Leader: Ed Miliband’s plan to remake capitalism at a time of austerity

If, as George Osborne is fond of declaring, the coalition government is cleaning up “Labour’s mess” then the next government will need to clean up his mess. The Chancellor’s economic strategy has failed and he will bequeath a deficit of £96.1bn (5.8 per cent of GDP) to Britain, a revenue gap larger than the one in France, where the Socialist president, François Hollande, has been forced to plan further spending cuts. With growth likely to be anaemic or non-existent this year and in 2013, the fiscal situation is likely to become even worse.

For Labour, which defined itself in office through sustained increases in public expenditure, this represents a significant political and economic challenge. Rather than reversing the spending cuts imposed by the coalition, a future Labour government will struggle to avoid making its own. In his interview with the New Statesman on page 22, his first since the summer parliamentary recess, Ed Miliband acknowledges that the changed fiscal landscape means the party can no longer aspire to spend its way to social democracy. “If we came along and said, ‘Look, we can just carry on like the last Labour government did’ – I mean it’s politically crackers to do that, because we wouldn’t win the election and we wouldn’t deserve to win the election.” A future Labour government, he concedes, would be unlikely to reintroduce those benefits abolished by the coalition, such as the Education Maintenance Allowance. Though he rejects the term “fiscal conservatism”, he states that “the next Labour government will be far more constrained in terms of what it is able to spend”.

To those on the left and the right who ask what the point of Labour is, if not to deliver increases in public spending, Mr Miliband has a persuasive riposte. Rather than relying solely on the tax and benefits system to create a fairer society and reduce inequality, he will seek to change “the rules of the economy”. He remains committed to the “responsible capitalism” agenda he first outlined at last year’s Labour conference, one that the Conservatives initially mocked but have since attempted to co-opt for themselves. It was only after the Labour leader’s speech that David Cameron took up rhetorical arms against “crony capitalism”.

In the responsible market economy that Mr Miliband aspires to create, the emphasis will shift from redistribution towards “predistribution” as the state, rather than simply ameliorating inequalities, attempts to reduce them in the first place through measures such as the spread of the living wage. As Mr Miliband said in his speech on the economy to the Policy Network conference on Thursday 6 September: “Centre-left governments of the past tried to make work pay better by spending more on transfer payments. Centre-left governments of the future will have to make work pay better by doing more to make work itself pay.” To this end, he promises in his NS interview that Labour will be “saying more” about how it could force firms to pay the living wage.

For the former energy and climate change secretary, the new economy will also necessarily be a “green” one. While Mr Cameron’s government seeks to cast off its pledge not to build a third runway at Heathrow, Mr Miliband, to the consternation of some in his party, has reaffirmed his opposition to the proposal. “We have a cross-party consensus that we must cut our carbon emissions by 80 per cent by 2050. What does that mean for our aviation emissions? You can’t just have unlimited expansion,” he says.

But in other respects, Mr Miliband’s “responsible capitalism” remains ill-defined and overly abstract. There is a danger it could go the same way as the Conservatives’ “big society”, an opportunity squandered for not being properly thought through, explained or widely understood. The Labour leader reasonably points out that his policy agenda is more developed than Mr Cameron’s was at the equivalent stage of his leadership. But given that the latter failed to win a majority and to develop a coherent governing project, this is no marker for an ambitious leader. A better comparison is with Margaret Thatcher who, in opposition, kept her most radical plans deliberately vague while emphasising those with popular appeal, such as the “right to buy” scheme. “Privatisation” was not mentioned in the 1979 Conservative manifesto. It was only in office, with the opposition safely vanquished, that Mrs Thatcher became a Thatcherite.

For now, Labour’s sustained poll lead and the party’s unity have bought Mr Miliband the time he deserves to develop a more detailed programme. But as he is more widely recognised as a potential prime minister, he will need to prove that he can offer much more than good intentions and sound rhetorical positioning.

This article first appeared in the 10 September 2012 issue of the New Statesman, Autumn politics special