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.

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.

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

Andrew Harrop is general secretary of the Fabian Society.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.