George Osborne stands behind the bar during a visit to officially re-open The Red Lion pub following a major refurbishment in Westminster on February 25, 2014. Photograph: Getty Images
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Budget 2014: behind the good economic headlines, warning lights are flashing

On half of the 20 key tests of economic success, Britain is faring very poorly.

George Osborne will come to the despatch box on Budget Day keen to trumpet the best economic figures since the start of the financial crisis. He will announce that the economy is growing, inflation is down and unemployment is falling. All true, but Osborne’s tone cannot be triumphant. The size of the economy remains smaller than in 2007 and family incomes are no higher than 2001. Worse still, behind the good headlines on recovery, warning lights are flashing for the future.

A Fabian Society report published last week set out 20 tests for economic success and found that on half of them Britain is faring very poorly, despite the recovery. We conclude that focusing just on GDP, inflation and unemployment is simply not enough. The Fabians propose that a future chancellor should abandon GDP growth as his main criteria for economic success and instead ask to be judged on growth in typical family incomes.

First, the grim news for British business: productivity has not increased since 2007, business investment is far below levels seen in the early 2000s and the gap between imports and exports is the widest since comparable records began. All of this suggests that the recovery is a more of a "dead cat bounce" than a return to long-term sustainable growth. Another measure of sustainability provides equal cause for concern: our emissions of greenhouse gases are not falling fast enough to meet carbon budgets for the rest of the decade, in spite of the sluggish economy.

The signs aren’t any better for family finances. It looks like most of the rewards from economic recovery are going to the wealthy, since the gap between the top one per cent and middle incomes is rising. Earnings remain flat, the number of families who don’t have enough to pay for the basics is up, and so too is the number of in debt. On top of all this, housing is now no more affordable than at the peak of the last boom.

So the Chancellor should really be using this Budget to confront Britain’s huge structural failings head on. We need a radical plan for national economic recovery focused on business long-termism and a fairer distribution of rewards which will ensure that consumer demand remains buoyant for decades to come. This won’t happen for as long as Osborne believes that public investment is negative, not positive. Over the weekend he proudly trailed a derisory billion pounds of extra investment, but only to be paid for by raiding existing department budgets. By contrast, Ed Balls has opened the way to borrowing for long-term investment, with his announcement on Labour’s fiscal rules at January’s Fabian New Year conference.

When it comes to fiscal matters, there may be a lot of sound and fury on Wednesday, but expect little real change. Osborne’s strategy is now pretty much locked down: the Chancellor wants to achieve an overall budget surplus and, by extension, a long-term reduction in the size of the state. If this really is the Conservative’s long-term strategy, it begs big questions about how the right intends to pay for healthcare and pensions for our ageing population and invest in skills and infrastructure for the future. This should be fertile ground for Labour to remake the case for government, but as things stand the opposition is feeling its way with great caution, burnt by the coalition’s united attacks on Labour’s public spending record before the crisis.

All this means that a net tax giveaway in the Budget would be a surprise. It would only be consistent with Osborne’s long-term plans if accompanied by yet more cuts, or if it could be justified by a significant change in the OBR’s forecast for the economy’s potential for growth. What’s much more likely is a big headline tax cut, paid for by less obvious tax rises elsewhere. Another increase in the income tax threshold will be a good response to Labour’s campaign on the "cost of living crisis". There are certainly many in Labour ranks who worry that in the run up to the general election, the promise of highly visible tax cuts will trump Ed Miliband’s more targeted efforts to address the living standards crisis through regulation.

For policy purists, an increase in the income tax threshold isn’t terribly sensible. Far better to reduce National Insurance for low paid workers. But it has acquired totemic significance for the coalition. Similarly, the argument over a 50p top rate of tax has acquired political weight far beyond the revenue raising or economic impacts of the policy. Labour knows it is on the right side of public opinion, but it is hardly the best way of designing taxation to ensure the rich pay more.

Privately, all the parties know that the tax system badly needs a much bigger overhaul. This needs to encompass the balance of tax between old and new economy; rich and poor; young and old; and between earnings, income, property and wealth. On top of all that we may well need more green taxes, despite the protests we can expect from the public and manufacturers.

But the annual spectacle of Budget showmanship is the wrong way to think through such major reforms. It is another example of the short-termist, confrontational politics that fails Britain. Whoever comes to power in 2015 should relegate the importance of the Budget and introduce institutional arrangements that force politicians to think ahead five years: Britain needs a long-term national strategy for sustainable growth and an independent review to design radical tax reforms.

Andrew Harrop is general secretary of the Fabian Society.

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How Jeremy Corbyn won the Labour leadership election

The revolt against the leader transformed him from an incumbent back into an insurgent. 

On the evening of 12 July, after six hours of talks, Jeremy Corbyn emerged triumphantly from Labour’s headquarters. “I’m on the ballot paper!” he told supporters gathered outside. “We will be campaigning on all the things that matter.”

The contest that Corbyn’s opponents had sought desperately to avoid had begun. Neither a vote of no confidence by 81 per cent of Labour MPs, nor 65 frontbench resignations had persuaded him to stand down. Days of negotiations led by Tom Watson had failed (“For years I’ve been told that I’m a fixer. Well, I tried to fix this and I couldn’t,” Labour’s deputy leader sorrowfully told the parliamentary party). The rebels’ last hope was that the National Executive Committee would force Corbyn to reseek nominations. After being backed by just 40 colleagues in the confidence vote, both sides knew that the leader would struggle to achieve 51 signatures.

But by 18-14, the NEC ruled that Corbyn would be automatically on the ballot (“Watson, Watson, what’s the score?” chanted jubilant aides in the leader’s office). After withstanding a 16-day revolt, Corbyn appeared liberated by the prospect of a summer of campaigning. His confidence prefigured the outcome two months later.

Corbyn did not merely retain the leadership - he won by a greater margin than last time (with 61.8 per cent of the vote to last year's 59.5 per cent) and triumphed among all three sections: party members, affiliated supporters and registered supporters. The rebels had hoped to narrow his mandate and win among at least one group: they did neither. Far from being a curse for Corbyn, the contest proved to be a blessing. 

***

The day before the pivotal NEC meeting, Angela Eagle, who had been preparing to stand for months, launched her leadership bid. The former shadow business secretary was admired by MPs for her experience, tenacity, and economic acumen. Her trade union links and soft left background were further cited in favour of her candidacy.

But after an underwhelming launch, which clashed with Andrea Leadsom’s withdrawal from the Conservative contest (leaving Eagle calling questions from absent journalists), MPs gravitated towards Owen Smith.

Like Eagle, Smith hailed from the party’s soft left and had initially served under Corbyn (two prerequisites in the rebels’ eyes). But unlike her, the former shadow and work pensions secretary did not vote for the Iraq war (having entered parliament in 2010) or the 2015 Syria intervention. “It looks like the war party,” a senior Corbynite said of Eagle’s campaign launch with Hilary Benn. Many Labour MPs feared the same. With the left-leaning Lisa Nandy having ruled herself out, only the ambitious Smith met the criteria.

“I’d been in hospital for two days with my brother, who was unwell, in south Wales,” he recalled when I interviewed him.  “I came out having literally been in A&E at Cardiff Heath hospital for 29 hours, looking after him, to have my phone light up with 30, 40, 50 colleagues, MPs and members, ringing up saying ‘there’s going to be a contest, Angela Eagle has thrown her hat into the ring, you should do likewise.’ And at that point, on the Wednesday night, I started ringing people to test opinion and found that there was a huge amount of support for me.”

On 19 July, after Smith won 90 MP/MEP nominations to Eagle’s 72, the latter withdrew in favour of the Welshman. A week after the Conservatives achieved their second female prime minister, Labour’s 116-year record of all-male leaders endured. Though Smith vowed that Eagle would be “at my right hand throughout this contest”, she went on to appear at just one campaign event.

Corbyn’s challenger was embraced by MPs as a “clean skin”, untainted by service during the New Labour years. But Smith’s non-parliamentary past was swiftly - and ruthlessly - exploited by his opponents. His time at the US drugs firm Pfizer was cited as evidence of his closeness to big business. Corbyn’s supporters also seized on interviews given by Smith as a by-election candidate in 2006.

The man pitching to the left was found to have defended Tony Blair (suggesting that they differed only over the Iraq war), supported private sector involvement in the NHS and praised city academies. “I'm not someone, frankly, who gets terribly wound up about some of the ideological nuances,” he told Wales Online. Such lines were rapidly disseminated by Corbyn supporters through social media.

“Getting out early and framing Owen was crucial,” a Corbyn source told me. A Smith aide echoed this assessment: “It helped secure their base, it took a load of people out of contention.”

Throughout the campaign, Smith would struggle to reconcile his past stances with his increasingly left-wing programme: opposing private provision in the NHS, returning academy schools to local authority control, banning zero-hours contracts and imposing a wealth tax of 1 per cent. “It was easy for us to go for the jugular over his background when he portrayed himself as a left candidate,” a Corbyn source said.

Smith insisted that the charge of opportunism was unmerited. “To be honest, my opponents have extrapolated rather a lot in an attempt to brand me as a ‘Blairite wolf in sheep’s clothing,’” he told me in August. “Well, I’m nothing of the sort, I’ve always been a democratic socialist and I always will be.” He added: “I’m someone who’s been surrounded by people who’ve been on the left of the Labour movement all their lives. It should come as no surprise that I’ve come out of that background and I’m pretty red. Because I am.”

But a former shadow cabinet colleague said that Smith did not stand out as “a radical” in meetings. “The only time that I remember him becoming really animated was over further tax-raising powers for Scotland and the implications for Wales.”

As well as Smith’s ambiguous past, Corbyn’s allies believe the breadth of his political coalition hindered him from the start. “He was trying to bring together Blairites, Brownites and every other -ite in between,” a campaign source said. “That was never going to hold, we knew that and from the moment there were splits it was easy to point out.”

Jon Trickett, the shadow business secretary and one of Corbyn’s early supporters, told me: “They tried to pretend that there was no distinction between them and Jeremy on policy grounds, they tried to narrow down the areas of difference to electability. But, frankly, it didn’t seem credible since some of the people behind it were absolutely ideologically opposed to Jeremy. Peter Mandelson and people like that.”

A frequently expressed charge was that Smith’s left-wing pledges would be overturned by Blairite figures if he won. John McGeechan, a 22-year-old postgraduate student who joined Labour after “self-indulgent, self-serving MPs initiated their corridor coup”, told me of Smith: “He’s just another mealy-mouthed careerist who says whatever he thinks is going to get him elected. I don’t believe at all that he means what he says about creating a radical socialist government given that he’s got the backing of Peter Mandelson, Alastair Campbell and Tony Blair, people who’ve disagreed with Corbyn on pretty much all his socialist policies. I don’t believe that he’s going to stand up to these people.”

Whether believable or not, Smith’s programme showed how Corbyn had shifted Labour’s centre of gravity radically leftwards - his original aim in June 2015.

***

On the night Corbyn made the leadership ballot, the rebels still found cause for hope. Unlike in 2015, the NEC imposed a freeze date of six months on voting (excluding 130,000 new members) and increased the registered supporter fee from £3 to £25 (while reducing the sign-up period to two days). “It’s game on!” a senior figure told me. By narrowing the selectorate, Corbyn’s opponents hoped to achieve a path to victory. With fewer registered supporters (84 per cent of whom voted for Corbyn last year), they believed full party members and affiliated trade unionists could carry Smith over the line.

But when 183,000 paid £25 to vote, their expectations were confounded. Far from being “game on”, it looked to many rebels like game over. Once again, Corbyn’s opponents had underestimated the left’s recruiting capacity. Smith’s lack of name recognition and undistinctive pitch meant he could not compete.

Alongside the main contest were increasingly fractious legal battles over voting rights. On 28 July, the high court rejected Labour donor Michael Foster’s challenge to Corbyn’s automatic inclusion on the ballot. Then on 8 August, a judge ruled that the party had wrongly excluded new members from voting, only for the decision to be overturned on appeal.

In the view of Corbyn’s allies, such legal manevoures unwittingly aided him. “They turned Jeremy, who was an incumbent, back into an insurgent,” Trickett told me. “The proponents of the challenge made it seem like he was the underdog being attacked by the establishment.”

Smith, who repeatedly framed himself as the “unity candidate”, struggled to escape the shadow of the “corridor coup”. That many of his supporters had never accepted Corbyn’s leadership rendered him guilty by association.

“The coup had an enormous galvanising effect and an enormous politicising effect,” a Corbyn source told me. “For a great number of people who supported Jeremy last year, there was a feeling, ‘well, we’ve done the work, that’s happened, now over to him.’ What the coup meant for a lot of people was that this isn’t about Jeremy Corbyn, this is a people’s movement, which we all need to lead.” The Corbyn campaign signed up 40,000 volunteers and raised £300,000 in small donations from 19,000 people (with an average donation of £16). Against this activist army, their rivals’ fledgling effort stood no chance.

“At the launch rally, we had 12 simultaneous events going on round the country, livestreamed to each other,” a Corbyn source said. “We had a lot of communication with people who were big in the Sanders campaign. In the UK context, it’s trailblazing.”

On 12 August, after previously equivocating, Smith ruled out returning to the shadow cabinet under Corbyn. “I've lost confidence in you. I will serve Labour on the backbenches,” he declared at a hustings in Gateshead. In the view of Corbyn’s team, it was a fatal error. “He shot apart his whole unity message,” a source said.

Smith, who initially offered Corbyn the post of party president, was rarely booed more than when he lamented Labour’s divisions. As one of the 172 MPs who voted against the leader, he was regarded as part of the problem, rather than the solution. By the end, Smith was reduced to insisting “I wasn’t in favour of there being a challenge” - a statement that appeared absurd to most.

As well as his leftist credentials and unifying abilities, Smith’s other main boast was his competence and articulacy. “HIs USP was that he was this media-savvy guy,” a Corbyn source said. “As a result, he threw himself up for any and every media opportunity and made tons of gaffes. We just made sure people were aware of them.”

The most enduring gaffe came early in the campaign, on 27 July, when he spoke of wanting mto “smash” Theresa May “back on her heels”. Though Smith initially defended his “robust rhetoric” (“you’ll be getting that from me”), by the afternoon his campaign had apologised. What was explained as a “rugby reference” dogged them for weeks. “It played into the hands of how Corbyn wanted to depict us,” a Smith source told me. “It was really hard to shake off.”

More unforced errors followed. Smith suggested getting Isis “round the table”, in anticipation, many believed, of Corbyn agreeing. But the Labour leader baulked at the proposal: “No, they are not going to be round the table”. Corbyn’s communications team, more organised and agile than in 2015, denounced Smith’s remarks as “hasty and ill-considered”. As with “smashed”, the Labour challenger had achieved rare cut-through - but for the wrong reasons.

Smith’s rhetorical looseness became a recurring problem. At a rally on 23 August, he appeared to refer to Corbyn as a “lunatic”. In an interview with the Daily Mirror, he said of meeting his wife: “1,200 boys, three girls and I pulled Liz. So I must have something going on. That must be leadership.”

Earlier in the campaign, Smith’s team denied that the candidate referred to the size of his penis when he quipped of his height: "5ft 6. 29 inches - inside leg!” The guffaws from his supporters suggested otherwise.

We used to have a gaffe counter,” a Corbyn source told me. “I think it got up to 30 by the end.”

Smith’s team, meanwhile, despaired at how the Labour leader’s own missteps failed to dent him. The discovery that Corbyn had in fact secured a seat on a Virgin train, contrary to initial impressions, did little lasting damage. “It’s priced in, the bar is much lower for him,” a Smith source complained.

Incorrect claims, such as Labour being level in the polls before the coup attempt and Corbyn giving 122 speeches during the EU referendum campaign, were believed by many of his supporters. “How do you rebut bullshit?” a Smith aide asked. “If you respond, it becomes a story.”

So frequently had Labour MPs condemned their leader that extraordinary charges were soon forgotten. On 22 August, shadow business minister Chi Onwurah wrote in the New Statesman that Corbyn’s treatment of her and Thangam Debbonaire could constitute “racial discrimination”.

If this had been any of my previous employers in the public and private sectors Jeremy might well have found himself before an industrial tribunal for constructive dismissal, probably with racial discrimination thrown in,” she argued. But within a day, the story had moved on.  

For Smith, fleeting momentum was achieved through significant endorsements. On 10 August, the GMB backed his campaign after becoming the only trade union to ballot its members. The following week, Labour’s most senior elected politician, Sadiq Khan, endorsed Smith. Unlike Andy Burnham, the London mayor believed he could not remain neutral during this profound schism. Smith was subsequently also backed by the Scottish Labour leader, Kezia Dugdale. Neil Kinnock and Ed Miliband trumpeted his cause. Yet such declarations counted for little. “It’s like the Remain campaign and the Archbishop of Canterbury,” one Smith ally told me, suggesting that Labour members, like Leave voters, ”weren’t listening” to such grandees.

But in the view of Corbyn’s team, the rebels profoundly “underestimated” their opponent. “He’s a nice guy but he also has an inner steel and won't flinch from a challenge. The Obi-Wan Kenobi comparison is very accurate when you work up close with him. He’s also extremely intelligent and has a great grasp and retention of detail. It showed in the debates.”

“I have to say, I felt pretty sorry for Owen at several points,” another Corbyn source reflected. “Whatever it was, his ambition or being pushed into it, it didn’t seem like it was the right time for him. He hadn’t worked out what he was about and why that fitted with the times.”

***

Those Labour MPs who long warned that an early challenge to Corbyn would prove futile have been vindicated. “Party members are always loyal to the incumbent,” a senior source astutely noted. In the case of Corbyn, a lifelong campaigner, who many contended was “never given a chance”, this traditional fealty was intensified.

“Most of the people backing and funding him didn’t think Owen was going to win,” a Corbyn source said. “Their aim was, one, to reduce Jeremy’s mandate and, secondly, to map the selectorate.”

Having won a second leadership contest - an unprecedented achievement for the Labour left - the leader’s supporters insist their ambitions do not end here. “We’ve got to think incredibly seriously about how we win a general election in a totally changed landscape,” a Corbyn source told me. “This campaign has been showing how to do it.” But a Smith aide warned that it was a “massive strategic error” to make electability, rather than principle, the defining test of Corbyn. The leader, he suggested, could withstand a general election defeat provided he simply affirmed his values.

Beyond regarding a split as worthless, Labour MPs are divided on how to proceed. Some want another leadership challenge as early as next year. Rather than seeking to narrow the selectorate, they speak of recruiting hundreds of thousands of new members to overpower the left. “There are lots of people out there who want a credible, electable, centre-left proposition and we have not given them enough of a reason to sign up,” a former shadow cabinet minister told me. “Who has an offer and the charisma to be able to bring in new people? That has to be the question the next time round.”

Others believe that backbenchers should follow Thumper’s law: “If you can’t say something nice, don’t say anything at all.”  A senior MP argued that MPs should “just shut up” and “let Jeremy crack on with it.” The imperative, he said, was to avoid MPs “taking the blame for us getting thumped in a snap election”. Some are prepared to move beyond neutrality to outright support by serving under Corbyn.

The Labour left and their most recalcitrant opponents both confront challenges of electability. The former must demonstrate a path to victory despite Corbyn’s subterranean poll ratings. The latter, who boast so often of their superior appeal, must face a remorseless truth. Until they are electable in the party, they will never be electable in the country.

George Eaton is political editor of the New Statesman.