A shame David Cameron couldn't teach you how to win, Ed. Photo: Getty Images
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David Cameron has borrowed Ed Miliband's methods. He may end up with Ed Miliband's fate

David Cameron has come around to Ed Miliband's way of thinking on the welfare bill. He could end up in the same dead end.

Who is who? 

In 2013, Ed Miliband declared that Britain couldn’t continue “to be stuck with permanently being a low-wage economy”.

In 2015, David Cameron argues that, for too long, British governments have been dealing with “the symptoms of the problem, topping up low pay rather than extending the drivers of opportunity, helping to create well-paid jobs in the first place”.

In 2013, Miliband said that Labour governments past had erred by trying “to make work pay better by spending more on transfer payments”.

In 2015, Cameron says that, for too long, government has been on a “merry-go round: people working on the minimum wage having that money taxed by the government and then the government giving them that money back - and more - in welfare”.

The solution, he says, is to get Britain’s welfare bill down with a big payrise.

Miliband called it “predistribution”.  In 2013, Cameron derided it, saying that what he really meant was “spend the money before you get it”. So was Miliband right all along?

Well, it’s complicated. Miliband’s speech was right to say that, if you want to be tough on welfare, you’ve got to be tough on the causes of welfare. The Conservatives’ plans for £12bn worth of cuts to the benefits bill this year alone simply can’t be met without either cutting into pensioner benefits, which the Tories ruled out in the general election, further reductions in child benefit, which the Tories ruled out in the general election, or in making significant reductions to tax credits. It’s easy to caricature the long-term unemployed as scroungers – but somewhat harder to do the same to people working full-time, having their pay topped up by the state.

Miliband then, like Cameron now, was in a bind. Miliband’s big problem was the same question that has crippled the social democratic movement throughout Europe – what’s the point of the left when there’s no money to spend? – and “predistribution” was the answer. Instead of shovelling around tax revenues from the rich to the poor, Labour would raise the wages of the poorest through remaking capitalism. Cameron’s problem is this: how to cut £12bn from the welfare bill without hitting pensioners, child benefit or people in work. He’s hit on the same solution: make working benefits obsolete by raising wages.

The fly in the ointment is that Miliband never worked out how exactly you raise wages. His rhetoric wrote cheques that his policy couldn’t cash. Cameron has stolen Miliband’s lines – and doesn’t have someone else to nick a solution from. It may be that the Conservatives’ embrace of “predistribution”, in thought if not in word, ends up landing them in the same mess Miliband ended in: electoral defeat.

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

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The 2017 Budget will force Philip Hammond to confront the Brexit effect

Rising prices and lost markets are hard to ignore. 

With the Brexit process, Donald Trump and parliamentary by-election aftermath dominating the headlines, you’d be forgiven for missing the speculation we’d normally expect ahead of a Budget next week. Philip Hammond’s demeanour suggests it will be a very low-key affair, living up to his billing as the government’s chief accounting officer. Yet we desperately need a thorough analysis of this government’s economic strategy – and some focused work from those whose job it is to supposedly keep track of government policy.

It seems to me there are four key dynamics the Budget must address:

1. British spending power

The spending power of British consumers is about to be squeezed further. Consumers have propped up the economy since 2015, but higher taxes, suppressed earnings and price inflation are all likely to weigh heavily on this driver for growth from now on. Relatively higher commodity prices and the sterling effect is starting to filter into the high street – which means that the pound in the pocket doesn’t go as far as it used to. The dwindling level of household savings is a casualty of this situation. Real incomes are softer, with poorer returns on assets, and households are substituting with loans and overdrafts. The switch away from consumer-driven growth feels well and truly underway. How will the Chancellor counteract to this?

2. Lagging productivity

Productivity remains a stubborn challenge that government policy is failing to address. Since the 2008 financial crisis, the UK’s productivity performance has lagged Germany, France and the USA, whose employees now produce in an average four days as much as British workers take to produce in five. Perhaps years of uncertainty have seen companies choose to sit on cash rather than invest in new production process technology. Perhaps the dominance of services in our economy, a sector notorious hard in which to drive new efficiencies, explains the productivity lag. But ministers have singularly failed to assess and prioritise investment in those aspects of public services which can boost productivity. These could include easing congestion and aiding commuters; boosting mobile connectivity; targeting high skills; blasting away administrative bureaucracy; helping workers back to work if they’re ill.

3. Lost markets

The Prime Minister’s decision to give up trying to salvage single market membership means we enter the "Great Unknown" trade era unsure how long (if any) our transition will be. We must also remain uncertain whether new Free Trade Agreements (FTAs) are going to go anyway to make up for those lost markets.

New FTAs may get rid of tariffs. But historically they’ve never been much good at knocking down the other barriers for services exports – which explains why the analysis by the National Institute for Economic and Social Research recently projected a 61 per cent fall in services trade with the EU. Brexit will radically transform the likely composition of economic growth in the medium term. It’s true that in the near term, sterling depreciation is likely to bring trade back into balance as exports enjoy an adrenal currency competitive stimulus. But over the medium term, "balance" is likely to come not from new export market volume, but from a withering away of consumer spending power to buy imported goods. Beyond that, the structural imbalance will probably set in again.

4. Empty public wallets

There is a looming disaster facing Britain’s public finances. It’s bad enough that the financial crisis is now pushing the level of public sector debt beyond 90 per cent of our gross domestic product (GDP).  But a quick glance at the Office for Budget Responsibility’s January Fiscal Sustainability Report is enough to make your jaw drop. The debt mountain is projected to grow for the next 50 years. All else being equal, we could end up with an incredible 234 per cent of debt/GDP by 2066 – chiefly because of the ageing population and rising healthcare costs. This isn’t a viable or serviceable level of debt and we shouldn’t take any comfort from the fact that many other economies (Japan, USA) are facing a similar fate. The interest payable on that debt mountain would severely crowd out resources for vital public services. So while some many dream of splashing public spending around on nationalising this or that, of a "universal basic income" or social security giveaways, the cold truth is that we are going to be forced to make more hard decisions on spending now, find new revenues if we want to maintain service standards, and prioritise growth-inducing policies wherever possible.

We do need to foster a new economic model that promotes social mobility, environmental and fiscal sustainability, with long-termism at its heart. But we should be wary of those on the fringes of politics pretending they have either a magic money tree, or a have-cake-and-eat-it trading model once we leap into the tariff-infested waters of WTO rules.

We shouldn’t have to smash up a common sense, balanced approach in order for our country to succeed. A credible, centre-left economic model should combine sound stewardship of taxpayer resources with a fairness agenda that ensures the wealthiest contribute most and the polluter pays. A realistic stimulus should be prioritised in productivity-oriented infrastructure investment. And Britain should reach out and gather new trading alliances in Europe and beyond as a matter of urgency.

In short, the March Budget ought to provide an economic strategy for the long-term. Instead it feels like it will be a staging-post Budget from a distracted Government, going through the motions with an accountancy exercise to get through the 12 months ahead.

Chris Leslie MP was Shadow Chancellor in 2015 and chairs Labour’s PLP Treasury Committee

 

 

 

Chris Leslie is chair of Labour’s backbench Treasury Committee and was shadow Chancellor in 2015.