George Osborne prior to an EU Economic and Financial Affairs meeting on 6 May, 2014 at EU headquarters in Brussels. Photograph: Getty Images.
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Why is the alternative to austerity kept such a secret?

An ambitious growth plan could be implemented with no public borrowing at all. 

The Tory attack lines for the next general election are already crystal clear. They run as follows. "Labour left a dreadful economic mess which we had to clear up the way we did.   It’s been painful, but we were all in it together.  We always had a long-term economic plan, and now it’s come good. We have a strong economic recovery, the fastest of any industrial nation. So do you want to give the keys back to the people who caused all the trouble in the first place?" Every one of these claims is untrue, but they have gained momentum because none of them has been contested.

Labour didn’t leave behind an economic mess; the bankers did. In the Labour pre-crash years, the biggest deficit was 3.3 per cent of GDP, whereas the Thatcher and Major governments ratcheted up deficits bigger than that in 10 of their 18 years; and whilst Thatcher-Major produced surpluses in two years, Blair-Brown achieved surpluses in four. We were not all in it together when the burden of the cuts was split 80 per cent on reduced benefits and only 20 per cent on higher taxes, and even the higher taxes were mainly the VAT increase which impacts highly regressively on the poor. Nor is it a fair carve-up of the post-crash cake that average real wages have fallen 7 per cent while the richest 1,000 in the UK population, according to the Sunday Times Rich List, have doubled their wealth over this short period to more than half a trillion pounds.

Osborne’s long-term economic plan was to shrink the public sector so that the private sector could expand to fill the space, but that didn’t happen. Such growth as there has been has come from (dangerously) inflating the housing market though Help to Buy and from easing some of the capital cuts he had unwisely made earlier. And as for the present "recovery", it is far too dependent on rising consumer debt and is not sustainable when wages, productivity, business investment and net exports all remain negative.

But the biggest fib in the Tory attack plan is that they had to clear the huge deficit by prolonged austerity. Alistair Darling’s two stimulatory budgets in 2009-10 brought down the deficit sharply from £157bn in 2009 to £118bn in 2011. Thereafter, Osborne’s austerity budgets have reduced this to a trickle to reach £108bn in 2014. Not much doubt, then, about the quickest and most effective way to cut the deficit.

So how would a growth plan work? Initially it would use public investment, till there is a strong enough recovery to encourage private investment to flow back in, directed in consultation with industrial leaders at energy, transport and IT infrastructure, house-building, and laying the foundations for a low-carbon economy. The obvious objection is: how will it be paid for? The conventional answer is that, with interest rates at 0.5%, a hefty investment package of £30bn could be purchased from the markets at the bargain basement cost of £150m a year.

But if that is still too much for some conservative minds, the same investment could be secured in three other ways with no increase in public borrowing at all. A further £25-30bn tranche of quantitative easing, tiny compared to the £375bn already issued, could be directed not at the banks as before but at agreed industrial projects. The publicly owned banks RBS and Lloyds could be instructed to prioritise their lending on industry, rather than speculation abroad or property. And the very rich 1 per cent who have monopolised 90 per cent of the gains since the crash could be subject to a special super-tax to help contribute to tackling the nation’s debt, which some of them helped to create and from which they have most benefited.

That of course is only the start of generating growth that is really sustainable and redressing Britain’s deep structural problems. The UK manufacturing base has been hollowed out leading to a current deficit on the manufacturing account of over £100bn a year. The economy has only been kept going in its steady decline by ever-higher consumer borrowing. Income growth per head has almost halved in the 30 neoliberal years since 1980 compared with the 30 years before. And the banks not only exploited the deregulated system, but blew it up.

A major expansion of high-tech manufacturing, with jobs and skills that go with it, has therefore to be a central goal of the next government. That will require smaller, more specialist banks as well as much greater public control of the money supply when at present only 8 per cent of the nation’s capital goes into productive investment. A new relationship between state and markets is needed which is neither centralised planning nor deregulated markets, but which tries to learn the lessons of highly successful post-war Asian economies among others. And the excesses of inequality need to be addressed by giving other stakeholders and employees, as well as shareholders, a voice in determining pay.

Michael Meacher is Labour MP for Oldham West and Royton, and was environment minister from 1997-2003.

Photo: Getty
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.