The economic significance of David Cameron’s suggestion that austerity will last until 2020 is far outweighed by the political significance. Three years out from the next election, the Prime Minister is already attempting to define the terms on which it will be fought. Having previously indicated that austerity will last for another two years, he now speaks of a full five.
In part, this is an admission of failure. The Conservatives’ original plan was to go into the 2015 election able to boast that they had cleaned up “the mess” left by Labour – a powerful political narrative – and offer significant cuts in personal taxation. But the failure of George Osborne’s deficit reduction plan (the OBR forecasts that the UK will have a deficit of at least £79bn – 4.5% of GDP – in 2015) has forced them to abandon this strategy. Gone are the “sunlit uplands” that Cameron once spoke of, now he forecasts only grey skies. In the Prime Minister’s view, however, all is not lost. If the next election is defined by austerity, he believes it is the Tories, rather than Labour, who will benefit. Cameron and Osborne will attempt to paint Labour as the defender of a bloated welfare system (they are encouraged by the popularity of the coalition’s benefits cap) and an overmighty public sector. Osborne’s promise of another £10bn in welfare cuts is an early preview of this strategy, with Labour uncertain how to respond.
The biggest question now facing the party is whether to allow Cameron to frame the debate or whether to resist him. Should the party accept the Tories’ spending plans with some modifications (as it did in 1997), or should it offer a distinct alternative? If it is to win the next election, it must take the latter course. Labour will not triumph on a platform of austerity-lite. Instead, rather than allowing the next election to be defined by austerity, it must ensure it is defined by growth. As Labour MP Gregg McClymont argued last year in a pamphlet for Policy Network, “A patriotic appeal to the nation to improve growth and living standards, not a simple defence of the public sector and public spending, is crucial to foiling Conservative attempts to render Labour the party of a sectional minority.”
The frame for Labour’s policy offering should be a promise of national reconstruction. Having established a narrative of renewal and growth, it can then move to propose specific institutions such as a British Investment Bank. In 1945, it was Clement Attlee’s promise of national revival that allowed him to triumph over the war lion Winston Churchill. Nearly seventy years later, a patriotic vow to “rebuild Britain” could do the same for Miliband.