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Labour must go for growth

Alistair Darling must use the pre-Budget report to explain why the Tories would take us deeper into

David Cameron believes the biggest economic challenge facing the country is government debt. He's wrong. The real challenge is delivering strong and sustainable growth.

This year the government deficit will amount to roughly 12.5 per cent of GDP. But this is the right approach in a recession. Government spending is compensating for a lack of private spending - as households repay debt and businesses either can't or won't invest (because banks won't lend). But the debt ratio is not unique and, indeed, is in line with the other G8 economies. Yes, we need to bring the debt and deficit down - but it is not the immediate or biggest challenge we face, and to reduce the deficit now would prolong the recession and pain to businesses and families.

The surest way out of the debt problem is economic growth - growth will boost tax revenues, reduce unemployment and hence government spending. A strategy for growth should be the focus of Alistair Darling's pre-Budget report (PBR).

Foremost in this strategy must be investment in the jobs and industries of the future. The UK has the potential to generate 400,000 jobs in green industries in the next few years. But there is no guarantee that hi-tech, high-skilled jobs will come to the UK. It is hard in the current economic environment for businesses and entrepreneurs with innovative and exciting ideas to secure funding for long-term investment. A national infrastructure, or investment bank, would enable government and business to act in partnership to build the future jobs the economy needs.

Second, to get growth back on track we must ensure that businesses and families can access bank finance at affordable rates. And, as we rebuild the economy, we must restructure the financial sector so that it cannot bring the economy to its knees again but instead fulfil the role it should provide - to channel savings to sensible investment.

The PBR should address these challenges directly, with legally enforceable lending targets for banks - focusing on money out of the bank door, not offers of loans at rates so extortionate that businesses can't afford to take them up. The lack of bank lending reflects a desire on the part of banks to rebuild their balance sheets, but without a strong business sector the banks will certainly incur further losses. Better instead for banks to improve their balance sheets through reduced bonus payouts. So, the PBR should also include a windfall tax on the excessive profits of banks or a 60 per cent rate of tax on bonuses of over £10,000. This would discourage payouts which are eroding bank capital, improve the public finances - which in large part have deteriorated because of support to the bailed-out banks - and begin to tackle the reckless bonus culture that got us in to this predicament.

Looking forward, there must be no return to "business as usual" in the banking sector - the "socially useless" functions of banks must be addressed. The PBR should include a review of the size and ownership model of our banks, including proposals to support the growth of building societies, and a commitment to look seriously at the remutualisation of Northern Rock.

But while it is essential that government does not withdraw the stimulus yet, it would be irresponsible not to commit to reducing the deficit as the economy recovers. Sound public finances are important for economic growth. Labour knows this, which it is why, between 1997 and 2006, the debt burden was cut from 42.5 to 36 per cent of GDP, reducing debt interest payments and freeing up money for investment in public services. Large budget deficits are needed during the recession to pump-prime the economy, but not when growth is back on track.

Through a combination of strong growth, tax increases and spending cuts, halving the budget deficit in four years is achievable but a credible plan for doing so is needed. At the moment, the right is winning the argument on how to achieve this, emphasising the burden that public spending will bear. Yet research by the think tank Compass shows that 78 per cent of people think the richest 10 per cent should pay at least the same percentage of their incomes in tax as the poorest. Moreover, the support for the new 50 per cent tax rate, and the growing discomfort around Tory proposals to reduce taxes for 3,000 millionaires by £200,000, shows that the country is more progressive than government gives them credit for. Deficit reduction must be shared between tax increases and spending cuts; and, again, growth will reduce the burden of the debt.

Contrast this growth approach with the rhetoric of George Osborne, the shadow chancellor. Osborne wants to cut spending right now, against all the historical evidence and against the international consensus. As Dominique Strauss-Kahn, managing director of the International Monetary Fund, said on 23 November: "We recommend erring on the side of caution, as exiting [from stimulus plans] too early is costlier than exiting too late."

But Osborne is not listening to the evidence. His approach threatens the recovery by taking money out of the economy at precisely the time it is doing most good. The risks of a double-dip recession have not gone away, and would be higher if government withdraws - you need only look at Japan in the 1990s or the US in the 1930s to see that.

In reality, Cameron and Osborne's desire for cuts are motivated by an ideological zeal to reduce the size of the state, rather than an economically literate strategy to build a strong economy.

The PBR is an opportunity for Darling to put down a challenge to Osborne. Will the Tories invest in the jobs and technologies of the future? Will they have the courage to take on those in the City who still argue for light-touch regulation? Or will they stick with their siren call - "cut spending now"? The economy remains in recession and the global recovery is fragile. With an election fast approaching, Darling must set out Labour's strategy for growth and deficit reduction with an ambitious pre-Budget report.

Rachel Reeves is the Labour parliamentary candidate for Leeds West

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The New Times: Brexit, globalisation, the crisis in Labour and the future of the left

With essays by David Miliband, Paul Mason, John Harris, Lisa Nandy, Vince Cable and more.

Once again the “new times” are associated with the ascendancy of the right. The financial crash of 2007-2008 – and the Great Recession and sovereign debt crises that were a consequence of it – were meant to have marked the end of an era of runaway “turbocapitalism”. It never came close to happening. The crash was a crisis of capitalism but not the crisis of capitalism. As Lenin observed, there is “no such thing as an absolutely hopeless situation” for capitalism, and so we discovered again. Instead, the greatest burden of the period of fiscal retrenchment that followed the crash was carried by the poorest in society, those most directly affected by austerity, and this in turn has contributed to a deepening distrust of elites and a wider crisis of governance.

Where are we now and in which direction are we heading?

Some of the contributors to this special issue believe that we have reached the end of the “neoliberal” era. I am more sceptical. In any event, the end of neoliberalism, however you define it, will not lead to a social-democratic revival: it looks as if, in many Western countries, we are entering an age in which centre-left parties cannot form ruling majorities, having leaked support to nationalists, populists and more radical alternatives.

Certainly the British Labour Party, riven by a war between its parliamentary representatives and much of its membership, is in a critical condition. At the same time, Jeremy Corbyn’s leadership has inspired a remarkable re-engagement with left-wing politics, even as his party slumps in the polls. His own views may seem frozen in time, but hundreds of thousands of people, many of them young graduates, have responded to his anti-austerity rhetoric, his candour and his shambolic, unspun style.

The EU referendum, in which as much as one-third of Labour supporters voted for Brexit, exposed another chasm in Labour – this time between educated metropolitan liberals and the more socially conservative white working class on whose loyalty the party has long depended. This no longer looks like a viable election-winning coalition, especially after the collapse of Labour in Scotland and the concomitant rise of nationalism in England.

In Marxism Today’s “New Times” issue of October 1988, Stuart Hall wrote: “The left seems not just displaced by Thatcherism, but disabled, flattened, becalmed by the very prospect of change; afraid of rooting itself in ‘the new’ and unable to make the leap of imagination required to engage the future.” Something similar could be said of the left today as it confronts Brexit, the disunities within the United Kingdom, and, in Theresa May, a prime minister who has indicated that she might be prepared to break with the orthodoxies of the past three decades.

The Labour leadership contest between Corbyn and Owen Smith was largely an exercise in nostalgia, both candidates seeking to revive policies that defined an era of mass production and working-class solidarity when Labour was strong. On matters such as immigration, digital disruption, the new gig economy or the power of networks, they had little to say. They proposed a politics of opposition – against austerity, against grammar schools. But what were they for? Neither man seemed capable of embracing the “leading edge of change” or of making the imaginative leap necessary to engage the future.

So is there a politics of the left that will allow us to ride with the currents of these turbulent “new times” and thus shape rather than be flattened by them? Over the next 34 pages 18 writers, offering many perspectives, attempt to answer this and related questions as they analyse the forces shaping a world in which power is shifting to the East, wars rage unchecked in the Middle East, refugees drown en masse in the Mediterranean, technology is outstripping our capacity to understand it, and globalisation begins to fragment.

— Jason Cowley, Editor 

Tom Kibasi on what the left fails to see

Philip Collins on why it's time for Labour to end its crisis

John Harris on why Labour is losing its heartland

Lisa Nandy on how Labour has been halted and hollowed out

David Runciman on networks and the digital revolution

John Gray on why the right, not the left, has grasped the new times

Mariana Mazzucato on why it's time for progressives to rethink capitalism

Robert Ford on why the left must reckon with the anger of those left behind

Ros Wynne-Jones on the people who need a Labour government most

Gary Gerstle on Corbyn, Sanders and the populist surge

Nick Pearce on why the left is haunted by the ghosts of the 1930s

Paul Mason on why the left must be ready to cause a commotion

Neal Lawson on what the new, 21st-century left needs now

Charles Leadbeater explains why we are all existentialists now

John Bew mourns the lost left

Marc Stears on why democracy is a long, hard, slow business

Vince Cable on how a financial crisis empowered the right

David Miliband on why the left needs to move forward, not back

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times