happens when there’s no wealth left to redistribute?

Full blown socialism?

Who do you think employs the lower paid workers?

So you want to force big business into the ground eh, squeeze the wealthy overseas? Who do you think builds buildings the wealth live in or work in, cleans the offices and cooks their dinner?

spencer may's picture

1. Government spending is going up, not down, and will do for years to come. Thank Gordon Brown for that. 2. Keynes is now discredited, rightly. 3. The government can boost the economy by cutting taxes, cutting spending, and cutting regulation. Government spending is the wrong route. 4. Left wingers do tend to WAFFLE, get to the point or SHUT UP.

Sue Davies's picture

Austerity begets austerity. The only way to get growth is to create jobs using public money. The deficit is not the problem .. the problem is private debt and unemployment. As Keynes said "Look after jobs and the budget will look after itself''.

Osborne's budget is not likely to be relevant given the triple crunch of the second banking crisis, peak oil and climate change. We need a real green new deal which would address all three by creating jobs, new manufacturing and reducing energy demand. ZerocarbonBritain 2030 offer a way forward ... we need a LP which abandons the mythologies of neoliberalism and embraces environmentalism for all our sakes.

DK's picture

Labour has an easy way out--start talking about tax increases for big business, finance, and the wealthy. The austerity programme simply won't work, and in 18 months no one will remember yesterday, so many other cataclysms will have arrived in the interim. The only solution is redistribution of wealth, and it's time Labour said that openly. It is more likely we see that as the policy of a major party in 2020 than we continue on this road, with the standard of living stagnating at best, for an entire decade. If it's not Labour it will be somebody else.

Allie Whiteley's picture

After a while there will be nothing left to cut, surely?

mike cobley's picture

Allie - there's a long way to go yet before the general population of the UK reaches the level of squalor and poverty which International Finance thinks is appropriate for a post-industrial society. Which also happens to be the same as that which powerless people in the far east have to endure.

REPAY's picture

Keynes could never imagined a government where public finances were so degenerate and liabilities growing by the year - unfunded and unfundable pensions being just one facet. Where was the infrastructure spending when we could have afforded it but blew the money of some shiny schools providing poor education. There was no a single perecntage of real growth in this last decade once you strip out the Balls/Brown splurge and the credit card binge by our innumerate fellow citizens. Lets get jobs by tackling the profligacy in the unfunded liabilities. In real terms the Coalition has made zero cuts (read the Red Book) so they have met Balls' desire to spend evermore but failed in their own terms...

Scotty's picture

There are some desperate left whinge denialists on here - it is obvious to any rational thinker that the current situation is world wide bought on by over spedning by both governments and by their electorate - and this situation was clearly made worse by brown and balls spending during a time of boom, and when the boom ended the spending could not be turned off quickly.
Balls was pushing for more spend as plan B - Osborne has not been able to reverse the trend thansk to the world economic situation, so he has in fact met ball's plan re slower cuts, albeit not deliberately - and look where we are - so that should say all a rational person needs to know about the wisdom of the balls plan - its balls.

Des Demona's picture

@ Scotty

Thanks for the belly laugh. The awful spelling and punctuation coupled with the irony and appearing to seem ignorant. Starting off with 'left whinger denialists' on a left wing magazine.
Genius. Are you a professional comedy writer?

Sue Davies's picture

Repay .. The Coalition are using the credit crunch or banking crisis to justify draconian cuts in the living standards of ordinary UK citizens. As Mike Cobley said to the level of a post-industrial society. They are Plutonomists or neo-feudalists .. only the top 1% the global financial elite matter because they account for 60% of the global economy (see Citicorps docs). The rest of us are irrelevant.

The deficit is ephemera.. it is the construct which is used to bamboozle. The size of the so-called structural deficit could be vaster, and the amount of borrowing could be doubled without worrying the markets. The whole neoliberal nonsense is designed to keep and increase the wealth of the super-rich and the markets hold governments to ransom to that end...

That the Coalition has made zero cuts is all part and parcel of the redistribution of wealth upwards. That there have been very real cuts to ordinary people is indisputable. Just as it is indisputable that the 1000 richest UK citizens have quadrupled their wealth since 2008, from 90 billion to 400 billion (see Prem Sikka).

I walker's picture

It's just a very right-wing coup.

Graeme Hancocks's picture

Did anyone catch the odious Danny Alexander interviewed by Paxman in Newsnight last night? He stated that the next libdem election manifesto would contain a promise of further stringent cuts along the lines of the tory party. Which raises the question, as did Paxo, that as there is no difference between tories and libdems, why vote libdem?

Sue Davies's picture

Graeme.

If this government persists, it raises the increased likelihood of an electoral pact or standing as a 'Coalition'.

treborc's picture

Well if Labour a cutting party which it was before the crises, then we may as well keep the Tories in power, of course it will depend on who builds the first concentration camps for the disabled and the sick, some how after new labour I suspect it would be them.

Lox's picture

Hi Union Steve, I'd like to think that capitalism in it's present form-the collusion of big business, state bureacracies and politicians-has had it: perhaps if some more banks had been allowed to fail a few years ago, we'd be on the road to a genuine liberal economy. Hopefully we'll get there in the end, though.
Is that your preferred option? Or would you rather see a continuation/expansion of failed, special interest directed Keynesian policies? Or even more ridiculous, an economy directly controlled by the state rather than by the billions of voluntary and mutually beneficial exchanges that make a free market?

Des Demona's picture

Osbourne was consistantly warned that his Plan A would drive us further towards recession. He scoffed at that. Too late, the damage is done.
Rising unemployment, high street confidence evaporating, an enraged public sector facing 700,000 jobcuts and attacks on living standards. We will be poorer in 2015 than we are now!
But it's all ok because both Barclays and RBS reported last quarter profits of over £2Billion. Unfortunately that still means job losses - mostly on front line and junior staff - because the fat cat bonuses are tied to profit and earnings per share. Which generally means squeezing the workers not the managers.

Freeman2's picture

War seems to be the only way they'll get out of it.

The Law's picture

A Labour government in 2015? Only if they get rid of that guy on the left.

Union Steve's picture

More neoliberal bullshit no government has ever cut it's way out a mess like this. More public investment will have to be injected by government no mater who's in power FACT! Don't you lot realise that capitalism in it's present form has had it. youer all mad heed the lessons from history.

swatantra's picture

The next 5 years are going to be tough for all of us.
And all 3 political Parties are going to have to be a bit more honest with the public.
Byrne was stating the bleeding obvious when he left that outrageous note: There is no money left.
But it wasn't the fault of Labour.

Robert Taggart's picture

Milly/Balls...
What an indictment of an Oxford degree !

mcquade's picture

"Keynes could never imagined a government where public finances were so degenerate and liabilities growing by the year"

Keynes didn't even have to imagine it, REPAY; he saw it with his own eyes in the far worse 1930s depression.

mcquade's picture

I don't see what the problems is for the Labour Party. Darling's plan always involved making cuts into the next parliament. The strategy was already laid out.

Marco's picture

Keynes believed in stimulus in a recession, but he believed in retrenchment in a boom.

Labour don't seem to understand the latter point and NEVER will.

JRTomlin's picture

Why on earth would anyone care if the LibDems "blow a hole" in their manifesto? Their subservient alliance with the Tories show it's nothing but a lie anyway.

matthew fox's picture

Marco, why are Conservatives experts on Keynes, eventhough they have no problem dancing on his grave.

Typical Conservative mis-information.

Valentina's picture

The deficit is ephemera.. it is the construct which is used to bamboozle. The size of the so-called structural deficit could be vaster, and the amount of borrowing could be doubled without worrying the markets. The whole neoliberal nonsense is designed to keep and increase the wealth of the super-rich and the markets hold governments to ransom to that end. http://www.homeremodeling101.org/

tj59sixty's picture

A couple more years of softening up through propagander then swift invasion of Iran by us/uk. China enters conflict as mid-east disintegrates=hey presto world war and end of austerity as we all march off to fight or manufacture war materials.The Neocons will then be happy.

Hugh Markey's picture

Look any reference to Miliband and Balls as the 'Abbott and Costello' of British politics is ludicrous. This matter is much to serious for such levity.
Just as George Osborne has as much grasp of economics as Tommy Cooper had of magic is no reason to go down that road.
Lord Home's matchbox indeed!
Yes, admittedly Cameron's as much use as a circus MC shouting at lions munching on their 'tamer'
Get a grip. This is serious. No corpsing you lot at the back!

Clubman

Leftwing Weak's picture

Autumn Statement worked on two levels, a few bonuses and the young whppersnapper Boy George gave Ed Balls a half badger routine and wound him up! Marvellous

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