Ed Miliband speaks at the launch of Labour's local and European election campaign. Photograph: Getty Images.
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Labour tensions over election strategy are growing

There is increasing division over the party's alleged "35% strategy".

After Labour's much-derided assault on the Lib Dems last week, one does not have to look far to find despondency within the party's ranks. "I believed them when they said there wasn't a 35 per cent strategy," one MP tells me. "Now I'm convinced there is". By this, he means a strategy that consists of uniting Labour's core vote with Lib Dem defectors in an attempt to crawl over the electoral finish line, rather than a more ambitious "40 per cent strategy" that also seeks to win over blue collar non-voters and Conservative supporters. 

Those who advocate the latter despair at what they regard as the crude negativity and vacuity of last week's election broadcast on Nick Clegg ("The Un-credible Shrinking Man"). They worry about the apparent degrading of the "One Nation" frame in favour of an approach that one figure characterises as "cost-of-living, bash the Lib Dems and 'you can't trust the Tories with the NHS.'" Rather than "The Un-credible Shrinking Man" it is Labour's "Incredible Shrinking Offer" that troubles the party's radicals. 

The surge of Ukip in the polls, with the party now regarded as almost certain to win the European elections, has led to open divisions over how to combat the Farageiste threat. While Ed Miliband has focused on attacking Ukip as "more Thatcherite than Thatcher", Jon Cruddas, Labour's policy review co-ordinator, eschewed such language in his piece for the Guardian on Thursday ("Ukip isn't a Tory movement. It's a party of the disenfranchised English") advocating a positive approach that recasts Labour as a patriotic "party of the people" and more explicitly addresses anxieties over immigration and welfare. 

Other shadow cabinet members complain of the party's failure to promote its commitment to reform the EU, which they regarded as a quid pro quo for Miliband's refusal to guarantee an in/out referendum under a Labour government.

I'm told that attempts are now underway to try and bridge the divide, which one MP described as "a fundamental difference of outlook". But if the party suffers a poor result on 22 May, becoming the first opposition party in the last 20 years not to win the European elections, Labour's tensions could once again burst into the open. 

George Eaton is political editor of the New Statesman.

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George Osborne's mistakes are coming back to haunt him

George Osborne's next budget may be a zombie one, warns Chris Leslie.

Spending Reviews are supposed to set a strategic, stable course for at least a three year period. But just three months since the Chancellor claimed he no longer needed to cut as far or as fast this Parliament, his over-optimistic reliance on bullish forecasts looks misplaced.

There is a real risk that the Budget on March 16 will be a ‘zombie’ Budget, with the spectre of cuts everyone thought had been avoided rearing their ugly head again, unwelcome for both the public and for the Chancellor’s own ambitions.

In November George Osborne relied heavily on a surprise £27billion windfall from statistical reclassifications and forecasting optimism to bury expected police cuts and politically disastrous cuts to tax credits. We were assured these issues had been laid to rest.

But the Chancellor’s swagger may have been premature. Those higher income tax receipts he was banking on? It turns out wage growth may not be so buoyant, according to last week’s Bank of England Inflation Report. The Institute for Fiscal Studies suggest the outlook for earnings growth will be revised down taking £5billion from revenues.

Improved capital gains tax receipts? Falling equity markets and sluggish housing sales may depress CGT and stamp duties. And the oil price shock could hit revenues from North Sea production.

Back in November, the OBR revised up revenues by an astonishing £50billion+ over this Parliament. This now looks a little over-optimistic.

But never let it be said that George Osborne misses an opportunity to scramble out of political danger. He immediately cashed in those higher projected receipts, but in doing so he’s landed himself with very little wriggle room for the forthcoming Budget.

Borrowing is just not falling as fast as forecast. The £78billion deficit should have been cut by £20billion by now but it’s down by just £11billion. So what? Well this is a Chancellor who has given a cast iron guarantee to deliver a surplus by 2019-20. So he cannot afford to turn a blind eye.

All this points towards a Chancellor forced to revisit cuts he thought he wouldn’t need to make. A zombie Budget where unpopular reductions to public services are still very much alive, even though they were supposed to be history. More aggressive cuts, stealthy tax rises, pension changes designed to benefit the Treasury more than the public – all of these are on the cards. 

Is this the Chancellor’s misfortune or was he chancing his luck? As the IFS pointed out at the time, there was only really a 50/50 chance these revenue windfalls were built on solid ground. With growth and productivity still lagging, gloomier market expectations, exports sluggish and both construction and manufacturing barely contributing to additional expansion, it looks as though the Chancellor was just too optimistic, or perhaps too desperate for a short-term political solution. It wouldn’t be the first time that George Osborne has prioritised his own political interests.

There’s no short cut here. Productivity-enhancing public services and infrastructure could and should have been front and centre in that Spending Review. Rebalancing the economy should also have been a feature of new policy in that Autumn Statement, but instead the Chancellor banked on forecast revisions and growth too reliant on the service sector alone. Infrastructure decisions are delayed for short-term politicking. Uncertainty about our EU membership holds back business investment. And while we ought to have a consensus about eradicating the deficit, the excessive rigidity of the Chancellor’s fiscal charter bears down on much-needed capital investment.

So for those who thought that extreme cuts to services, a harsh approach to in-work benefits or punitive tax rises might be a thing of the past, beware the Chancellor whose hubris may force him to revive them after all. 

Chris Leslie is chair of Labour's backbench Treasury committee.