On 7 May, the UK voted for more, not less, austerity. When the Conservatives took office in 2010, many regarded such an outcome as impossible. Mervyn King, the then governor of the Bank of England, privately predicted that whichever party won would be out of power for a generation, owing to the punitive measures it imposed. Yet, far from being condemned to the electoral wilderness, the Tories achieved their first majority in 23 years. It is Labour – the party that lost in 2010 and opposed excessive austerity – that is now said to have been exiled for a generation.
It was by framing spending reductions as a corrective to years of socialist profligacy that the Tories defied King’s prediction. Even after George Osborne had led the Treasury for five years, more voters blamed Labour for the cuts than him. By the end of the parliament, polls showed that voters not only believed that austerity was “necessary” but also that it was beneficial to the economy. The irony is that it was partly by reducing the pace of the cuts that the Chancellor achieved a modest revival in growth. By continuing to denounce him as a relentless axeman, rather than claiming credit for his pragmatic adjustment, Labour helped to ensure that this truth was concealed.
When its leadership contenders assembled in the Attlee Suite for the parliamentary hustings on 8 June, it was Labour’s failure to win the economic argument that defined the debate. The view is that the party was left in a fiscal no man’s land as it adopted austere rhetoric while failing to shed its spendthrift reputation. It made a sustained case neither for budgetary discipline nor for public investment. All of the leading candidates speak incessantly of the need to regain “economic credibility” but say little about how this would be achieved.
As in 2010, Osborne has moved to take advantage of Labour’s disarray by defining the terms of economic debate. He has announced £3bn of additional in-year cuts and will stage another emergency Budget on 8 July. In his annual Mansion House address, he promised a new law to force future governments to run surpluses when the economy is expanding. It is no accident that Osborne, the Conservatives’ chief political strategist, has introduced these measures at the moment when Labour is holding its leadership election. His hope is that the contenders, forced to court left-wing activists, will maroon themselves on what he regards as the wrong side of the debate.
The candidate most alert to this trap – and whom the Tories privately fear – is Liz Kendall. At the Parliamentary Labour Party hustings, the shadow health minister echoed the language once used by Gordon Brown by calling for “fiscal responsibility for a purpose” and, after refusing to reject the Tories’ latest cuts, declared: “I don’t want to be the Labour leader who plays into David Cameron and George Osborne’s hands.”
One of her supporters, the shadow business secretary, Chuka Umunna, told me afterwards that if the party “simply opposed” the Chancellor’s Budgets and Spending Reviews, it would again be defeated. Labour’s fiscal conservatives argue that, rather than issuing blanket denunciations of “the cuts” in the manner of a Socialist Worker street vendor, it must support or oppose austerity measures based on pragmatic considerations – and propose more of its own. The party cannot appear resistant to the quest for a more efficient public sector; indeed, it should hail the ingenuity of Labour councils in managing slashed budgets. It must not repeat the mistake of trading long-term credibility for short-term popularity. Fiscal responsibility and wealth creation should not appear, as they often did under Ed Miliband, as afterthoughts but as essential components of social-democratic government.
Others in the party fear that Labour will capitulate to Osborne just at the moment when he finally overreaches. Merely because the cuts have not yet resulted in mass outrage, or a politically critical deterioration in services, it does not follow that this will remain the case. Giles Wilkes, Vince Cable’s former special adviser, uses the analogy of a patient who is unharmed by losing 10 per cent of their blood but gradually declines beyond this point until suffering eventual death. After implementing spending reductions of 40 per cent since 2010, Conservative councils are already warning that they can bear no more. Some Tory MPs fear that further cuts to tax credits will thwart their attempt to rebrand themselves as the party of “working people”. Having privately expected to modify his programme at the behest of the Liberal Democrats, Osborne must somehow square the fiscal circle.
The Labour left warns that unlike in the past, when the party’s core vote was said to have “nowhere else to go”, there are now multiple vehicles for protest. The SNP, the Greens, the Lib Dems (most likely led by Tim Farron, whom I interview this week) and even Ukip could all present themselves as the authentic opponents of austerity.
The past five years prove that Labour must be more nimble and shrewd in its economic positioning. After the economy initially contracted under Osborne, the party gave the impression that it believed recovery was impossible, leaving it ill-prepared for the inevitable upturn. Whatever position the next leader adopts on austerity, he or she should be ready to revise it as circumstances change. In 2007, Osborne committed to matching Labour’s spending plans before revoking this stance following the crash. This volte-face did not prevent the Tories from winning, because most voters regarded it as the right choice. Consistency is often an overrated virtue in politics. The paradox, should Osborne retain supremacy, is that Labour may only win the chance to increase public spending by convincing voters that it is prepared to reduce it.
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