How Labour can clean up Osborne's mess

The party must make national renewal its essential governing project.

George Osborne has messed the economy up. This might be a somewhat laconic summary of the latest IMF report into the state of the UK economy, but it isn’t a million miles from the truth. The overly rapid imposition of fiscal tightening has led to recession, which in turn means that borrowing is increasing, not falling. Cue ominous orchestral strings.

Yet as George Eaton argued yesterday, Osborne’s failure - and it is an abject, historic, world-class failure – has difficult political consequences. The Chancellor's failure means the next election will be fought under economically cloudy skies. The economy will probably be growing anaemically by 2015, but there will be pressure on living standards and stubbornly high unemployment. Our national debt will still be rising and the necessary return to fiscal balance will be several years off.

So the government has quietly kicked rebalancing a little longer down the road. The IMF reminds us that the government has already announced "further, unspecified consolidation in 2015-17.". That’s the £10 billion of further welfare cuts the government has "planned" for after the next election. The IMF think growth will be slower than the Office for Budget Responsibility (OBR) does, and deficit targets missed, which means even more "unspecified consolidation" will eventually be needed. To this gloom, the OBR adds that an aging population means return to pre-crisis levels of debt will require additional spending cuts or tax rises worth some £17 billion a year[1] just to return to the debt status quo ante.

These problems are going to land right in the lap of the next government. So what can Labour offer a nation facing weak growth, high debt and demographic cost pressures?

One reaction to the triple squeeze a Labour government would face is to deny that deficit reduction will be needed, that we can find a path to growth in the rejection of spending restraint, or "austerity-lite". In the short-term, that is absolutely the right approach. Debt is historically cheap, and rates are low because money is seeking out the safehouses of government securities. Unfortunately, Labour will not be governing in the short-term. Come 2015, while fiscal consolidation might be slowed, or even temporarily reversed, at some point it will need to be resumed – at least if we are to remain good Keynesians. So in order to create the space we need to invest for growth, we will need to bind ourselves tight to medium-term deficit reduction.

Another argument might be that Labour should support deficit reduction, but primarily through tax increases. If we were to take the current projections, we’d be looking at an immediate £10 billion in tax increases to fund welfare, plus whatever action we took on medium term debt, plus any other cuts we sought to reverse or delay. Then there’s social care, which might need another £10 billion or so. Yet as those dangerous right wingers at the Fabians have pointed out, there is little public appetite for tax rises. Gulp.

I believe neither argument is wholly convincing because neither postponing the debt reckoning nor increasing taxes to preserve services, can renew our national economy. They are responses to problems, not a search for a solution. Instead, our political focus must be directly on the need for the recovery of our national productive capacity.  Naturally, that means we can’t afford the risk of a fiscal event, or to waste money on financing extended debt levels for longer than strictly necessary. So a steady return to fiscal balance is vital. But as well as closing the existing deficit, we also have to do new things to support growth- such as a National Investment Bank, infrastructure, R&D, and education.

Unfortunately, few of these things are free[2]. It is disturbing to think that the key to Britain’s long-term growth is a plan for national renewal which will cost more of the money we already don’t have. No wonder the latest buzz phrase among left-wing wonks is "switch spend" which translates as "cut services to fund investment".

The next Labour government won’t be able to choose between higher taxes and cuts if it is to slowly reduce the deficit, deal with demographic pressures and deliver sustainable growth. Instead, it will have to do both. But how can such a programme ever be sold to an already sceptical electorate?

I believe we need to make national renewal our essential governing project. Our argument must be that national renewal only works if pursued for the long-term and alongside a politics of common sacrifice. The problem for this government is that they do not believe in restraint in any terms other than for the state. If you have wealth, or power, or privilege, restraint is for other people. Labour can offer a distinctive message. Yes, the next few years will be tough if we fight back to economic strength. But we can only do so if all parts of society contribute.

This requires that we change too. If we are to talk of a common purpose, it must demonstrate that restraint is broadly shared. If the risk for the Tories is that they are too indulgent to the wealthy few, then for the left it is that we are unable to be frank with those the trade unions represent. This strategy is risky, I freely admit. It doesn’t sit well with progressives to promise pain today but joy deferred. It will be hard to make the argument to Unison and the GMB that to support long-term growth requires short-term restraint in public service budgets.

Yet the reality is that a Labour government will face sharp constraints, that we need long term sustainable private sector growth to fund our social aims, and that future demographic pressures require more fiscal restraint, not less. That means that a future Labour government would have to make such arguments, like it or not.

Today, politics often sounds tinny and inadequate to the challenges we face.  Perhaps the key to changing that is to frankly recognise the sea of troubles we face, set a great national ambition, and argue that to achieve such may be difficult, but is also worthy. Shared sacrifice, national renewal, common purpose. Maybe it’s just me, but I can see that catching on after selfish Toryism fails.



[1]  "we calculate the additional fiscal tightening necessary from 2017-18 to return PSND to its roughly pre-crisis level of 40 per cent of GDP in 2061-62, as well as that necessary to keep it at the level we expect at the end of our medium-term forecast, namely 75 per cent of GDP, again in 2061-62. Under our central projections, the government would need to implement a permanent tax increase or spending cut of 1.1 per cent of GDP (£17 billion in today’s terms) in 2017-18 to get debt back to 40 per cent and 0.3 per cent of GDP (£5 billion in today’s terms) to have it at 75 per cent."

http://cdn.budgetresponsibility.independent.gov.uk/FSR2012WEB.pdf

P13 Para 52-54

As the OBR says, this figure only gets bigger if the government misses its debt targets for 2016-17.

 

[2]  Though Gregg McClymont’s work on pensions charges shows that not all progressive reforms cost money. The same is true of other consumer and market regulation issues, many of which, ironically enough need to be imported from that bastion of neo-liberalism – the USA.

 

A future Labour government would face tight economic constraints. Photograph: Getty Images.

Hopi Sen is a former head of campaigns at the Parliamentary Labour Party. He blogs at www.hopisen.com.

Getty
Show Hide image

How Labour risks becoming a party without a country

Without establishing the role of Labour in modern Britain, the party is unlikely ever to govern again.

“In my time of dying, want nobody to mourn

All I want for you to do is take my body home”

- Blind Willie Johnson

The Conservative Party is preparing itself for a bloody civil war. Conservative MPs will tell anyone who wants to know (Labour MPs and journalists included) that there are 100 Conservative MPs sitting on letters calling for a leadership contest. When? Whenever they want to. This impending war has many reasons: ancient feuds, bad blood, personal spite and enmity, thwarted ambition, and of course, the European Union.

Fundamentally, at the heart of the Tory war over the European Union is the vexed question of ‘What is Britain’s place in the World?’ That this question remains unanswered a quarter of a century after it first decimated the Conservative Party is not a sign that the Party is incapable of answering the question, but that it has no settled view on what the correct answer should be.

The war persists because the truth is that there is no compromise solution. The two competing answers are binary opposites: internationalist or insular nationalist, co-habitation is an impossibility.

The Tories, in any event, are prepared to keep on asking this question, seemingly to the point of destruction. For the most part, Labour has answered this question: Britain will succeed as an outward looking, internationalist state. The equally important question facing the Labour Party is ‘What is the place of the Labour Party in modern Britain?’ Without answering this question, Labour is unlikely to govern ever again and in contrast to the Tories, Labour has so far refused to acknowledge that such a question is being asked of it by the people it was founded to serve. At its heart, this is a question about England and the rapidly changing nature of the United Kingdom.

In the wake of the 2016 elections, the approach that Labour needs to take with regard to the ‘English question’ is more important than ever before. With Scotland out of reach for at least a generation (assuming it remains within the United Kingdom) and with Labour’s share of the vote falling back in Wales in the face of strong challenges from Plaid Cymru and UKIP, Labour will need to rely upon winning vast swathes of England if we are to form a government in 2020.

In a new book published this week, Labour’s Identity Crisis, Tristram Hunt has brought together Labour MPs, activists and parliamentary candidates from the 2015 general election to explore the challenges facing Labour in England and how the party should address these, not purely as an electoral device, but as a matter of principle.

My contribution to the book was inspired by Led Zeppelin’s Physical Graffiti. The track list reads like the score for a musical tragedy based upon the Labour Party from 2010 onwards: In My Time of Dying, Trampled Underfoot, Sick Again, Ten Years Gone. 

Continued Labour introspection is increasingly tiresome for the political commentariat – even boring – and Labour’s Identity Crisis is a genuinely exciting attempt to swinge through this inertia. As well as exploring our most recent failure, the book attempts to chart the course towards the next Labour victory: political cartography at its most urgent.

This collection of essays represents an overdue effort to answer the question that the Party has sought to sidestep for too long.  In the run up to 2020, as the United Kingdom continues to atomise, the Labour Party must have an ambitious, compelling vision for England, or else risks becoming a party without a country.

Jamie Reed is Labour MP for Copeland.