To have a clear line on the economy, Miliband needs a line on the unions

Labour policy formation is one long seminar that skirts around an obvious obstacle to reform.

It is good news that unemployment has fallen again. The government will be pleased; Labour will counsel caution. It is too early to identify a trend in employment growth. Inflation was up yesterday, so the decline in real wages and the squeeze on low-income households continues. The Bank of England has downgraded its growth forecast for 2013. Only around 20 per cent of the cuts originally envisaged in George Osborne’s "Plan A" have been implemented so far and a whole new set of cuts will be announced in the Autumn Statement on 5 December. There are always reasons not to be cheerful.

But that is a substantial part of Labour’s problem when it comes to the economy. It has become tactically reliant on gloom, even when Ed Miliband insists his strategic vision – the "One Nation" proposition – is inspiring and optimistic.

A hazard for the Tories, as I’ve noted before, is that the economy will appear to recover a bit on paper, in a way that emboldens ministers to tell people they are better off and that the plan is working, but without the public experiencing a tangible improvement in their circumstances. Wage stagnation makes it quite likely many people will feel poorer in 2015 than they did when the coalition came to power. The Chancellor or Prime Minister insisting voters are better off than they know – because, for example, the long-term prospects for fiscal sustainability are mildly improved - will just reinforce the sense that Conservatives dwell on a different, more expensively furnished planet.   

For Labour to capitalise on that weakness they need to meet certain tests. They need to demonstrate that they understand that public money doesn’t grow on Treasury trees; that it comes from real people’s pockets. Even if the pooling of that resource for good social ends is a desirable political project, consent for that harvest can’t be taken for granted. Crucially, the mechanism for allocating those funds cannot be seen as wasteful or self-serving.

In other words, Labour needs to sound assertive in its ambitions to reform the state. (That isn’t the same thing as shrinking the state, but it probably requires some recognition that the urge to expand the state as the default answer to social problems looks implausible in the current climate.)

There has been a whole lot of discussion in this area recently. See this from earlier in the week, via the IPPR, and screeds on Labour List, guest edited this week by Jon Cruddas.  Reinforcing the urgency of the whole conversation is this report from the RSA and the SMF.

An essential, albeit quite technical observation from that analysis is that falling unemployment suggests that the "output gap" – the gulf between the economy’s current performance and its potential – is smaller than the Treasury has estimated. Crudely speaking, that suggests the portion of the deficit that won’t be simply burnt off by a return to growth is higher – it is structurally baked in harder than previously thought. On top of that are all sorts of bleak accounts of the mounting demographic pressures on society – the hard, upward pressure on health spending and pensions in particular.

One political conclusion from all this is that Labour should speak more openly and frankly about the scale of the fiscal challenge ahead and the requirement that public service delivery change in response. That has to be the safer option than the current trajectory, which is to concede in the vaguest possible terms that budget discipline is a recognised yet distasteful obligation without really engaging in the conversation about how it will be enacted.

In a perverse way, the difficulties presented by the long-term outlook give cover to Labour to move on from the necessarily short-term and abstract macroeconomic argument it has been engaged in for the past two years. It is entirely possible that Ed Balls has been right about the need for fiscal stimulus and also that no-one cares. The non-existent growth we might have had if different policies had been pursued in 2010 can’t be presented on the doorstep as a reason to vote Labour in 2015.

The Tories have a very different problem. No-one doubts their determination to make cuts, but their underlying motive and, increasingly, their competence in administering austerity are in doubt. The Conservatives have to tread carefully when it comes to advertising their intention to reform the state, because for many people that sounds like a euphemism for indiscriminate privatisation and public sector redundancies. That suspicion, expressed in opinion polls and focus groups, was a significant factor in decisions last year to scale down ambitious plans to reconfigure vast swathes of the public sector – with much more outsourcing to private companies – under a "Big Society" rubric. Such caution was a source of frustration to Steve Hilton, David Cameron’s strategic advisor, and a factor leading to his departure from Downing Street. Without Hilton the impetus for dramatic, visionary reform of the state has largely gone. The Tories' difficulties in persuading people they are reliable stewards of services will be exacerbated as budget pressure and a disorderly restructuring wreak havoc in the NHS.

There is an opportunity there for Labour, presuming Ed Miliband has the courage to seize it. Voters know that Labour cares about the public sector. Of course it does. Miliband could use that confidence as a cudgel to beat the coalition, accusing them of senseless vandalism. He could also use it as a platform to win support for what would be advertised as a fairer, more compassionate approach to reform  - one that is conducted with deference to the ethos of public service, without a fetishistic faith in private enterprise but in recognition of the fiscal challenge ahead.

In so doing he could kill the Tory charge that Labour are in denial about the deficit and national debt. Instead of saying, in abstract terms, that a Miliband government would take tough decisions, the opposition leader should talk up exciting ideas for innovation in the way services are delivered. He needs to find dynamic charities and social enterprises and go on about how their creativity shows the way forward. The very fact of advertising an interest in better, more efficient, more effective ways to get the kinds of outcomes Labour has traditionally relied on Whitehall to deliver contains in it the recognition of the need to get more for less out of public services. It swallows up the deficit denial charge whole without even having to rebut it directly.

There is an obvious obstacle to this path: trade union leaders won’t like it. Once you start talking about alternative mechanisms for delivering services, there will be people in the labour movement who smell Blairite conspiracy and crypto-Toryism under the bed. That will be the case even if Miliband goes out of his way to emphasise that reform will be conducted wholly in keeping with the traditional values of fairness and equality that have historically animated the left.

Senior figures around Miliband privately concede that this is a problem. They know that moving the party’s economic story beyond outraged rejection of the decisions George Osborne is making will require some account of public sector reform. They also know that the broad "One Nation" vision is hard to turn into a practical agenda for changing the way the state and the economy are organised without also having an agenda for the way labour is organised. As one shadow cabinet friend of Miliband puts it: "Before the election we’ll need a positive story about the role of unions in responsible capitalism." The Labour leader knows that story needs writing, but there never seems to be a good time to sit down and write it.   

Miliband’s cheerleaders on Labour blogs and in think tanks and seminars are the same – long on paradigms and re-imaginings of the role of government, short on specific reference to the unions. That will have to change before the party can draft a manifesto. Ideally, the unions themselves could start talking seriously and practically about imaginative ways to innovate in the provision of public services. They should do. They probably won’t. 

Ed Miliband addresses TUC members in Hyde Park last month after an anti-austerity march. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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The three big mistakes the government has made in its Brexit talks

Nicola Sturgeon fears that the UK has no negotiating position at all. It's worse than she thinks. 

It’s fair to say that the first meeting of the government’s Brexit ministers and the leaders of the devolved legislatures did not go well.

Scotland’s Nicola Sturgeon told reporters outside that it had all been “deeply frustrating”, and that it was impossible for her to undermine the United Kingdom’s negotiating position as “I can’t undermine something that doesn’t exist, and at the moment it doesn’t seem to me like there is a UK negotiating strategy”.

To which cynical observers might say: she would, wouldn’t she? It’s in Sturgeon’s interest to paint the Westminster government as clueless and operating in a way that puts Scotland’s interests at risk. Maybe so, but Carwyn Jones, her Welsh opposite number, tends to strike a more conciliatory figure at these events – he’s praised both George Osborne and David Cameron in the past.

So it’s hard not to be alarmed at his statement to the press that there is still “huge uncertainty” about what the British government’s negotiating position. Even Arlene Foster, the first minister in Northern Ireland, whose party, the DUP, is seen as an increasingly reliable ally for the Conservative government, could only really volunteer that “we’re in a negotiation and we will be in a negotiation and it will be complex”.

All of which makes Jeremy Corbyn’s one-liner in the Commons today that the government is pursuing neither hard Brexit nor soft Brexit but “chaotic Brexit” ring true.

It all adds to a growing suspicion that the government’s negotiating strategy might be, as Jacqui Smith once quipped of Ed Miliband’s policy review, something of “a pregnant panda – it's been a very long time in the making and no one's quite sure if there's anything in there anyway”.

That’s not the case – but the reality is not much more comforting. The government has long believed, as Philip Hammond put when being grilled by the House of Lords on the issue:

"There's an intrinsic tension here between democratic accountability of the government and effective negotiation with a third party. Our paramount objective must be to get a good deal for Britain. I am afraid will not be achieved by spelling out our negotiating strategy."

That was echoed by Theresa May in response to Corbyn’s claim that the government has no plan for Brexit:

 “We have a plan, which is not to give out details of the negotiation as they are being negotiated”

Are Hammond and May right? Well, sort of. There is an innate tension between democratic accountability and a good deal, of course. The more is known about what the government’s red lines in negotiations, the higher the price they will have to pay to protect. That’s why, sensibly, Hammond, both as Foreign Secretary during the dying days of David Cameron’s government, and now as Chancellor, has attempted to head off public commitments about the shape of the Brexit deal.

But – and it’s a big but – the government has already shown a great deal of its hand. May made three big reveals about the government’s Brexit strategy it in her conference speech: firstly, she started the clock ticking on when Britain will definitely leave the European Union, by saying she will activate Article 50 no later than 31 March 2017. Secondly, she said that Brexit meant that Britain would control its own borders. And thirdly, she said that Brexit meant that Britain would no longer be subject to the judgements of the European Court of Justice.

The first reveal means that there is no chance that any of 27 remaining nations of the European Union will break ranks and begin informal talks before Article 50 is triggered.

The second reveal makes it clear that Britain will leave the single market, because none of the four freedoms – of goods, services, capital or people – can be negotiated away, not least because of the fear of political contagion within the EU27, as an exit deal which allowed the United Kingdom to maintain the three other freedoms while giving up the fourth would cause increased pressure from Eurosceptics in western Europe.

And the third reveal makes it equally clear that Britain will leave the customs union as there is no way you can be part of a union if you do not wish to accept its legal arbiter.

So the government has already revealed its big priorities and has therefore jacked up the price, meaning that the arguments about not revealing the government’s hand is not as strong as it ideally would be.

The other problem, though, is this: Theresa May’s Brexit objectives cannot be met without a hard Brexit, with the only question the scale of the initial shock. As I’ve written before, there is a sense that the government might be able to “pay to play”, ie, in exchange for continuing to send money to Brussels and to member states, the United Kingdom could maintain a decent standard of access to the single market.

My impression is that the mood in Brussels now makes this very tricky. The tone coming out of Conservative party conference has left goodwill in short supply, meaning that a “pay to play” deal is unlikely. But the other problem is that, by leaving so much of its objectives in the dark, Theresa May is not really laying the groundwork for a situation where she can return to Britain with an exit deal where Britain pays large sums to the European Union for a worse deal than the one it has now. (By the way, that is very much the best case scenario for what she might come back with.) Silence may make for good negotiations in Brussels – but in terms of the negotiation that may follow swiftly after in Westminster, it has entirely the opposite effect. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.