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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Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.