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How Labour can turn the economic recovery to its advantage

Osborne's instinct will be to use the extra revenue for faster deficit reduction or tax cuts. But Labour can argue for an alternative centred around investment.

Ed Miliband arrives on stage at the Labour Party conference on September 22, 2013 in Brighton. Photograph: Getty Images.

Economic headlines are a tricky business when political parties are in opposition. The easy temptation is to treat bad news as good, and good news as bad. So how should Labour respond now that the economy finally appears to be on the mend? 

It's true that much is still wrong, with housing costs spiralling, pay stagnant and millions not working for as many hours as they wish to; but Labour must avoid always being 'glass half empty'. The party should celebrate good news and where possible draw the links to its own legacy in govermment. 

Take, for example, the largely unheralded announcement that the number of households where no one works had reached its lowest level since records began. In terms of family life chances, this is perhaps a more important measure than unemployment, and its low level is a credit to past Labour policies, for example the party's support for lone parents.

The politics of a 'recovery' election won't be easy, of course. The right-wing media will talk up the government's handling of the economy and George Osborne will try to use a nascent housing bubble and debt-funded consumer spending to create the veneer of prosperity. But this is not mission impossible. Labour has come to power in similar circumstances, in 1964 and 1997, and it's sometimes said that voters are more likely to turn to an untested Labour opposition when the economy is in reasonable health. 

Labour can win the economic debate by showing it is the only party which has positive answers on family living standards and long-term economic prosperity. The party will use the next two years to highlight the gradual erosion in standards of living, but now it must also start to announce convincing solutions for relieving pressurised family budgets, which are more persuasive than a Tory offer of pre-election tax cuts. That should mean short-term steps like a higher minimum wage and better support to help work pay for parents. 

But it also means unveiling policies which show that only Labour is truly seeking to shift the economic balance of power in favour of ordinary people. Fabian research published this month shows the public is overwhelmingly suspicious of a return to 'business as usual' and believes prosperity for families will not return without radical change in the way the economy works. Labour must define itself as the party of 'change' against 'more of the same'. 

Fiscal policy will provide another dividing line. In November, projections for future government revenue will be revised upwards for the first time since the coalition came to power. George Osborne's instinct will be to spend the extra money on faster deficit reduction or tax cuts. But Labour will be able to argue for an alternative, without being accused of hidden tax plans. The party should demand that the proceeds of growth are used to prevent the fraying of the services people value most and to increase investment geared to the future, which is gradually declining as a proportion of spending.

To prove Labour is the party of long-term prosperity, it could promise to use the extra revenue only to support the most productive areas of public spending, ploughing money generated from economic recovery back into investment in education and infrastructure. This commitment would supplant Ed Balls's current proposal for a one-off stimulus for capital spending, which is being taken over by events. Labour can show that it is the party of economic responsibility and long-termism by promising the first call on the extra money from recovery should be spending for our economic future.