Is Alan Johnson the right man for the job of shadow chancellor?

The coalition, and the cuts consensus, have to be challenged, not indulged.

I was on Radio 4's World Tonight and BBC2's Newsnight yesterday discussing the appointment of the former home secretary Alan Johnson as the new shadow chancellor. I don't think any of us saw that coming -- in fact, I don't think Alan Johnson saw it coming! When I spoke to him at the Labour party conference in Manchester, he seemed keen to shadow the Deputy Prime Minister, Nick Clegg, and hold the coalition government's constitutional and electoral reform agenda to account. He has never served in the Treasury before and is not an expert on the economy.

Nick Robinson tells the following anecdote on his blog:

I once told Alan Johnson that some in the cabinet were arguing that he should replace Alastair Darling as chancellor. His communication skills, wry good humour and common sense were regarded by many as making him the perfect foil to Gordon Brown and more likely to cheer up the nation up than Darling himself.

I well recall his reaction – he looked like he'd swallowed a wasp. Unlike the other obvious candidate back then – Ed Balls – he had no economic training and was not desperate to do the job.

Regular readers of this blog will know that I was hoping Ed Balls would be made shadow chancellor. I believe he was the best-qualified person for the job – and he deserved it, too, having delivered a scathing critique of Osbornomics at Bloomberg in August, and having harried and humiliated Michael Gove at the despatch box again and again over the summer. I also think it is odd that the two most formidable economists on the Labour front bench should be confined to home affairs (Balls) and foreign affairs (Yvette Cooper), where their impressive grasp of macroconomics will not be needed and where Cooper, in particular, might be wasted.

But what do I know? I'm just a hack. Ed Miliband is the leader and I'm guessing he has a plan. Plus, Johnson is an experienced and able politician, a great communicator with a fantastic sense of humour, as well as a fascinating backstory that contrasts with George Osborne's privileged upbringing.

Now, there has been much debate over the past 24 hours as to whether the Johnson appointment and the decision to deny Balls the post he so craved is a sign of strength or weakness on the part of Miliband. I was on BBC Radio Wales with the former Blair adviser John McTernan this morning: McTernan thinks the new Labour leader showed "strength" in giving Balls the home affairs, rather than the Treasury, brief. Indeed, the narrative emerging from the Blairites is "Ed Mili faced down Ed Balls".

But there is another view that says that Miliband the Younger capitulated to the Blairites and the right-wing press, who like to refer to him as "Red Ed" and to Ed Balls as a "deficit denier", by going with the safe option of Alan Johnson, a supporter of the candidate (Mili-D) who was backed by more Labour MPs than Mili-E was. Kevin Maguire, for example, says:

Ed Miliband's fluffed his first big call. Appointing Alan Johnson as Labour shadow chancellor is to stick with the Alistair Darling line on halving the deficit when Labour lost the election. The bold move was to put Ed Balls or Yvette Cooper in the job and shift the Labour position to slower cuts to keep the economy recovering.

I'm not sure where I stand on this. Perhaps, as I noted in a CIF piece yesterday, the personnel issue is irrelevant and we should all wait to see what Labour's policy response is to George Osborne's Spending Review on 20 October.

Ed Miliband has repeatedly referred to the Alistair Darling plan for deficit reduction (that is to say, halving the deficit over four years) as a "starting point" and told Channel 4 News the day after his conference speech that he'd like to do more with taxation, and less with spending cuts, than Darling had allowed for. Johnson's appointment might be part of a deliberate strategy by Miliband to take charge of the party's economic and, specifically, fiscal policy rather than outsource it to the shadow chancellor/chancellor (as Tony Blair did in the Nineties and Noughties).

It is worth remembering that Miliband taught economics at Harvard during his sabbatical in 2003-2004 and chaired the Treasury's Council of Economic Advisers between 2004 and 2005. Unlike Blair, and perhaps Johnson, he understands economics.

Meanwhile, the coalition's fiscal and welfare policies are in disarray – at the Conservative conference, a cut in child benefit for higher-rate taxpayers to save £1bn was followed by a transferable tax allowance for married couples which will cost £500m! In today's Daily Telegraph, Chris Huhne, the Lib Dem Energy Secretary, says that the proposed spending cuts are not "lashed to the mast" and that it "may be appropriate" to alter the plans in the event of a serious economic downturn. Like Ken Clarke, the Tory Justice Secretary, Huhne also admits that a double-dip recession is a possibility.

So now is not the time for Ed Miliband to go wobbly on deficit reduction. The opposition has to make clear that deep and immediate cuts will make the deficit get bigger, not smaller. And Alan Johnson needs to understand the Keynesian argument, and the "moral" argument – as his preferred leadership candidate, David Miliband, put it during the Compass hustings in June – for running deficits in downturns.

Here are some people Johnson should perhaps try to speak to for advice this week, ahead of the SR on 20 October:

* Paul Krugman

* David Blanchflower

* Anne Pettifor

* Martin Wolf

* Ed Balls :-)

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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The twelve tricks in George Osborne's spending review

All Chancellors use chicanery, and George Osborne is no exception.

There is no great shame to a wheeze: George Osborne is no more or less partial to them than other Chancellors before him. Politicians have been wheezing away since history began. Wheezes aren’t even necessarily bad policy: sometimes they’re sensible as well as slightly sneaky. And we shouldn’t overstate their significance: the biggest changes announced yesterday were described in a clear, honest and non-wheezy way.

But it’s fun to try to spot the wheezes. Here are some we’ve found so far.


  1. Give people less time to pay their tax bills. Yesterday the Chancellor announced tax rises that will raise, in total, a net £5.5bn in 2019-20. A sixth of that total – £900m – results from the announcement that, from April 2019, anyone paying Capital Gains Tax (CGT) on the sale of a house will have to cough up within 30 days. Has the Chancellor made a strategic decision to increase taxes to pay for public services? Not really – he’s just moved some tax forward from the subsequent year to help his numbers stack up, at the price of bigger hassle for people who are selling houses. Not necessarily a bad thing – but a classic wheeze.


  1. Dress up a spending cut as a minor bureaucratic change. The Treasury yesterday announced what sounds like a sensible administrative change to the Government’s scheme for automatically enrolling people into pensions: “to simplify the administration of automatic enrolment for the smallest employers in particular, the next two phases of minimum contribution rate increases will be aligned to the tax years”. Nice of them to reduce bureaucratic hassle for the smallest employers. This also happens to save the Government £450m in 2018-19, because instead of paying an increased subsidy into people’s pensions from January 2018, it will do it from April 2018.


  1. “Tuck under”.  The phrase “tucking under” is a Whitehall term of art, best illustrated with an example. We learnt yesterday that “DfID [the Department for International Development] will remain the UK’s primary channel for aid, but to respond to the changing world, more aid will be administered by other government departments, drawing on their complementary skills.” That sounds like great joined-up government. It also, conveniently, means that the Government can continue to meet its target of keeping overseas aid at 0.7% of Gross National Income, without having to increase DfID’s budget at the same rate as GNI: instead, other departments pick up the slack. Those bits of other departments’ budgets have thus been “tucked under” the ODA protection. See also: the Government is “protecting” the schools budget in real terms, while slashing around £600m from the funding it gives to local authorities to support schools, so that schools will now have to buy those services from their “protected” funding – thus “tucking” the £600m “under” the protected schools budget. (See also: in the last Parliament, the Government asked the NHS to contribute to social care funding, thus “tucking” some social care “under” the protected health budget.)


  1. Cumulative numbers. Most of the figures used in the Spending Review are “in-year” figures: when the Government says it is giving £10bn more to the NHS, it means that the NHS will get £10bn more in 2019-20 than it got in 2015-16. Then you read something like: “The Spending Review and Autumn Statement provides investment of over £1.3 billion up to 2019-20 to attract new teachers into the profession.” That’s not £1.3bn per year – it’s the cumulative figure over four years.


  1. Deploy weasel words. The government is protecting “the national base rate per student for 16-19 year olds”. Sounds great – and it will be written up in many places as “Government protects 16-19 education”. But the word “base” is doing a lot of work here. Schools and colleges that educate 16-19 year olds currently get a lot of funding on top of the “base rate” – such as extra funding for disadvantaged students. Plans for that funding have not yet been revealed.


  1. Pretend to hypothecate a tax. The Chancellor announced yesterday that – because the EU won’t allow him to reduce the ‘tampon tax’ – he’ll instead use the proceeds of that tax to pay for grants to women’s charities. This sounds great – but all he’s really saying is that, among all the many other millions of pounds of grants issued by the government to various causes, £15m will be given to some women’s charities, which might have got that funding anyway. It’s not real hypothecation: it’s not as if women’s charities will get more if there’s a spike in tampon sales. See also: announcing that local authorities can raise council tax so long as they use it to pay for social care – LAs would probably have spent just as much on social care anyway (and other services would have suffered).


  1. Shave away a small fraction of a big commitment. The Conservative party made great play in the election campaign of its commitment to provide 30 hours of free childcare to 3 and 4 year olds in working families. In the July Budget, it made more great play of re-committing to this. Yesterday, it announced that “working families” excluded any parent working less than the equivalent of 16 hours at the minimum wage, or more than £100,000. That sounds like a fairly small change – but it saves the Government £125m in 2020.


  1. Turn a grant into a loan. If government gives someone a grant, that is counted as spending and increases the public sector deficit. If instead the government gives someone a loan, that doesn’t count against the deficit, because it’s assumed that the loan will be paid back (so the loan is like an asset which the Government is holding). Recently we’ve seen a lot of government grants turning into loans – in the July Budget it was student maintenance grants; yesterday it was bursaries for trainee nurses.


  1. “Reverse” a decision that hasn’t happened yet. In 2012 the Government announced that, from April 2016, it would remove the 3% “diesel supplement” that puts a higher tax on company cars that use diesel than on others. Yesterday, it cancelled this, saving over £265m per year for the rest of the Parliament. People complain less about you cancelling a tax cut when you haven’t done the tax cut yet. (Perhaps this doesn’t qualify as a full wheeze, but there’s something wheezy about it.)


  1. “Protect” things in cash terms. If you really want to protect an area of spending, you should at least increase it in line with inflation, so that it can still buy the same amount of stuff. This government – like the Coalition before it – enjoys protecting things only in cash terms. Examples yesterday included the basic rate of funding per 16-19 year old in education, and the entire children’s services budget.


  1. Freeze things in cash terms. Yesterday the government announced that the repayment threshold on student loans – the level above which ex-students must start paying back their loans – will remain frozen in cash terms for 5 years, instead of increasing with earnings (which is what has happened to date). This saves the Government £200m in 2019-20. In a particularly bold move, the Government has even applied this rule to loans that have already been issued – changing the terms on which students took out the loans in the first place.


  1. Hide all these wheezes in sweeping statements. The first chapter of the Spending Review tells us that “£3 billion [of reduction in the deficit] is being delivered through reforms such as Making Tax Digital and further measures to tackle tax avoidance.” The innocuous phrase “reforms such as” covers the bringing forward of £900m in Capital Gains Tax (see number 1 above) and the £450m saved by delaying automatic enrolment into pensions (see number 2 above).

Catherine Colebrook is chief economist at the Institute for Public Policy Research