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.

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Why is Labour surging in Wales?

A new poll suggests Labour will not be going gently into that good night. 

Well where did that come from? The first two Welsh opinion polls of the general election campaign had given the Conservatives all-time high levels of support, and suggested that they were on course for an historic breakthrough in Wales. For Labour, in its strongest of all heartlands where it has won every general election from 1922 onwards, this year had looked like a desperate rear-guard action to defend as much of what they held as possible.

But today’s new Welsh Political Barometer poll has shaken things up a bit. It shows Labour support up nine percentage points in a fortnight, to 44 percent. The Conservatives are down seven points, to 34 per cent. Having been apparently on course for major losses, the new poll suggests that Labour may even be able to make ground in Wales: on a uniform swing these figures would project Labour to regain the Gower seat they narrowly lost two years ago.

There has been a clear trend towards Labour in the Britain-wide polls in recent days, while the upwards spike in Conservative support at the start of the campaign has also eroded. Nonetheless, the turnaround in fortunes in Wales appears particularly dramatic. After we had begun to consider the prospect of a genuinely historic election, this latest reading of the public mood suggests something much more in line with the last century of Welsh electoral politics.

What has happened to change things so dramatically? One possibility is always that this is simply an outlier – the "rogue poll" that basic sampling theory suggests will happen every now and then. As us psephologists are often required to say, "it’s just one poll". It may also be, as has been suggested by former party pollster James Morris, that Labour gains across Britain are more apparent than real: a function of a rise in the propensity of Labour supporters to respond to polls.

But if we assume that the direction of change shown by this poll is correct, even if the exact magnitude may not be, what might lie behind this resurgence in Labour’s fortunes in Wales?

One factor may simply be Rhodri Morgan. Sampling for the poll started on Thursday last week – less than a day after the announcement of the death of the much-loved former First Minister. Much of Welsh media coverage of politics in the days since has, understandably, focused on sympathetic accounts of Mr Morgan’s record and legacy. It would hardly be surprising if that had had some positive impact on the poll ratings of Rhodri Morgan’s party – which, we should note, are up significantly in this new poll not only for the general election but also in voting intentions for the Welsh Assembly. If this has played a role, such a sympathy factor is likely to be short-lived: by polling day, people’s minds will probably have refocussed on the electoral choice ahead of them.

But it could also be that Labour’s campaign in Wales is working. While Labour have been making modest ground across Britain, in Wales there has been a determined effort by the party to run a separate campaign from that of the UK-wide party, under the "Welsh Labour" brand that carried them to victory in last year’s devolved election and this year’s local council contests. Today saw the launch of the Welsh Labour manifesto. Unlike two years ago, when the party’s Welsh manifesto was only a modestly Welshed-up version of the UK-wide document, the 2017 Welsh Labour manifesto is a completely separate document. At the launch, First Minister Carwyn Jones – who, despite not being a candidate in this election is fronting the Welsh Labour campaign – did not even mention Jeremy Corbyn.

Carwyn Jones also represented Labour at last week’s ITV-Wales debate – in contrast to 2015, when Labour’s spokesperson was then Shadow Welsh Secretary Owen Smith. Jones gave an effective performance, being probably the best performer alongside Plaid Cymru’s Leanne Wood. In fact, Wood was also a participant in the peculiar, May-less and Corbyn-less, ITV debate in Manchester last Thursday, where she again performed capably. But her party have as yet been wholly unable to turn this public platform into support. The new Welsh poll shows Plaid Cymru down to merely nine percent. Nor are there any signs yet that the election campaign is helping the Liberal Democrats - their six percent support in the new Welsh poll puts them, almost unbelievably, at an even lower level than they secured in the disastrous election of two year ago.

This is only one poll. And the more general narrowing of the polls across Britain will likely lead to further intensification, by the Conservatives and their supporters in the press, of the idea of the election as a choice between Theresa May and Jeremy Corbyn as potential Prime Ministers. Even in Wales, this contrast does not play well for Labour. But parties do not dominate the politics of a nation for nearly a century, as Labour has done in Wales, just by accident. Under a strong Conservative challenge they certainly are, but Welsh Labour is not about to go gently into that good night.

Roger Scully is Professor of Political Science in the Wales Governance Centre at Cardiff University.

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