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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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

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