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

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Commons Confidential: Fearing the Wigan warrior

An electoral clash, select committee elections as speed dating, and Ed Miliband’s political convalescence.

Members of Labour’s disconsolate majority, sitting in tight knots in the tearoom as the MP with the best maths skills calculates who will survive and who will die, based on the latest bad poll, observe that Jeremy Corbyn has never been so loyal to the party leadership. The past 13 months, one told me, have been the Islington rebel’s longest spell without voting against Labour. The MP was contradicted by a colleague who argued that, in voting against Trident renewal, Corbyn had defied party policy. There is Labour chatter that an early general election would be a mercy killing if it put the party out of its misery and removed Corbyn next year. In 2020, it is judged, defeat will be inevitable.

The next London mayoral contest is scheduled for the same date as a 2020 election: 7 May. Sadiq Khan’s people whisper that when they mentioned the clash to ministers, they were assured it won’t happen. They are uncertain whether this indicates that the mayoral contest will be moved, or that there will be an early general election. Intriguing.

An unguarded retort from the peer Jim O’Neill seems to confirm that a dispute over the so-called Northern Powerhouse triggered his walkout from the Treasury last month. O’Neill, a fanboy of George Osborne and a former Goldman Sachs chief economist, gave no reason when he quit Theresa May’s government and resigned the Tory whip in the Lords. He joined the dots publicly when the Resolution Foundation’s director, Torsten Bell, queried the northern project. “Are you related to the PM?” shot back the Mancunian O’Neill. It’s the way he tells ’em.

Talk has quietened in Westminster Labour ranks of a formal challenge to Corbyn since this year’s attempt backfired, but the Tories fear Lisa Nandy, should the leader fall under a solar-powered ecotruck selling recycled organic knitwear.

The Wigan warrior is enjoying favourable reviews for her forensic examination of the troubled inquiry into historic child sex abuse. After Nandy put May on the spot, the Tory three-piece suit Alec Shelbrooke was overheard muttering: “I hope she never runs for leader.” Anna Soubry and Nicky Morgan, the Thelma and Louise of Tory opposition to Mayhem, were observed nodding in agreement.

Select committee elections are like speed dating. “Who are you?” inquired Labour’s Kevan Jones (Granite Central)of a stranger seeking his vote. She explained that she was Victoria Borwick, the Tory MP for Kensington, but that didn’t help. “This is the first time you’ve spoken to me,” Jones continued, “so the answer’s no.” The aloof Borwick lost, by the way.

Ed Miliband is joining Labour’s relaunched Tribune Group of MPs to continue his political convalescence. Next stop: the shadow cabinet?

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage