UK Politics
Is Labour on the side of the voters or the bankers?
Published 21 August 2008
A recession is surely the acid test of a party claiming to represent the progressive left
House prices are dropping, unemployment is rising, home repossessions are on the increase, interest rates are the highest since 2001, businesses are squealing and sales of 4x4s are down. Trade unions are being asked to temper wage demands (what's new there?) and the British Chamber of Commerce is warning that a recession is more likely than not. The R-word is finally being used.
That is the unfettered market for you. It gives. And it takes. (Except that, for the poorest, it mainly takes.) The problem with recessions is not that they relieve the rich of their four-wheel drives or that they oblige many of us to be less profligate, nor even that the middle-aged and middle-class can no longer use the equity in overblown house values as collateral for rash borrowing and careless spending. Indeed, such by-products, along with a correction in the housing market that could make homes affordable to young families, might even be seen as benefits. But recessions clobber the poorest, particularly the old on fixed incomes and the young on small and uncertain incomes. These two groups, spending a high proportion of their earnings on food and fuel, are already suffering from high inflation.
New Labour has - it would boast of it - consistently argued that its economic purpose must be to give free rein to the market while protecting the poorest. Thus lower tax, targeted benefits, a minimum wage and incentives to work have, over the past 11 years, largely replaced the universal benefits and higher taxes of old Labour.
But the acid test of such a policy for a party of the progressive left is surely its efficacy in a recession. If Labour is to prove that its reputation for economic competence is based on more than staying buoyant in a globally rising tide, it has to demonstrate it can also protect the weakest.
Its first responses have not been promising. As Iain Macwhirter outlines on page 22, the lifeline of public funds has so far been flung almost exclusively to the banks and mortgage companies, rather than to the victims of their predatory lending.
Labour has to decide which side it is on: the voters who face a painful recession, or the financial interests that got us into this mess. It makes little political sense for a party that stands or falls on its claim to speak for ordinary people to defend only the powerful. Those in the City who insisted they must operate undisturbed by state bureaucracy have proved untrustworthy, enriching themselves at the expense of the weakest. It is outrageous to many Labour supporters that they should receive any state support at all.
What voters want to see, and what Gordon Brown's administration is failing to demonstrate, is a government prepared to act on the lessons of the credit crunch.
This could be an opportunity for Labour to reset the moral compass of the British economy, to take a stand against greed. It is the Conservatives, with their free-market traditions, who should be under pressure now. After all, it has been their friends in the City who have brought the financial system into disrepute and destroyed the security of millions. And, for all their talk of being the new party of fairness, the Tories would never consider renouncing free-market orthodoxy.
But Labour can and should. First it must insist that, in future, banks suffer the consequences of their lack of prudence. It would be a brave move to declare that the tens of billions it has pledged for the failures of an insufficiently regulated sector would have been better spent on schools, public infrastructure and supporting honest businesses, but it should do so.
What, after all, does Labour have to lose? It is clear that, whichever leader it pits against David Cameron, the party faces defeat in the next election, not least for its perceived failure to manage this predictable downturn. To start the process of setting in place a regulatory framework for the banks would at least challenge the opposition and serve to warn voters of the dishonesty at the heart of Conservative Party claims.
The terrible irony for Labour is that no one in Cameron's team would have done anything at all to curb the excesses of their City friends, or to protect their victims.
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