Labour rejects claims it would outspend the Tories as "total rubbish"

A source tells the NS that the party has not decided whether to match Osborne's post-2015 spending limits and says it would be "irresponsible" to do otherwise.

Back in 1997, in a bid to assure the electorate of its economic credibility, Labour famously pledged to stick to the Tories' public spending limits for the first two years of the new parliament. The move meant public services were initially drained of resources (the plans were described by then-chancellor Ken Clarke as "eye-wateringly tight") but history has recorded it as a political success. 

As he seeks to burnish his own economic credentials, some in Labour have been urging Ed Miliband to repeat this trick and sign up to the coalition's post-2015 spending plans (a subject I explored in the NS back in January). Such a move, so the theory goes, would repel the Tories' "deficit denier" attacks and convince voters that the party can be trusted with the nation's purse strings again. 

To date, it is an option that Miliband and Ed Balls have notably refused to rule out. As chief economic adviser to Gordon Brown, Balls helped mastermind the original 1997 pledge and has already declared that his "starting point" is that Labour will "have to keep all these cuts", a step towards accepting Osborne’s baseline. When Harriet Harman told the Spectator in September that Labour would not match the Tories’ spending plans and abandon its "fundamental economic critique" of the coalition, she was forced to issue a retraction.

But today's Independent reports that there is now a "growing consensus" in the shadow cabinet in favour of rejecting Osborne's spending limits and outlining an alternative strategy. Instead of promising to match the Tories' planned pace of deficit reduction, the paper says the party will pledge to invest in priority areas such as housing. It's important to point out that this doesn't mean Labour won't impose cuts elsewhere, rather it means splitting the burden more equally between cuts and tax rises and reducing borrowing (which, owing to the failure of Osborne's plan, is forecast to be £108bn in 2014-15) at a rate the economy can bear. 

Unsurprisingly, the Conservatives have leapt gleefully on the story, with the Tory Treasury Twitter account declaring, "we now know that Labour will go into the election with a plan to borrow and spend more, putting up the deficit". George Osborne, who remains the Conservatives' chief electoral strategist, has long hoped to run his own version of the party's successful 1992 campaign, which accused Labour of planning a "tax bombshell" after Neil Kinnock and John Smith chose not to match John Major's spending plans. But could the Tories' joy could be premature? A Labour source described the Independent story to me as "total rubbish", adding:

They've taken some Fabian Society report out next week which says Labour should not match Tory spending plans post 2015 and spun it as the view of the leadership. As we've always said, we will not make our tax and spending commitments till the time of the election. It would be irresponsible to do otherwise, who knows where the economy and public finances will be in two months' time, let alone two years.

As in 1997, Labour is likely to wait until just a few months before the general election before announcing its decision. Balls and Miliband have learned from the mistakes of the Tories, who promised to match Labour's spending plans in 2007 only to abandon this pledge after the crash in 2008.

But the question remains: has Labour genuinely not made up its mind or has it merely chosen not to tell us yet? My guess is the former but it's likely that Miliband, a leader who thrives on defying conventional wisdom, is minded to reject Osborne's spending limits. A pledge to do otherwise (a trick straight out of the New Labour playbook) would run entirely counter to the post-Blairite spirit of his leadership. Embracing Tory levels of austerity would also deny the economy the stimulus it will badly need and split the left. The challenge facing Labour is finding a means of rejecting Osborne's plans while simultaneously convicing the electorate that it can be trusted not to "crash the car" again. 

Update: Ed Balls was on LBC radio this morning (a slot dubbed "Balls Calls") and described the Independent report as "simply wrong". He said: 

It is an exclusive but it is wrong I’m afraid Nick and you know, it is a report of a Fabian Society commission which comes out next week. The Fabian Society is a research society, it has been there for 100 years, affiliated with the Labour Party, they are coming up with some conclusions about spending. It is not Labour Party policy. It is not something that I’ve even discussed…

Balls added that it would be "totally irresponsible" for him "to come along on here or the Independent and tell you our tax and spending plans two years before the election".  

Again, however, it is notable that Balls has not ruled out promising to outspend the Tories. He has merely restated that Labour will not publicly announce its decision until closer to the election. As I wrote above, it is plausible that in private Labour takes the view that it should reject Osborne's spending limits. 

Ed Miliband and Ed Balls at the Labour conference in Manchester last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Why Chris Grayling is Jeremy Corbyn's secret weapon

The housing crisis is Labour's best asset - and Chris Grayling is making it worse. 

It feels like the classic Conservative story: wait until the election is over, then cancel spending in areas that have the temerity to vote Labour. The electrification of rail routes from Cardiff to Swansea – scrapped. So too is the electrification of the Leeds to Manchester route – and of the Midland main line.

But Crossrail 2, which runs from north to south across London and deep into the capital's outer satellites, including that of Transport Secretary Chris Grayling, will go ahead as planned.

It would be grim but effective politics if the Conservatives were pouring money into the seats they won or lost narrowly. There are 25 seats that the Conservatives can take with a swing of 1 per cent from Labour to Tory, and 30 seats that they would lose with a swing of 1 per cent from Tory to Labour.

It wouldn’t be at all surprising if the Conservatives were making spending decisions with an eye on what you might call the frontline 55. But what they’re actually doing is taking money away from north-west marginal constituencies – and lavishing cash on increasingly Labour London. In doing that, they’re actually making their electoral headache worse.

How so? As I’ve written before, the biggest problem for the Conservatives in the long term is simply that not enough people are getting on the housing ladder. That is hurting them in two ways. The first is straightforward: economically-driven voters are not turning blue when they turn 30 because they are not either on or about to mount the first rungs of the housing ladder. More than half of 30-year-olds were mortgage-payers in 1992, when John Major won an unexpected Conservative majority, while under a third were in 2017, when Theresa May unexpectedly lost hers.

But it is also hurting them because culturally-driven voters are getting on the housing ladder, but by moving out of areas where Labour’s socially-concerned core vote congregates in great numbers, and into formerly safe or at least marginal Conservative seats. That effect has reached what might be its final, and for the Conservatives, deadly form in Brighton. All three of the Brighton constituencies – Hove, Brighton Kemptown and Brighton Pavilion – were Conservative-held in 1992. Now none of them are. In Pavilion they are third, and the smallest majority they have to overcome is 9,868, in Kemptown. The same effect helped reduce Amber Rudd’s majority in Hastings, also in East Sussex, to 346.

The bad news for the Conservatives is that the constituencies of Crawley, Reading, Swindon and in the longer-term, Bracknell, all look like Brightons in the making: although only Reading East fell to Labour this time, all saw swings bigger than the national average and all are seeing increasing migration by culturally-driven left-wing voters away from safe Labour seats. All are seeing what you might call “Hackneyfication”: commuters moving from inner city seats but taking their politics with them.

Add to that forced migration from inner London to seats like Iain Duncan Smith’s in Chingford – once a Conservative fortress, now a razor-thin marginal – and even before you add in the appeal of Jeremy Corbyn’s person and platform, the electoral picture for the Conservatives looks bleak.

(It should go without saying that voters are driven by both economics and culture. The binary I’ve used here is simplistic but helpful to understand the growing demographic pressures on the Conservatives.)

There is actually a solution here for the Tories. It’s both to build more housing but also to rebalance the British economy, because the housing crisis in London and the south is driven by the jobs and connectivity crisis in the rest of the United Kingdom.

Or, instead, they could have a number of measures designed to make London’s economy stride still further ahead of the rest, serviced by 5 per cent mortgages and growing numbers of commuter rail services to facilitate a growing volume of consumers from London’s satellite towns, all of which only increase the electoral pressures on their party. 

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.