Labour MPs urge Miliband to make the case for borrowing to invest

Former cabinet ministers Peter Hain and John Healey argue that the party must make an explicit case for investment if it is to counter the Tories' attack lines before the election.

Ed Balls's recent confirmation that Labour will leave room to borrow to invest has led to a renewed assault from the right on the party's economic stance. A Times frontpage declaring "Labour’s spending spree to cost £25bn" and Danny Alexander’s subsequent claim that the party would add "another £166bn of borrowing" were a preview of the onslaught that the Conservatives and their proxies will mount in the run-up to the election. In 1992, it was the "tax bombshell" that sank Neil Kinnock and John Smith’s election hopes. The Tories believe that the "borrowing bombshell" will do the same to Miliband and Balls in 2015.

Faced with these attacks, as I write in this week's politics column, Labour'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 for capital spending 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"?

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.

But an increasing numbers of Labour MPs believe this ambiguity can no longer be maintained. As one told me, "if we wait until January 2015 before making the case, it will be too late to win the voters round." As all sides acknowledge, the party begins 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. Having lost an argument about the past, the question now is whether Labour can win an argument about the future and the need for investment in those areas, such as housing and childcare, that support long-term prosperity. 

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.

You don’t want to be borrowing as a government, or a household, or as a business in order to support day-to-day revenue spending. But there’s a strong principled argument for the value of borrowing to invest when you build up a long-term asset that will be paid for over the long-term, not least because those that pay for a road, a power station, a hospital, a new set of housing will also be those that benefit from it as they service the borrowing. That’s the basic principled case for intergenerational fairness and the rightness of borrowing for that purpose.

Governments, uniquely, have the position and the power to borrow at rates not available to anyone else. They can borrow at low rates for the long-term. And third, uniquely, it’s what governments do in order to pull their countries through bad times.

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. And the only way of winning it back is to be on the front foot.

He added: "Our big picture should be the capital investment in housing, with all the hundreds of thousands of jobs and apprenticeships that will create as well as meeting an essential demand. We've got to get that out. I think that argument can be won.

"The Tory-Lib Dems have successfully imprinted a big deceit on the public mind with the help of a largely compliant media, that the public expenditure crisis was all Labour's overspending, rather than the global banking crisis and managing the consequences of that. So we have ground to make up and it can be made up provided we're on the front foot." 

Healey urged Labour to turn the Tories’ household analogies against them:

Governments aren’t the same as families or households but you can make some of the same arguments in Thatcher-like terms. 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 then to travel to take up a job that pays better and brings in more. Some of the same dynamics are there in good government investment for the long-term.

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 traditional 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 looks on in his office at Portcullis House at the beginning of a meeting with German Foreign Minister Frank-Walter Steinmeier earlier this week. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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