What happens in Greece will not stay there. Photo: Getty Images
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What happens in Greece will not stay there. The Prime Minister must act

Rachel Reeves surveys the scene ahead of the UK's budget and explains why she's backing Andy Burnham for Labour leader.

In the aftermath of the Greek referendum, the threat of instability in the Eurozone reminds us that Britain cannot insulate itself from global economic forces. So we need this week’s Budget to help build a more resilient economy – securing our public finances, productivity and competitiveness.

Tony Blair and Gordon Brown rightly kept us out of the single currency that was supposed to deliver stability - but is currently creating the opposite. Yet we would be naïve to think that disruption on our doorstep will not have consequences at home. In Europe and at the IMF the British Prime Minister and Chancellor should be arguing for a new deal for Greece, including proper restructuring of the Greek economy but also more time and greater debt write-downs. Without this, more austerity is simply going to deliver higher unemployment, lower output, and deeper deficits.

But uncertainty abroad also underscores the importance of securing our position at home.

Before the 2007 global financial crisis hit, Britain’s national debt was less than 40 per cent of GDP. Today it is more than 80 per cent. It will be the work of this, and future, parliaments to get it back to sustainable pre-crisis levels. This is not only so we can withstand external shocks, it is also essential for ending a situation where annual debt interest payments are set to exceed £50bn a year – more taxpayers’ money going to bondholders every year than we pay to the teachers in our schools or the nurses in our hospitals. We must deal with our debt precisely so we can release resources for the public services we believe in and the infrastructure our economy needs.

Labour is committed to this task. But we will need to be clearer than we were at the last election about a timetable for getting the deficit down and set a target for when we would get the national debt back to pre-crisis levels. The approach Labour committed to before the election could have seen debt still above 65 per cent in 2030. We must admit the mistakes of the past, and be clear that while spending on public services did not cause the financial crisis, the deficit that we were running when the shock hit meant we weren't as prepared as we should have been. Andy Burnham understands this, and this is exactly why I am backing him for Leader of the Labour Party. Looking forward, we should commit to run a surplus when the economy is growing at or above its historic average rate, allowing us to bring the debt down more quickly. And the Office for Budget Responsibility should be the independent arbiter of the government’s progress in this.

Getting our debt down as a share of GDP means cutting departmental spending as well as driving efficiency across all our public services. But crucially, it also means building a more productive and inclusive economy, raising earnings and reducing reliance on benefits and tax credits.

Early in the last Parliament, George Osborne promised to “rebalance the economy” with a “march of the makers”. But since then we have seen productivity stagnate, our current account deficit rise to record levels, and a fragile recovery that remains too reliant on household borrowing and which has yet to be felt in many parts of the country.

The underlying weaknesses and imbalances in our economy pose no less a risk to our future stability and prosperity than the unsustainable state of our public finances. We need a Budget that rises to both challenges.

Take social security spending, Labour supports the principle of a benefit cap to ensure our welfare system is fair, affordable and rewards hard work. But to make significant savings from social security we need a Budget to create more productive, high skilled, better paid jobs. Without this, cutting away support for low-paid workers, as this government plans, risks weakening work incentives and deepening the division and disadvantage that prevent us making the most of our country’s potential.

Now is not the time to be timid, now is the time to be bold and so on Wednesday, the Chancellor should announce an increase in the minimum wage. And with five million people paid less than living wage, there should be tax breaks for firms who will pay the living wage, better use of government procurement and a requirement on companies to report on whether they pay the living wage so consumers can vote with their purses and wallets.

And crucially, this week's budget needs to back the entrepreneurs and employers who create jobs – rewarding innovation and investment, improving access to finance, and doing what it takes to secure the research base, skilled workforce and world class infrastructure businesses need.

With a focus on economic credibility, constructive engagement with business and a bold plan for technical education and skills, Andy has shown that he gets this - and the need for Labour to lead the debate over Britain’s economic future.

That’s why I am pleased to be co-chairing Andy's Business Panel which launched last week alongside Graham Cole, chair of Augusta Westland, and Shabir Randeree, Chair of DCD group. This week the panel met for the first time to start the conversation in which we will work to engage businesses of all shapes and sizes throughout the country – so that Labour can best understand what businesses need to create the jobs and opportunities to grow our economy.

Dealing decisively with the deficit and the debt are essential to good economic management, but so is a strategy to raise the productivity of our workforce and the competitiveness of our businesses. If this week’s budget does not rise to this twin challenge, we in the Labour Party must show that we can.

Photo: Getty
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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

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