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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 biggest blunder of them all

It was a catastrophic error of judgement that produced the referendum – and now the British political class is paying the price.

AAs dawn broke on Friday morning and I turned over in bed to grab my phone and Twitter, I thought immediately of G K Chesterton’s poem from 1915, about the secret people of England:

 

Smile at us, pay us, pass us; but do not quite forget.
For we are the people of England, that never have spoken yet.
There is many a fat farmer that drinks less cheerfully,
There is many a free French peasant who is richer and sadder than we.
There are no folk in the whole world so helpless or so wise.
There is hunger in our bellies, there is laughter in our eyes;
You laugh at us and love us, both mugs and eyes are wet:
Only you do not know us. For we have not spoken yet.

 

Well, they have spoken now. This was a quietly devastating revolt by the English heartlands – southern and western suburbs; the urban sprawls of the Midlands and the north; former mining areas and devastated ex-industrial towns – against London, Scotland, Northern Ireland and the so-called elites. Looking at the numbers, one sees that it was a revolt also by older voters against younger voters and by poorer against richer, better-educated voters. It was, of course, a great democratic moment. Apart from the hideous and probably unconnected murder of Jo Cox, it was accomplished peacefully, and by a majority of well over a million. That sets it aside from Chesterton’s vision, which moves on from benign, bucolic defiance to outright anti-Semitism and warnings of blood-drenched revolution. Well, that’s the beauty of modern democracy . . .

The decision by the British people to leave the European Union is this country’s single biggest democratic act in modern times – indeed, as far as I can make out, the biggest ever. But it is also one of the elite’s most significant blunders, provoked by the most senior politicians for the wrong reasons and then pursued in what (to use a crude but apposite phrase) is the biggest establishment cock-up in my lifetime.

We should not fall into the trap, though, of seeing this as a purely British story. It is also about the EU, now looking more fragile than at any other time since the 1950s, and about what is still our common European home. There are calls for national revolt against the EU coming from across the continent. Far too many of the continent’s leaders welcoming our decision were the wrong sort of people. Mostly, the congratulations are coming from far-right parties, whose most lurid and upsetting rhetoric has emerged from central and eastern Europe. If you think I’m exaggerating, go on to YouTube, type “Visegrad”, and spend ten minutes watching. If this vote presages a process of messy and angry dissolution, it’s a story that will have started here. But that is only the beginning. If Marine Le Pen wins the French presidential election, then a French exit from the EU looks very likely – and that really is the end of it all.

Hurrah, many people will say: but we should reflect that this will demand negotiation of many individual trade deals with the leaders of angry and fractured European nations, which will clearly be a lot harder than any single deal with the EU. And then, there are the darker forebodings about Europe, which has never managed to stay at peace with itself for long as a constellation of independent countries. Immigration pressures and the Russian threat are just a couple of possible sources of future conflict.

But there are better outcomes. For the UK the optimal one now is clearly “Norway-plus”: meaning, in essence, restrictions on the free movement of people but access to the single market. Unless the victorious team of Brexit Tories is bonkers, this is what they will try to negotiate. It would minimise the threat of all-out economic disruption, which has already begun, and answer the biggest complaint from Leave voters. To which the obvious retort is: “Why in a million years would they give us that?” Well, as leaders in France, Germany, the Netherlands and other countries contemplate their own populist insurgencies, they must know that a rethink of freedom to work across borders is their best card against the insurgent right. There is a slim, but not entirely negligible, chance that a much wider rethink across the EU will now be prompted by the British decision.

This is not something that will be decided here. Is it possible that leaders in Brussels will eventually react, once the anger has cooled, to take a different path: to listen much more acutely to the sounds of pain caused by the euro experiment; to do a proper deal for Greece; to reassert democratic accountability (much more Council of Ministers, much less Commission); and to reassess free movement? Writing it, I know that I sound like a deluded optimist, but the possibility deserves to be filed alongside all the grimmest alternatives.

Keeping all this cautiously in mind, let’s look at the British establishment cock-up. According to one of those involved, this all started at a pizza restaurant at Chicago O’Hare Airport at the time of a Nato conference in 2012, when David Cameron and his closest political allies decided that the only way of scuppering Ukip and the Euro-hostile right of the Conservative Party was to give the British people a referendum.

The brutal way of putting this is that Cameron decided to put party management and tactics ahead of grand strategy, grossly overrated his own negotiating skills, and has been badly bitten in the bottom accordingly. He has often looked like a chess player who plays the next move brilliantly yet fails to see three moves ahead. There is, however, a more generous explanation – which is simply that this referendum was inevitable; that it was more than time for restless British voters to reassess their membership of a union that has changed dramatically since we joined, both in extent and in depth.

***

At any rate, whatever his mixed motives, Cameron believed that he could negotiate a deal with his EU partners so good that he would win a subsequent referendum. A great deal of this was based on a second huge miscalculation – about his friend Angela Merkel.

As a result, the whole referendum process was fixed around the negotiation. In other words, the feeling was: “Give the plebs their plebiscite. It’s pretty safe. The Continentals will be scared enough to give us a great deal and, therefore, the people will vote for Nurse.” As soon as it became clear that Mrs Merkel was not prepared to countenance an end to the free movement of people, the plan began to fall apart. I vividly remember interviewing Cameron as the details of the negotiation became clear and thinking to myself, between his explanations: “This isn’t nearly enough.”

This mistake was followed by another – one that the Scottish National Party leader, Nicola Sturgeon, publicly warned against months ago. Those running the Remain campaign always believed in “Project Fear”; that a barrage of warnings by the Treasury, big business, banks and international organisations would simply terrify ordinary voters – pensioners and workers alike – and pulverise the arguments for leaving.

It had worked, after all, hadn’t it, in Scotland in 2014? A close confidant of the Prime Minister told me, when I questioned him about the wisdom of this: “On the contrary, we need more fear. Fear is the only thing that can win it for us . . . We need lots of fear. We need as much fear as we can get.”

But the Scottish parallel proved to be a delusion. First, this kind of “you will lose your pensions, you will lose your jobs” warning infuriated many Scottish voters in 2014, who stuck their fingers in their ears and moved over to the Yes campaign. Second, although in the end threats of doom may have swung things, Scotland was a country of five million people, suffering from a falling oil price and taking a decision about a union that had been around for three centuries. If, right at the end and by a narrow margin, Scots voted two years ago to stay inside the UK, that was not a close enough comparison for this referendum; there were far more people involved, a bigger country, a much looser and more recent union.

It was the specificity of the Project Fear warnings that did most damage: households £4,300 worse off, house prices falling by 18 per cent, and so forth. By being incredibly detailed, the Remain campaigners lost the ear of a dubious public. That meant that the much more frightening warnings by business leaders, talking about companies they knew and understood, didn’t get enough traction. Granted, we still don’t know; Project Fear may be vindicated yet. (The early falls on the money markets and stock markets tell us very little – they may be an overreaction to previous and recent complacency.)

But the most significant reason Project Fear failed was that it was confronted by a larger project of fear: the fear of uncontrolled and uncontrollable migration running, cumulatively, into the millions for many years ahead. Frank lies were told. Gross exaggeration ran riot. This was a fight between people who like living among migrants from Europe and employing them, on the one hand, and those competing against migrants (and failing) for jobs and wages. Neither David Cameron nor Theresa May seemed to have a plausible response to “uncontrolled immigration”. That may be because, inside the EU, there wasn’t one. Jeremy Corbyn responded with interesting ideas about wage rates and employment laws which did not address, at all, central fears about numbers and identity.

It is on this, above all issues, that “the plain people of England” spoke most compellingly against the elites, from Westminster politicians and Whitehall mandarins to London actresses, pop stars and media grandees. Boris Johnson, Michael Gove and Nigel Farage were absolutely right to point out that immigration from eastern Europe – though it has hugely benefited people who employ drivers and domestic servants, and who want to pay less for their electrical or plumbing repairs – keeps down the wages of indigenous working-class people and, in many cases, makes it harder for them to find work in hotels, in restaurants, on farms and elsewhere. Aggregated economic statistics mean nothing compared to personal experience. If you’ve got nothing, you’ve got nothing to lose. (Well, in fact, you have got something, but it feels that way.) When George Osborne warned of an economic apocalypse, people with nothing who felt they had no opportunities just put their fingers in their ears and went “la-la-la”.

There were people who saw what was happening and understood that disregarded Lower and Middle Britain was fed up to the back teeth and ready to revolt: some trade union leaders – whose job it was, after all, to represent them – and some Labour MPs.

***

The Labour leadership, however, seems to have got the message far too late and far too weakly, and that was a function of its own political philosophy. Labour leaders of the Jeremy Corbyn era don’t like to talk about immigration and have based much of their inner-city politics on the rights and causes of migrant communities already in the UK. The menacing noises about a leadership challenge grew louder by the hour and then turned into open revolt.

There is something tragicomic about this. The Corbyn revolution was about the overthrow of the last remnants of the Blairites, accused by party activists of not thinking enough or caring enough about ordinary Labour voters – of becoming too rich, too close to the elites, and infatuated by neoliberal, post-Thatcher economic solutions. The Corbyn movement began as an anti-elitist rebellion. But now, from their base among Londoners and students whose politics are a million miles away from the views of angry, white, non-metropolitan, working-class voters the Corbynistas, too, found themselves unable to get a hearing.

So, what is the result of all this? Wherever one looks, the British political class has come close to destroying itself. There is no source of authority. As Kenneth Clarke has noted, we have a hole, in effect, where a government should be.

The Remain faction of Tory MPs has no leader now. Many of them are bruised and livid against the triumphant Brexiteers. Boris Johnson, Michael Gove, Iain Duncan Smith and the rest now have to deal with outraged Tories who accused them of lying, a panicky and angry City, big business leaders who feel betrayed, and an EU in a dark mood. All of this is taking place during the inevitable turmoil and struggle of a Conservative leadership campaign. It is no doubt hyperbole to say we have absolutely no government at the moment: there is still a prime minister, there is a cabinet, and there is a party with a paper majority in the Commons. But if “government” means a group of people with a mandate and a plan, and the parliamentary authority to carry it through – well, we certainly don’t have that.

What happens in Scotland and Northern Ireland now adds to the sense of crisis. Nicola Sturgeon has this problem: she would very much like to secure terms for Scotland staying inside the EU before the rest of the UK leaves. That would minimise disruption, give Scots a secure alternative haven and prepare perfectly for a successful referendum on independence. The problem is that the EU is unlikely to countenance this. First, Scotland may be a country but it is not a nation in EU terms, and therefore has no locus. At the very least, under current EU law, Scotland would need to be a customs union – which it isn’t.

The alternative is that Scotland leaves alongside the rest of the UK and then has to reapply, after an independence referendum. The problems here multiply: Nicola Sturgeon and the SNP may have lost momentum and because new applicants have to join the euro, and will be under great pressure to ­accept the Schengen Agreement, she would be going to the Scottish electorate offering an independent Scotland using the euro (not the world’s most popular currency at the moment, to put it gently) and requiring a hard border with England. This seems to me a hard sell to Scottish voters, especially long after the initial Brexit shock will have faded. What we don’t know is how enthusiastic the rest of the European Union would be about bringing in an independent Scotland briskly, to punish Westminster, and how threateningly Spain’s Catalan/Basque difficulties will loom.

In Northern Ireland, Sinn Fein is calling for an all-Ireland referendum. There is now a border problem there as well, for the first time since the 1998 peace agreement. Tory ministers dismiss this but the dynamics of Irish politics, too, have been dramatically changed by the Brexit vote.

The UK could, naturally, survive all of this completely intact. But the possibility, at least, of a relatively lonely England is something that the new and victorious Brexit Tories now have to confront.

In usual circumstances, we would expect an early general election. There is a strong basic democratic case for one: otherwise, we get a prime minister, never chosen by the country, attempting to enact a manifesto no party has ever stood on in a general election. But we don’t really have the political parties to contest it, do we? Ukip is in chipper form. Like so many nationalist movements, it may survive achieving its goal. But the Conservatives are hopelessly divided. The outgoing Prime Minister believes the likely incoming Tory leader – a certain flaxen-haired fellow – is going to put a bomb under the British economy and has told outright untruths. He is trying hard to stop Boris but Boris may well be unstoppable. Another (former) prime minister, Sir John Major, tells us we cannot trust the National Health Service into the hands of Johnson, Gove and Duncan Smith. The amiable Alistair Burt, the MP for North-East Bedfordshire, has promised Brexit Tories that what is to come will make the Maastricht rebellion seem like a tea party.

No, on the whole, they don’t look like a party aching to face the electorate. You might expect the Labour leader to fight for an early election and try to rally the Commons to his side. But then Jeremy Corbyn faces his own rebellion.

At the moment, the coup against him seems to face insuperable hurdles. There isn’t a plausible alternative candidate so far. Above all, he retains the support of most Labour members, and it is they and trade unionists who will have the final say, whatever the Parliamentary Labour Party does.

If Corbyn sees off the plotters, what next? A united Labour opposition could go into a general election saying explicitly that it rejected the Brexit decision – that the vote was based on lies and scaremongering – and that, if elected, they would not implement Article 50: in effect, not leave the EU. That is what the Liberal Democrats are doing. For Labour, it would be a huge gamble. It would be a slap in the face for the majority who voted on 23 June and could lead to a different kind of revolt. But it would give the Labour Party a very clear purpose and agenda that could reach out into parts of Britain Corbyn has no chance of reaching just now.

Naturally, the politicians have noticed all this. So we are hearing a great deal of optimistic whistling from leading Conservatives, insisting that they can work together happily and cordially for the rest of this parliament – trying to persuade us that they’ve forgotten everything they said about each other during the referendum campaign, and that people who believe Brexit is an economic catastrophe will nevertheless roll up their sleeves and . . . er . . . make it happen.

Clearly, the best hope for the Conservatives is that such warnings turn out to be piffle and that we are soon enjoying an economic upswing, even as the EU continues to struggle. If Boris Johnson or another leader is indeed able to achieve “Norway-plus” then the Brexiteers are close to being home free. Yet there are signs already that the Boris camp is slightly panicky – as well it might be – about a rash of racist and xenophobic politics immediately after the results. He is right, of course, to call for inclusion and calm, though it is fatuous to suggest that immigration was not a critical issue in the campaign. If he wants to win long term, he has to get a different deal from Brussels, much better than the one that Cameron got – a long shot, but not impossible. For the Brexiteers, time is very short. They have to stay together, and yet there will be tensions: Rupert Murdoch is running Gove against Johnson, or, at any rate, would like to.

My guess is that parliamentary chaos and an overwhelming sense of drift at the centre of politics will nevertheless propel us into an election later this year or early next year. If so, that will mean that, tactically, the Brexiteers, who don’t want to trigger Article 50 just yet, must do so before the people are asked for their view again.

And, of course, if it turns out that George Osborne’s blood-curdling warnings about jobs and investment turn out to be even half accurate, then those same cheerful gentlemen will have many personal apologies to make to people who do lose their jobs, or see prices rise and their pensions fall. There is plenty of anger still to come.

That’s not so surprising: after all, this was a kind of revolution. It has been a very British revolution, accomplished through the ballot box and after a great deal of nonsense spoken on all sides. The plain people, of England, mainly, have spoken at last and their voice has blown over not just a constitutional link with the European continent but also almost the entire political class – and most of the pollsters – and oh, go on, then – us clever-Dick journalists as well.

Andrew Marr presents “The Andrew Marr Show” on BBC1. His Brexit thriller, “Head of State”, is published by Fourth Estate

Andrew Marr is a broadcaster and journalist. Formerly the BBC’s Political Editor, he presents the Andrew Marr Show on BBC1 on Sundays and Start the Week on Monday mornings on Radio 4.

This article first appeared in the 30 June 2016 issue of the New Statesman, The Brexit lies