Labour can no longer duck tough choices on spending

If it is to reject Osborne's doom-laden plans, Labour needs to start developing an alternative now.

Within weeks, George Osborne will use the Autumn Statement to announce his spending plans for the early years of the next parliament. He is expected to set out further cuts and in doing so hopes to lay political traps for the opposition, especially on welfare cuts.

Political gamesmanship is trumping compassionate politics. Spending choices should be about how to minimise the pain and suffering families must endure as a result of today's savage economic forces. Instead, the government is intent on targeting the least popular groups and protecting those who are most likely to vote.

The Labour Party can no longer duck questions about what it would do differently with power. It needs to start developing an alternative so that before the next election it has a clear direction on spending to show it is a credible and caring contender for government. And if the Liberal Democrats want to keep open the option of working with Labour after 2015, they too need to say what they would do differently without their Tory partners.

Labour, in particular, will have to find a formula that proves the party can be responsible with the public finances, whilst avoiding being locked into Conservative spending limits. The Tory policy of eliminating the structural deficit by 2017-18 will come at a cost of perhaps £50bn in further cuts or tax rises. By contrast, Barack Obama's re-election shows the political and economic dividends of an offer of intelligent spending in place of grinding austerity.

Much will depend on the state of the economy by 2015, but if growth returns there is scope for cautious optimism. For example, a government can close the deficit over time if it is prepared to freeze public spending while the economy expands. However, the starting point for spending decisions should be the end-point: what do politicians on the left want the public finances to look like by 2020? Of course, the deficit needs to brought under control, but we also need to ask what proportion of the economy should be devoted to public spending. Today, spending remains well above the post-war average of 42 per cent of GDP but Osborne has deliberately planned to overshoot this number in a bid to permanently shrink the size of the state.

Labour could offer a distinctive but mainstream alternative by simply pledging a return to trend. This would mean taking a little longer to close the deficit than the Conservatives plan and substituting tax rises for some of the planned cuts. The result would be more flexibility to address the huge social pressures the economic crisis has caused.

But the need for painful decisions will not disappear if a 2015 government signs up to spending limits which are less severe than Osborne's. Even if spending remains flat overall it will feel like another parliament of austerity, and some budgets will need to shrink to pay for others to grow. Embracing this mathematical inevitability should not be the preserve of the left's self-styled fiscal hawks, who wear a spending hair-shirt as a badge of honour. It's time for an open, frank and respectful conversation, which draws in the full range of opinion on the centre-left.

This week, that process begins with the launch of the Commission on Future Spending Choices. It is a year-long inquiry hosted by the Fabian Society, whose associations with the British welfare state date back more than a century. For we think it is the cheerleaders, not the adversaries of government, who are best placed to consider how the state can live within its means.

The commission will look at where to spend and how to cut. We will explore whether economic reforms can reduce demand for social security or whether cuts to entitlements are needed. We will consider how public service budgets should be shared and question where provision will need to change in the face of perhaps ten years of flat or falling budgets. Lastly, we will consider how public spending can do more to boost growth, employment and earnings.

The left faces hard choices if it is to earn economic credibility but stay true to its values. But the choices are not as bad as the Conservatives would have us believe. Labour can reject Osborne's doom-laden plans and offer an optimistic alternative. But to return to power the alternative must be clearly specified, including the painful decisions. The UK will be far less wealthy in 2020 than anyone would have predicted in 2005 and public spending has to adjust to this reality. But as long as the economy returns to decent growth, Britain can afford a strong and compassionate welfare state.

John McFall is a Labour peer and the former chair of the House of Commons Treasury select committee

Andrew Harrop is the general secretary of the Fabian Society

Ed Miliband speaks at the CBI's annual conference on 19 November 2012. Photograph: Getty Images.

John McFall is a Labour peer and the former chair of the House of Commons Treasury select committee

Andrew Harrop is the general secretary of the Fabian Society

Getty Images.
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Five things we've learned from Labour conference

The party won't split, Corbynite divisions are growing and MPs have accepted Brexit. 

Labour won't split anytime soon

For months, in anticipation of Jeremy Corbyn’s re-election, the media had speculated about the possibility of a Labour split. But the party’s conference confirmed that MPs have no intention of pursuing this course (as I had long written). They are tribally loyal to Labour and fear that a split would prove electorally ruinous under first-past-the-post. Many still expect Theresa May to hold an early general election and are focused on retaining their seats.

Rather than splitting, Corbyn’s opponents will increase their level of internal organisation in a manner reminiscent of the left’s Socialist Campaign Group. The “shadow shadow cabinet” will assert itself through backbench policy committees and, potentially, a new body (such as the proposed “2020 group”). Their aim is to promote an alternative direction for Labour and to produce the ideas and organisation that future success would depend on.

MPs do not dismiss the possibility of a split if their “hand is forced” through a wave of deselections or if the left achieves permanent control of the party. But they expect Labour to fight the next election as a united force.

Neither the Corbynites nor the rebels have ultimate control 

Corbyn’s second landslide victory confirmed the left’s dominance among the membership. He increased his winning margin and triumphed in every section. But beyond this, the left’s position is far more tenuous.

The addition of Scottish and Welsh representatives to the National Executive Committee handed Corbyn’s opponents control of Labour’s ruling body. Any hope of radically reshaping the party’s rule book has ended.

For weeks, Corbyn’s allies have spoken of their desire to remove general secretary Iain McNicol and deputy leader Tom Watson. But the former is now safe in his position, while the latter has been strengthened by his rapturously received speech.

Were Corbyn to eventually resign or be defeated, another left candidate (such as John McDonnell) would struggle to make the ballot. Nominations from 15 per cent of MPs are required but just six per cent are committed Corbynites (though selection contests and seat losses could aid their cause). It’s for this reason that allies of the leader are pushing for the threshold to be reduced to five per cent. Unless they succeed, the hard-left’s dominance is from assured. Were an alternative candidate, such as Clive Lewis or Angela Rayner, to succeed it would only be by offering themselves as a softer alternative.

Corbynite divisions are intensifying 

The divide between Corbyn’s supporters and opponents has recently monopolised attention. But the conference showed why divisions among the former should be interrogated.

Shadow defence secretary Clive Lewis, an early Corbyn backer, was enraged when his speech was amended to exclude a line announcing that Labour’s pro-Trident stance would not be reversed. Though Lewis opposes renewal, he regards unilateralism as an obstacle to unifying the party around a left economic programme. The longer Corbyn remains leader, the greater the tension between pragmatism and radicalism will become. Lewis may have alienated CND but he has improved his standing among MPs, some of whom hail him as a bridge between the hard and soft left.

Elsewhere, the briefing against McDonnell by Corbyn allies, who suggested he was an obstacle to recruiting frontbenchers, showed how tensions between their respective teams will continue.

Labour has accepted Brexit

Ninety four per cent of Labour MPs backed the Remain campaign during the EU referendum. But by a similar margin, they have accepted the Leave vote. Jeremy Corbyn and John McDonnell, both long-standing eurosceptics, confirmed that they would not seek to prevent Brexit.

Owen Smith called for a referendum on the eventual deal during his leadership campaign. But with some exceptions, such as Angela Eagle, most of his backers have rejected the idea. Though 48 per cent of the electorate voted Remain, MPs emphasise that only 35 per cent of constituencies did. Some still fear an SNP-style surge for Ukip if Labour seeks to overturn the outcome.

The debate has moved to Britain’s future relationship with Europe, most notably the degree of free movement. For Labour, like Theresa May, Brexit means Brexit.

Corbyn will not condemn deselections 

The Labour leader could have won credit from MPs by unambiguously condemning deselection attempts. But repeatedly invited to do so, he refused. Corbyn instead defended local parties’ rights and stated that the “vast majority” of MPs had nothing to fear (a line hardly reassuring to those who do). Angela Eagle, Stella Creasy and Peter Kyle are among the rebels targeted by activists.

Corbyn can reasonably point out that the rules remain the same as under previous leaders. MPs who lose trigger ballots of their local branches face a full and open selection. But Labour’s intensified divisions mean deselection has become a far greater threat. MPs fear that Corbyn relishes the opportunity to remake the parliamentary party in his own images.  And some of the leader’s allies hope to ease the process by reviving mandatory reselection. Unless Corbyn changes his line, the issue will spark continual conflict. 

George Eaton is political editor of the New Statesman.