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20 July 2014

Labour defeats rebellion over spending plans

National Policy Forum rejects anti-austerity amendment by 125 votes to 14 as consensus is achieved on programme for government. 

By George Eaton

Labour’s National Policy Forum has just ended in Milton Keynes, with Miliband’s team pleased with a weekend notable for the degree of consensus achieved. Against some expectations, there were just one contentious amendment put to a vote (after agreements were reached on key issues such as rail, Trident, housing and free school meals), calling for the party to hold an emergency Budget if elected and to reject the coalition’s spending totals for 2015/16. Proposed by Yorkshire delegate George McManus, it was rejected by 125 votes to 14 with 6 abstentions – a margin of 86.2 per cent to 9.65 per cent.  

The result is an important victory for Ed Miliband and Ed Balls, who have long emphasised that a Labour government will have to cut public spending in order to eliminate the current deficit it will inherit. Balls said afterwards:

The National Policy Forum has this weekend agreed a policy programme that is radical and credible and based on big reform, not big spending.

The Labour Party knows that this Conservative-led government’s failure to balance the books in this Parliament means we will have to make difficult decisions after the next election.

Party members have endorsed the tough fiscal position Ed Miliband and I have set out. We will match the government’s overall day-to-day spending totals for 2015/16. And we will balance the books, deliver a surplus on the current budget and get the national debt falling as soon as possible in the next Parliament.

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But we will get the deficit down more fairly by reforming our economy for the long-term and reversing David Cameron’s top rate tax cut for the top one per cent of earners.

But it is worth noting that Labour’s room for manoeuvre is greater than it might appear. First, the party’s pledge to match the coalition’s spending totals in 2015/16 does not mean that it has to spend each budget in the same way. In education, for instance, it could devote less funding to free schools and more to schools in areas where demand is greatest. Second, the commitment to match planned government spending only applies to the first year of the next parliament: the party is free to outspend the coalition after that and to make greater use of tax rises to reduce borrowing. Third, while promising to eliminate the current account deficit, Labour (unlike the Tories) has not pledged to eradicate the total deficit, leaving room to borrow to fund capital projects such as housing and transport infrastructure (provided that the rate of spending growth is slower than the growth in GDP it will still be able to meet its promise to reduce the national debt). 

For all this, it is also clear that the generous spending settlements of the New Labour years will not be possible. It’s for this reason that Miliband has emphasised the radical changes he would make to the economy – linking the minimum wage to median earnings, capping rent increases, freezing energy prices (and establishing a new regulator), creating two new “challenger” banks and devolving £30bn to city regions – to deliver progress: “big reforms, not big spending”. As I wrote yesterday, it’s “predistribution” in action: seeking to achieve a more equal society by rewiring the market before the government taxes and spends. You could even call it Milibandism. 

Since 2010, commentators have regularly asked: “what’s the point of Labour when there’s no money spend?” Miliband can now argue convincingly that he’s answered that question.