The left must beware of excessive pessimism

The search for economic realism and credibility can easily tip into fatalism.

The task for a Labour government elected in 2015 will be a tough one. The debt and deficit will still be high and so one, old, conception of social democracy, of spending more money, will not be available and new approaches will be needed.  My former Downing Street colleagues Nick Pearce and Gavin Kelly gave a typically thorough and sensible version of that in a recent article. But there are a number of reasons why we must not take that too far.

First, Labour has to win the next election. And that means finding a strategy that has realism running through it but that also has the uplifting sense of optimism.  Yes, economic credibility is crucial but telling people that if they vote for us, things will be a bit less bad than under the other lot, will never do for social democrats. Even when we are forced to be modest in our offer in the short-term, we must hold up a better Britain for the future. If the only choice is cuts, some people will shrug and say "better the devil we know".

The big danger is not of Labour being punished for being unclear on its priorities for spending cuts, but that it may still be held responsible for having presided over economic collapse. Being macho on cuts is not an answer to that.  The clamour from commentators arguing that Labour must be exact on what it would cut is an issue to be managed, not to build a strategy around.

We do not even know what the economic situation will be.  A possible scenario is that, by 2015, we are starting to have a little growth but how quickly the deficit and debt will come down when and if UK and EU growth kicks in is very hard to say. Economists are hopeless at forecasting this sort of thing but historically tend to severely underestimate how quickly deficits rise in a recession and how fast they fall in an upturn.

The search for realism and credibility can easily tip into fatalism. Over time the deficit needs to come down but we have some time to play with. Markets are not itching to punish the UK for not cutting hard enough – as even the IMF now agrees - especially if the spending we are making is clearly investment spend with good supply side and "preventative" features (that reduces spend in the future).

Another area where fatalism can take hold is on the ageing society. Of course there will be strains, but analysis of the OBR long term fiscal sustainability forecasts makes clear that things are not that grim, that much of the problem is about health productivity as much as the age profile of the population.

Growth and how we get it going is the number one thing to talk about. We must avoid transforming from being social democrats who too often only wanted to talk about spend and not how to create wealth, into social democrats who only talk about how to cut.  Going forward, the route to growth must be about investment, competition policy, industrial and labour market policy.

In many ways the awkwardly titled ‘pre-distribution’ debate should get us talking about growth and the structure of our economy.  It is clearly right to say that life would be much easier for social democrats if household incomes from market wages were more equal and so traditional redistribution did not have to do so much work. However, a number of the options put forward are not only rather small but are in fact about redistribution and not about changing the structure of industry.

Putting aside issues of employment, a more universal living wage would be useful (especially for the public sector and contracted out services) and getting more mums back to work to balance up household incomes in the lower deciles is an important policy goal. But policies like that  do not really address the major problem of Britain having far too many people employed in firms and sectors that have a low wage, low skills  approach to their activity. The task now is to take advantage of the mood in the country today to search for bolder approaches and not be so critical of redistribution itself that we forget that we will always need it as an important tool in our armoury.

None of this means that tough decisions can or should be avoided on tax and spending. I would be surprised if Labour did not have to embrace more or less whatever the government has said on spending plans for at least the first year or two of a new Parliament, much as it did in 1997. This makes political sense but is also practical since it is very hard to understand where the manoeuvre room is until you are in power. 

We, as social democrats, need to widen the conversation way beyond spending (and tax) to a whole set of other issues that deliver for Britain.

One is to do with getting regulation right so that banks, utilities and other companies act in ways that are more favourable to the national good and to equity. Corporate governance and competition reform come into this category, changing the way that people experience markets and promoting social responsibility.

There are issues at local level and the reclaiming civil society.  Public spending will play a smaller role in the next period than it has in the last decade or two. Yet unlike the right, that sees this as a chance to contract out to for-profit providers, the centre-left can draw on its history of self-help, mutualism and voluntary action to make sure communities are cohesive, support each other and do so in fair ways that avoid total post-code lotteries.

These are some ways of both delivering growth and getting pre-distribution better that get us towards values and keep us away from spend (or tax). These sort of ideas need to have as much prominence in any debates on growth and fairness, as supposing that the answer to our industrial and economic issues will revolve around  more childcare, valuable as that would be.

I am not a tax and spend social democrat: far from it. But I have seen debates of doom and gloom take over the centre–left before.  This gloomy introspection is a dead-end.  Instead we have to focus on growth and the re-creation of hope. Realism yes, but let’s keep our nerve, optimism and our political sense too.

Dan Corry worked for the Labour Party 1989-92, was a Special Adviser in various departments during most of the Labour Government years, including Chair of the Council of Economic Advisers in the Treasury 2006-7 and Senior Economic Adviser to the PM 2007-2010.

Ed Miliband addresses TUC members in Hyde Park at the end of a march in protest against the government's austerity measures. Photograph: Getty Images.
GETTY
Show Hide image

North Yorkshire has approved the UK’s first fracking tests in five years. What does this mean?

Is fracking the answer to the UK's energy future? Or a serious risk to the environment?

Shale gas operation has been approved in North Yorkshire, the first since a ban introduced after two minor earthquakes in 2011 were shown to be caused by fracking in the area. On Tuesday night, after two days of heated debate, North Yorkshire councillors finally granted an application to frack in the North York Moors National Park.

The vote by the Tory-dominated council was passed by seven votes to four, and sets an important precedent for the scores of other applications still awaiting decision across the country. It also gives a much-needed boost to David Cameron’s 2014 promise to “go all out for shale”. But with regional authorities pitted against local communities, and national government in dispute with global NGOs, what is the wider verdict on the industry?

What is fracking?

Fracking, or “hydraulic fracturing”, is the extraction of shale gas from deep underground. A mixture of water, sand and chemicals is pumped into the earth at such high pressure that it literally fractures the rocks and releases the gas trapped inside.

Opponents claim that the side effects include earthquakes, polluted ground water, and noise and traffic pollution. The image the industry would least like you to associate with the process is this clip of a man setting fire to a running tap, from the 2010 US documentary Gasland

Advocates dispute the above criticisms, and instead argue that shale gas extraction will create jobs, help the UK transition to a carbon-neutral world, reduce reliance on imports and boost tax revenues.

So do these claims stands up? Let’s take each in turn...

Will it create jobs? Yes, but mostly in the short-term.

Industry insiders imply that job creation in the UK could rival that seen in the US, while the medium-sized production company Cuadrilla claims that shale gas production would create 1,700 jobs in Lancashire alone.

But claims about employment may be exaggerated. A US study overseen by Penn State University showed only one in seven of the jobs the industry forecast actually materialised. In the UK, a Friends of the Earth report contends that the majority of jobs to be created by fracking in Lancashire would only be short-term – with under 200 surviving the initial burst.

Environmentalists, in contrast, point to evidence that green energy creates more jobs than similar-sized fossil fuel investments.  And it’s not just climate campaigners who don’t buy the employment promise. Trade union members also have their doubts. Ian Gallagher, Secretary of Blackburn and District Trade Unions Council, told Friends of the Earth that: “Investment in the areas identified by the Million Climate Jobs Campaign [...] is a far more certain way of addressing both climate change and economic growth than drilling for shale gas.”

Will it deliver cleaner energy? Not as completely as renewables would.

America’s “shale revolution” has been credited with reversing the country’s reliance on dirty coal and helping them lead the world in carbon-emissions reduction. Thanks to the relatively low carbon dioxide content of natural gas (emitting half the amount of coal to generate the same amount of electricity), fracking helped the US reduce its annual emissions of carbon dioxide by 556 million metric tons between 2007 and 2014. Banning it, advocates argue, would “immediately increase the use of coal”.

Yet a new report from the Royal Society for the Protection of Birds (previously known for its opposition to wind farm applications), has laid out a number of ways that the UK government can meet its target of 80 per cent emissions reduction by 2050 without necessarily introducing fracking and without harming the natural world. Renewable, home-produced, energy, they argue, could in theory cover the UK’s energy needs three times over. They’ve even included some handy maps:


Map of UK land available for renewable technologies. Source: RSPB’s 2050 Energy Vision.

Will it deliver secure energy? Yes, up to a point.

For energy to be “sustainable” it also has to be secure; it has to be available on demand and not threatened by international upheaval. Gas-fired “peaking” plants can be used to even-out input into the electricity grid when the sun doesn’t shine or the wind is not so blowy. The government thus claims that fracking is an essential part of the UK’s future “energy mix”, which, if produced domestically, will also free us from reliance on imports tarnished by volatile Russian politics.

But, time is running out. Recent analysis by Carbon Brief suggests that we are only have five years left of current CO2 emission levels before we blow the carbon budget and risk breaching the climate’s crucial 1.5°C tipping point. Whichever energy choices we make now need to starting brining down the carbon over-spend immediately.

Will it help stablise the wider economy? Yes, but not forever.

With so many “Yes, buts...” in the above list, you might wonder why the government is still pressing so hard for fracking’s expansion? Part of the answer may lie in their vested interest in supporting the wider industry.

Tax revenues from UK oil and gas generate a large portion of the government’s income. In 2013-14, the revenue from license fees, petroleum revenue tax, corporation tax and the supplementary charge accounted for nearly £5bn of UK exchequer receipts. The Treasury cannot afford to lose these, as evidenced in the last budget when George Osborne further subsidied North Sea oil operations through increased tax breaks.

The more that the Conservaitves support the industry, the more they can tax it. In 2012 DECC said it wanted to “guarantee... every last economic drop of oil and gas is produced for the benefit of the UK”. This is a sentiment that was repeated yesterday by energy minister Andrea Leadsom, when she welcomed the North Yorkshire decision as a “fantastic opportunity” for fracking.

Dependence on finite domestic fuel reserves, however, is not a long-term economic solution. Not least because of the question of their replacement once they eventually run out: “Pensions already have enough stranded assets as they are,” says Danielle Pafford from 350.org.

Is it worth it? Most European countries have decided it’s not.

There is currently no commercial shale-gas drilling in Europe. Sustained protests against the industry in Romania, combined with poor exploration results, have already caused energy giant Chevron to pull out of the country. Total has also abandonned explorations in Denmark, Poland is being referred to the European Court of Justice for failing to adequately assess fracking’s impact, and, in Germany, brewers have launched special bottle-caps with the slogan “Nein! Zu Fracking” to warn against the threat to their water supply.

Back in the UK, the government's latest survey of public attitudes to fracking found that 44 per cent neither supported nor opposed the practice, but also that opinion is gradually shifting out of favour. If the government doesn't come up with arguments that hold water soon, it seems likely that the UK's fracking future could still be blasted apart.

India Bourke is the New Statesman's editorial assistant.