Can Labour defuse the "borrowing bombshell"?

An increasing number of Labour MPs believe that the party must make an explicit case for borrowing to invest if it is to counter the Tories' attack line of choice.

In 1992, it was the “tax bombshell” that sank Neil Kinnock and John Smith’s election hopes. The Conservatives believe that the “borrowing bombshell” will do the same to Ed Miliband and Ed Balls in 2015. The shadow chancellor’s refusal to rule out running a deficit to fund higher capital investment has given the Tories the target they wanted. A Times front page warning “Labour’s spending spree to cost £25bn” and Danny Alexander’s subsequent claim that the party would “pile another £166bn of borrowing on to the debt mountain” were the opening shots in the long war that will now be waged on Labour’s economic credibility.

Faced with this assault, the opposition’s instinct remains to change the subject: to its pledge to achieve a current budget surplus, to the living standards crisis, to George Osborne’s failure to meet his deficit targets. Balls and his aides state both publicly and privately that no decision will be taken on whether to borrow to invest until closer to the election, when the state of the economy is clearer. But few in the party believe it will be possible for Labour to achieve its priorities – a mass housebuilding programme, universal childcare, the integration of health and social care – without doing so. As one shadow cabinet minister told me: “We all know that a Labour government would invest more.” The question, rather, is a tactical one: when and how does Labour make the case for “good borrowing”?

The party starts, as all sides acknowledge, from a position of weakness. The Conservatives’ framing of the crash as the result of overspending by the last government has succeeded in crowding out all alternative accounts. It is the belief that Labour was profligate in the past that allows the Tories to warn that it would be profligate in the future. Yet the facts are on the opposition’s side. In 2007, both the deficit (2.4 per cent of GDP) and the national debt (36.5 per cent) were lower than in 1997 (3.4 per cent of GDP, national debt of 42.5 per cent). It was the crash that caused the deficit (which swelled to 11 per cent after a collapse in tax receipts), not the deficit that caused the crash. But politics is not an Oxford economics seminar. The perception among the public that the last government spent too much is so ingrained that the numbers no longer matter. There is little to be gained from repeatedly contesting this myth, just as there is little to be gained from an insincere apology. The outcome of the election will depend on Labour winning an argument about the future, not the past.

An essential part of this will be a commitment to invest in those areas, such as housing and childcare, that support long-term prosperity. But given the fiscal constraints that Labour would face in office, with £12bn of tax rises required merely to maintain departmental spending cuts at their present pace, it will almost certainly have to borrow to make up the shortfall.

In private, Miliband’s advisers argue that the voters are able to distinguish between borrowing to fund day-to-day spending and borrowing for investment, just as they distinguish between “borrowing to fund the weekly shop” and “borrowing for an asset like a house”. But the Labour leader is not yet prepared to make this case in public. Since an ill-fated interview last year on Radio 4’s The World at One, in which he refused eight times to admit that Labour would borrow more than the Conservatives, Miliband has focused deliberately on market reforms that would not cost government money: freezing energy prices, expanding use of the living wage and restructuring the banking system. When he has made promises that would require new funding, such as the construction of 200,000 homes a year by 2020, the question of borrowing has been deferred.

It is an ambiguity that increasing numbers of Labour MPs believe can no longer be maintained. If the party waits until early 2015 before showing its hand, they warn, it will be too late to win the voters round. The former cabinet minister John Healey told me: “The terms of debate about borrowing are still dominated by the simple sloganeering from the coalition … I think we have to break that argument; there is clearly good borrowing and bad borrowing.” Another former cabinet minister, Peter Hain, similarly argued: “We ceded the territory in the months after May 2010 by being preoccupied with an overlong leadership election. We’ve got to win it back, basically.”

Healey urges Labour to turn the Tories’ household analogies against them: “It makes sense to borrow to buy a house, especially if your mortgage payments are less than your rent. It makes sense to borrow money to buy a car if that allows you to then travel to take up a job that pays better and brings in more.”

The case for borrowing to invest could be made more easily if Labour were to have what one MP calls a “fiscal Clause Four moment”: an act that convinces voters it means what it says about “iron discipline”. It is this ambition that explains Balls’s continued threat to withdraw support for High Speed 2 and the doubt over Labour’s commitment to Trident. But while the party continues its search for an emblem of fiscal responsibility, the Tories are remorselessly increasing their lead on this issue.

Rather than proselytising for borrowing, as Labour’s most ardent Keynesians propose, or entering an auction on austerity, as its most ardent fiscal conservatives suggest, Miliband’s ambition remains to shift the debate towards building “a different kind of economy”, one beyond the conventional terms of exchange on tax and spend. In an era of depressed living standards, it is a gamble that may serve his party well. But if the next election proves more like its predecessors than many expect, he risks being left defenceless beneath the bombshell.

Ed Miliband and Ed Balls at the Labour conference in Manchester in 2012. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

This article first appeared in the 05 February 2014 issue of the New Statesman, Cameron the captive

Photo: Getty Images
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Autumn Statement 2015: will women bear the brunt again?

Time and time again, the Chancellor has chosen to balance the books on the backs of women. There's still hope for a better way. 

Today, the Chancellor, George Osborne, presents his Autumn Statement to parliament. Attention will be focused on how he tries to dig himself out of the tax credits hole that he got himself into with his hubristic summer budget.

He’s got options, both in terms of the sweeteners he can offer, and in how he finds the funds to pay for them. But what we will be looking for is a wholesale rethink from the chancellor that acknowledges something he’s shown total indifference to so far: the gender impact of his policy choices, which have hurt not helped women.

In every single budget and autumn statement under this Chancellor, it has been women that have lost out. From his very first so-called “emergency  budget” in 2010, when Yvette Cooper pointed out that women had been hit twice as hard as men, to his post-election budget this summer, the cumulative effects of his policy announcements are that women have borne a staggering 85 per cent of cuts to tax credits and benefits. Working mums in particular have taken much of the pain.

We don’t think this is an accident. It reflects the old-fashioned Tory world view, where dad goes out to work to provide for the family, and mum looks after the kids, while supplementing the family income with some modest part-time work of her own. The fact that most families don’t live like that is overlooked: it doesn’t fit the narrative. But it’s led to a set of policies that are exceptionally damaging for gender equality.

Take the married couple’s tax break – 80 per cent of the benefit of that goes to men. The universal credit, designed in such a way that it actively disincentivises second earners – usually the woman in the family. Cuts and freezes to benefits for children - the child tax credit two-child policy, cuts to child benefit – are cuts in benefits mostly paid to women. Cuts to working tax credit have hit lone parents particularly hard, the vast majority of whom are women.

None of these cuts has been adequately compensated by the increase in the personal tax threshold (many low paid women are below the threshold already), the extension of free childcare (coming in long after the cuts take effect) or the introduction of the so-called national living wage. Indeed, the IFS has said it’s ‘arithmetically impossible’ that they can do so. And at the same time, women’s work remains poorly remunerated, concentrated in low-pay sectors, more often part time, and increasingly unstable.

This is putting terrible pressure on women and families now, but it will also have long-term impact. We are proud that Labour lifted one million children out of poverty between 1997 and 2010. But under the Tories, child poverty has flat-lined in relative terms since 2011/12, while, shockingly, absolute child poverty has risen by 500,000, reflecting the damage that has been by the tax and benefits changes, especially to working families. Today, two thirds of children growing up poor do so in a working family. The cost to those children, the long-term scarring effect on them of growing up poor, and the long-term damage to our society, will be laid at the door of this chancellor.

Meanwhile, at the other end of the age spectrum, low-earning women who are financially stretched won’t have anything left over to save for their pension. More are falling out of auto-enrolment and face a bleak old age in poverty.

Now that the Chancellor has put his calculator away, we will discover when he has considered both about the impact and the consequences of his policies for women. But we have no great hopes he’ll do so. After all, this is the government that scrapped the equality impact assessments, saying they were simply a matter of ‘common sense’ – common sense that appears to elude the chancellor. In their place, we have a flaky ‘family test’ – but with women, mothers and children the big losers so far, there’s no sign he’s going to pass that one either.

That’s why we are putting the Chancellor on notice: we, like women across the country, will be listening very carefully to what you announce today, and will judge it by whether you are hurting not helping Britain’s families. The Prime Minister’s claims that he cares about equality are going to sound very hollow if it’s women who take the pain yet again.