Beware Labour’s deficit hawks

The party’s Hooverites are encircling Ed Miliband.

In my column this week ("Let Miliband be Miliband"), I argue that the new Labour leader has to stand up to pressure from the Tories, the media and the Blairites inside his own party, who want him to tack to the right and conform to conventional wisdom.

With the departure of his elder brother, David ("Labour's lost leader", wails the headline in the Murdoch-owned, Tory-supporting Times), the pressure on Ed to "moderate" some of his positions has intensified. "He has to move right on the deficit," a Mili-D supporter told me in Manchester, as if deficit reduction is a right/left issue. It isn't: it is a right/wrong issue.

But Labour's deficit hawks are getting more and more vocal. The outgoing shadow chancellor, Alistair Darling, warned against the party retreating from his four-year-halve-the-deficit plan at the conference in Manchester, and said Labour had to be "realistic and credible". The former City minister Kitty Ussher, now head of the think tank Demos, used a column in yesterday's Financial Times to urge Miliband to "toughen up on cuts":

The changed environment must now spur him to harden, not soften, [the Darling] position.

"Changed environment"? What could she be referring to? The rather convenient IMF report, published on Tuesday, which praised the coalition's austerity measures — despite the Fund having warned a fortnight ago that "[m]ost advanced countries should not tighten fiscal policies before 2011: tightening sooner could undermine recovery"? Perhaps she missed the economist Adam Posen's remarks this week. From the FT:

The UK faces a long period of sluggish growth, with high unemployment and falling prices, unless the authorities act quickly to stimulate the economy, an influential adviser to the Bank of England has warned.

Sounding the alarm over the possibility of years of stagnation, Adam Posen, an external member of the Monetary Policy Committee, rejected the upbeat arguments issued on Monday by the International Monetary Fund about the economy's nascent recovery.

With the prospect of a repeat of 1930s stagnation rather than 1970s inflation, Mr Posen urged the Bank to restart the money printing presses to inject more life into the economy.

Posen, rather ominously, added:

Let us not forget that it was sustained high unemployment and austerity, the sense that governments were unresponsive to average people's dire economic conditions, which led to the rise of extremist intolerant parties in pre-war Europe.

The current debate over deficit reduction is being conducted on the basis of politics, not economics. The Blairite deficit hawks, fans of triangulation, want to meet Cameron and Osborne somewhere in the "middle", regardless of the fragility of the economic recovery, the lessons of economic history or the principles of Keynesian demand management.

Their central, short-term goal is to prevent Ed Balls from securing the shadow chancellor's brief, even though Balls is the party's best economist and an unrivalled attacker of the Tories (see Gove, Michael). His Bloomberg speech, outlining a progressive and Keynesian alternative to the coalition's cuts agenda, has been hailed by commentators and economists from across the spectrum.

In fact, despite whispers about him lacking "credibility" on the deficit, Balls's position is backed by the Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz, the Financial Times duo Martin Wolf and Samuel Brittan, and the governor of the US Federal Reserve (and scholar of the Great Depression), Ben Bernanke. Are they not "credible" enough for the British commentariat or the Labour right? Personally, I think the words "credible" and "credibility" should be banned from all discussions of the deficit.

(On a side note, on the subject of language, before Labour members or supporters get upset with me for using the derogatory phrase "Hooverites" in the standfirst — above — I should point out that I'm quoting Joe Stiglitz here. He told me, in an interview back in February, that deferring to the credit ratings agencies and "scaremongering" about the debt marked a victory for the "Hooverites" over the "Keynesians".)

I was delighted, however, to see Ed M tell Channel 4 News last night that he would want to tax more than the Darling plan allows for, and it is important that the debate over deficit reduction revolves not just around the timing for cutting, halving or eliminating the state's overdraft, but also the preferred ratio of spending-cuts-to-tax-rises. Ed Balls was the first Labour leadership candidate to argue that Labour's plan should be based on a 50:50 ratio between the two and to point out that Norman Lamont and Kenneth Clarke used a similar ratio when the Tories were cutting the deficit in the 1990s.

I happen to believe that Balls is the best candidate for the job of shadow chancellor (and I made my case for him in my column last week). Others have suggested Yvette Cooper, who is also a strong candidate with an impressive CV. But, outside of this particular married couple, who are the other candidates for the job? Are there any? And will they help Labour stand up to the economic illiteracy of the coalition's fiscal sadists?

Ed M — over to you.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.