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The fight for Labour’s heart

Ed Balls sees the battle as Labour spending <em>v</em> Tory cuts. Peter Mandelson offers a new narra

The government may have secured a few positive headlines from the Budget, with its £1bn rescue package for the housing market and its bold move of raising the tax rate for those earning over £150,000 to 50 per cent. However, Labour’s ability to take the wider economic fight to the Conservatives remains mired in the furore over Damian McBride’s smear emails. The Prime Minister finds himself as politically impotent as at any time in his troubled premiership, at once unable to dominate the economic argument and stripped of moral authority, even around his own cabinet table.

Brown must know he can no longer rely on the global financial crisis to save his fortunes. But he is now suffering from his reliance on an aide who was not only guilty of bringing spin-doctoring to a new low, but who has also proved incompetent in communicating policy issues. “McBride allowed the Tories to dominate the economic argument by presenting the issues as simply public borrowing and debt,” says a former No 10 adviser. “No one is listening to what we are saying.” This is borne out in polls that show Labour consistently behind, often by double-digit figures. So where does the party go from here?

According to Charles Clarke, speaking before Brown moved to clean up MPs’ expenses: “It is now absolutely essential for the Prime Minister to take active steps to restore confidence in politics – Labour politics in particular. That means eliminating the dark arts anywhere near the leadership, reforming the rules on MPs’ expenses before July, and legislating for new rules on party-political funding before the general election.”

Some want a revival of the “unfinished business” of the Blair years: the Roy Jenkins agenda, starting with electoral reform. This would have the added benefit of lessening the importance of the million voters in marginal, Middle England seats, whose power to swing elections has led Labour to pander excessively to their centre-right views. “If we had a different electoral system,” says Chuka Umunna, the highly rated Labour candidate for Streatham, “perhaps we would have been bolder in challenging Thatcher’s legacy and regulating the City.”

The key battleground, however, is the domestic economy. “It is vital Labour’s leaders now get on the high ground and offer a much bolder, more radical alternative to what is an old right-wing Tory agenda that failed in the recessions of the 1930s and 1980s,” says Peter Hain, who served in both Blair’s and Brown’s cabinets.

Over just how that alternative should be “bold” and “radical”, however, there are great divisions. Peter Mandelson – who incidentally made McBride’s removal from Brown’s operation a condition of his return as Business Secretary last autumn – characteristically differs from the centre left on how to proceed. Running the 2010 election along the lines of those of 2001 and 2005 – Labour spending v Tory cuts – will not work, believe those around him. Only by positioning itself as the party of efficiency, spending cuts where necessary and value for money can Labour turn on the Tories and ask voters: now that we have slimmed down the state, do you want the Tories to cut the basics, too?

This strategy will involve, according to an official who works with Mandelson, “prioritisation”. In order for more money to go into early-years education, for example, higher-education fees may have to rise. This approach is finding favour in No 10, not least because the tax revenues that financed high public spending have collapsed. Instead, Mandelson advocates what he calls “industrial activism”, investing in new initiatives such as the low-carbon economy.

The Business Secretary declares himself to be “unashamedly Heseltinian” in his desire to intervene before breakfast, lunch and dinner, and hopes to be able to accuse the Tories of seeking to cut before every one of those meals. As he tells friends: “George Osborne has dropped his anchor in the wrong place.” This is still, however, a different narrative from that of a divide between Labour spending and Tory cuts.

In this, Mandelson has allies in James Purnell and Ed Miliband, the Climate Change Secretary, and an enemy in Ed Balls, who argues for precisely such a divide. But the Schools Secretary has been badly damaged by the revelations about McBride, who is widely thought to have been running his unofficial leadership campaign. His influence, along with his leadership hopes, have been seriously diminished. Meanwhile the stock of Balls’s somewhat reluctant future leadership rival Ed Miliband, who also warned Brown about McBride after last autumn’s party conference, remains high. The younger Miliband has formed a strong alliance with Mandelson and, together with Purnell, may do most to steer Labour’s course this year.

Ruth Kelly, who has remained silent on Labour politics since she quit as transport secretary during the party conference, agrees about the need for a more subtle approach. “We need to use the current economic crisis as an opportunity to rethink the relationship between state, community, family and the individual,” she says. “The default reaction of the left will be to assume more central authority, raise taxes for the rich, regulate hard and stifle enterprise. But the real challenge – and unprecedented opportunity – will be to develop a new consensus established around agreed goals of what constitutes a good society.”

This new fault line is one of a number that are emerging at all levels within the party. For many, and not just those on the Compass left, Labour has one last chance to abandon its Clinton-style habit of “triangulation”. At least one cabinet minister is furious that Brown has continued Tony Blair’s attempts to court the right-wing, and especially the Murdoch-owned, media. Just the latest example was the pre-Budget briefing of the £15bn cuts in public spending to the Times and the Sun, which then gleefully declared that “thousands of state jobs will go”.

Hain shares this frustration. “Governing by New Labour triangulation is the past,” he says. “If we do not move beyond this to offer a new agenda, voters will not turn out for Labour.” Sunder Katwala, general secretary of the Fabian Society, agrees. Blair-Brownism is coming to an end, he says, and “the party has not really had new ideas or energy since 2001”.

Katwala points out that New Labour was partly defined by its paranoia about the era of Neil Kinnock’s leadership. “I think the party was, for a long time, haunted by the scars of the 1992 general election. Thatcherism still casts a big shadow, too.” To have voted in that election, however, you now have to be at least 35. “Very few younger voices think the tramlines of past debates make any sense.” Umunna concurs. “Labour cannot go back to the 1970s or the 1980s, nor back to the 1990s or the early Noughties – times have changed.”

In the Budget there were some signs of a left-ward shift in fiscal policy. The Chancellor surprised the House with his move to raise the 45 per cent tax rate on incomes over £150,000 to 50 per cent (though that threshhold is still higher than some Labour MPs would like). Yet many in the government fear that little can be done to make the country listen, whatever they do.

At least one senior Labour MP considers Brown himself to be the problem. “The Euro elections in June give Labour voters their last say on the leadership before the general election,” Frank Field says. “If the results are terrible we will need a new leader who will have the following year to begin implementing what will become the manifesto.” But in all probability Brown will not stand down or be challenged, however disastrous those elections are.

So Labour must cling instead to a series of hopes: that Brown’s credibility will one day be restored; that he will finally be able to re-establish the dominance he exerted over the Tories in the far-off days of the “Iron Chancellor”; and he will be able to rebuild the confidence of his demoralised and despairing party. “More of the same” will not make any of this happen. As Katwala says: “We need to be more ideologically confident about what Labour stands for. That will challenge both the right and the left of the party.” And that’s putting it extremely mildly.

James Macintyre is political correspondent for the New Statesman.

This article first appeared in the 27 April 2009 issue of the New Statesman, Rise of the Geek