Labour needs to go much further on fiscal responsibility

The party should publish a series of potential fiscal rules for discussion and replace the VAT cut with a stimulus based on growth-raising capital investment.

Labour has made a start on re-establishing its fiscal credibility but it now must go further than any opposition has done previously – and soon. Recent announcements on fiscal responsibility and welfare reform were pivotal. Having accepted that it can’t simply oppose, Labour is now free to advocate a political approach that is genuinely different to that of the Tories – placing the pursuit of social justice, greater employment, pay and growth at the heart of a fiscally responsible agenda.

When a paper called In the Black Labour was published by Policy Network at the end of December 2011, there was a storm in the Labour teacup. The party started to move towards a fiscally conservative stance but that was soon reversed under some political pressure. Many critics accused the paper of adopting George Osborne’s fiscal and economic stance. This was strange given that Osborne’s strategy of austerity before growth wasn’t fiscal conservatism, but fiscal-self harm which has led to a series of missed deficit targets.

Having resumed the path to a fiscally responsible policy 18 months later, Labour now needs to go further. To ensure fiscal responsibility, while preserving counter-cyclical flexibility, Labour should publish a series of potential fiscal rules for discussion in the expert community, identify preferred public expenditure pathways under different growth scenarios and have these tested independently. Any stimulus would need to be focused on growth-raising capital spend. Therefore, questions should be asked about a stimulus based on a VAT cut, even if temporary in nature. Labour should consider dropping this policy – and soon.

In government, these choices should be monitored by a strengthened Office for Budget Responsibility, or Fiscal Council, who would assess whether government is likely to deliver on its fiscal rules, and to make recommendations if the targets are missed. These proposals mean Labour opening its plans to greater scrutiny at an early stage than any opposition has done before, while still allowing room for manoeuvre should growth hasten or slow. Such scrutiny will make it clear how little money there is, so spare resources must be focused on generating growth through capital investment, helping the unemployed into work, encouraging business investment, and promoting science, education and skills.

Shifting from short-term expenditure to long-term investment and developing sound fiscal rules to ensure sustainable debt levels will be useful tools to help deliver a reduction in debt. However, these measures alone will not be enough to advance social justice in an era of limited budgets.

It also poses questions for welfare policy. Housing has attracted particular attention but the challenge of containing housing benefit budgets is far wider. Yes, more houses are needed but incomes for the most vulnerable, in-work support for those with disabilities and high impact job brokerage, like that seen in Newham, are also required. It is in providing all these supports and services that welfare spending should be focused. None of this will be revolutionary but it will make a measurable difference – the politics of austerity are harder. Spending elsewhere, for example on support for the better off and on above-inflation pension commitments, will have to be reduced.

This also raises the question of tax revenue. From a purely fiscally conservative perspective, the mixture of tax rises and spending cuts is broadly irrelevant (despite fervent academic debates about this issue), so long as deficits are reduced. From the point of view of social justice, however, trying to deliver 80 per cent of deficit reduction from cuts would involve an unacceptable breach of our national social fabric and would, in all likelihood, prove counter-productive. If people are therefore going to be asked to pay more tax it becomes even more important to be open about constraints and choices at an early stage – consent must be earned. The radical realisation among the more savvy on the centre-left is that spending is no longer the shortcut to social justice that it once seemed.

The state still has significant levers. For example, we live in an economy populated by almost 5 million businesses – a 40 per cent increase in only a decade and a six-fold increase since the 1970s. The vast majority of these businesses are sole traders or micro-enterprises. Many are challenging the way big businesses operate with innovative approaches; many bring benefits to their communities that many larger operations struggle to emulate,  not least keeping the wealth they generate local. Yet big business enjoys all sorts of advantages over smaller business, including access to legal action, patent restrictions, expensive regulatory constraints, access to prime space, favour by government procurement and planning law.

Challenging the bias in favour of big business would help release the spirit of entrepreneurial activity in communities across the UK that would not just drive growth and innovation but allow a fairer distribution of wealth.

Labour could place itself firmly on the side of these millions of worker-businesses committed to creating as level a playing field as possible through planning reform, tax changes, access to intellectual property, finance, international markets and marketing support.

If Labour aims to focus resources on supporting growth, putting the economy on a sustainable long term footing and fulfilling the left’s mission of being on the side of the many, not the few, then social justice, economic efficiency and, indeed, fiscal conservatism will go hand-in-hand. The choices are hard, the solutions tougher, but that is the nature of pursuing social justice in fiscally and economically constrained times. It’s better to start early. Labour has now done that but it’s only a start.

Hopi Sen and Anthony Painter have co-written Moving Labour into the Black published by Policy Network with Adam Lent

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

Hopi Sen is a former head of campaigns at the Parliamentary Labour Party and blogs at www.hopisen.com

Anthony Painter is a political writer, commentator and researcher. His new book Left Without A Future? is published in July

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Leader: Labour is failing. A hard Brexit is looming. But there is no need for fatalism

There is nothing inevitable about the right’s supremacy or a catastrophic Brexit.

Democracy depends on competent opposition. Governments, however well intentioned, require permanent and effective scrutiny to meet the public interest. For this purpose, the role of Her Majesty’s Opposition was enshrined in law 80 years ago. However, at present, and in the week Article 50 is invoked, this constitutional duty is being fulfilled in name alone. (The Scottish National Party speaks only for the Scottish interest.)

Since re-electing Jeremy Corbyn as its leader, the Labour Party has become the weakest opposition in postwar history. It lost the recent Copeland by-election to the Conservatives (a seat the Tories had not held since 1931) and trails the governing party, by up to 19 points, in opinion polls. The Tories feel no pressure from Labour. They confidently predict they will retain power until 2030 or beyond. Yet as the poll tax debacle and the Iraq War demonstrate, prolonged periods of single-party rule run the danger of calamitous results – not least, this time, the break-up of Britain.

Under Mr Corbyn, who formally lost the confidence of 80 per cent of his MPs last summer (and has not regained it), Labour has the least impressive and least qualified front bench in its history. Its enfeeblement has left a void that no party is capable of filling. “The grass-roots social movement of the left that was supposed to arrive in Jeremy Corbyn’s wake has not shown up,” the academic Nick Pearce, a former head of Gordon Brown’s policy unit, writes on page 36.

In these new times, the defining struggle is no longer between parties but within the Conservative Party. As a consequence, many voters have never felt more unrepresented or disempowered. Aided by an increasingly belligerent right-wing press, the Tory Brexiteers are monopolising and poisoning debate: as the novelist Ian McEwan said, “The air in my country is very foul.” Those who do not share their libertarian version of Brexit Britain are impugned as the “enemies” of democracy. Theresa May has a distinctive vision but will the libertarian right allow her the time and space to enact it?

Let us not forget that the Conservatives have a majority of just 15 or that Labour’s problems did not begin with Mr Corbyn’s leadership. However, his divisiveness and unpopularity have accelerated the party’s decline. Although the Unite general secretary, Len McCluskey, elected by a fraction of his union membership, loftily pronounced that the Labour leader had 15 months left to prove himself, the country cannot afford to wait that long.

Faced with the opposition’s weakness, some have advocated a “progressive alliance” to take on the Conservatives. Labour, the Liberal Democrats, the Greens and the nationalist parties are urged to set aside their tribalism. Yet it is fantasy to believe that such an alliance would provide stable majority government when nearly four million people voted for Ukip in 2015. There has also been chatter about the creation of a new centrist party – the Democrats, or, as Richard Dawkins writes on page 54, the European Party. Under our first-past-the-post electoral system, however, a new party would risk merely perpetuating the fragmentation of the opposition. If Labour is too weak to win, it is too strong to die.

The UK’s departure from the EU poses fundamental questions about the kind of country we wish to be. For some on the right, Brexit is a Trojan Horse to remake Britain as a low-tax, small-state utopia. Others aspire to a protectionist fortress of closed borders and closed minds. Mr Corbyn was re-elected by a landslide margin last summer. The Leave campaign’s victory was narrower yet similarly decisive. But these events are not an excuse for quietism. Labour must regain its historic role as the party of the labour interest. Labour’s purpose is not to serve the interests of a particular faction but to redress the power of capital for the common good. And it must have a leader capable of winning power.

If Labour’s best and brightest MPs are unwilling to serve in the shadow cabinet, they should use their freedom to challenge an under-scrutinised government and prove their worth. They should build cross-party alliances. They should evolve a transformative policy programme. They should think seriously about why there has been a post-liberal turn in our politics.

There is nothing inevitable about the right’s supremacy or a catastrophic Brexit. At present, the mood on the Labour benches is one of fatalism and passivity. This cannot go on.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition