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29 October 2014

What should the Labour party’s priorities be for government?

Labour should be prepared to go in to coalition to prioritise strategic investment, a modern constitutional settlement and fairer austerity measures in government.

By Patrick Diamond

In the wake of a dismal party conference and a clutch of underwhelming by-election performances, the Labour party has been gripped by a mood of collective despair. Many Labour MPs fear their party will not secure an overall majority. Others ask whether it is worth winning given the dreadful circumstances in which Labour will have to govern after 2015. They ought to remember that for all the travails of holding office in the aftermath of the deepest depression since the 1930s, Labour can do more good in power than on the sidelines in opposition. 

The objective situation facing a Labour government would, indeed, be bleak. There is a huge fiscal “black hole” given the size of the structural deficit, with the UK the most indebted of the G7 economies. The structural weaknesses that precipitated the 2008 crisis are clearly still prevalent: rising levels of private and public debt; an unsustainable boom in an inflated housing market; company investment falling more than 30 per cent since the crisis; anaemic growth due to faltering Eurozone confidence; accompanied by plummeting wages and living standards fuelling runaway inequality.

Self-evidently, no fundamental rebalancing of the economy has occurred since 2008: Britain has an enormous current account deficit coupled with weak exports. Sterling has increased in value as demand for British assets rises, further derailing the “export-led” recovery. The governor of the Bank of England, Mark Carney, has labelled Britain “a crisis economy”. The economic problems inherited by Labour would be unparalleled since the Attlee government came to power following the ravages of war in 1945.  

Nevertheless, despite these tough circumstances, Labour can still make a huge difference in government. First of all, Labour can take the sharpest edges off austerity. Yes, severe cuts will be necessary to reduce the stock of debt, keeping down long-term interest payments. But better choices can help to protect the worse off in society, while maintaining vital services. The coalition’s plans entail fiscal consolidation on a ratio of 78:22 in favour of spending cuts over tax rises, compared, for example, with 58:42 under John Major in the 1990s. Labour is committed to raising the 50p rate of income tax as a temporary measure, so those with broadest shoulders bear a fair share of the burden. A renewed focus on taxing property and wealth will help to plug the fiscal gap ensuring public services are less aggressively squeezed. 

Secondly, Labour can give Britain the industrial strategy it desperately needs to rebuild our economic and industrial base. The coalition has adhered rigidly to a philosophy of economic liberalism, an outdated laissez-faire approach which has meant too little government intervention to support the British companies and growth sectors of the future.  Britain needs strategic investment in high-speed broadband, physical infrastructure, skills, training, innovation, and science, coupled with a regional strategy closing the gap between southeast England and the rest of the UK. A public investment bank is vital, channelling funds to businesses starved of capital by risk-averse institutions. Only by improving the growth rate and workforce productivity will it be possible to get more resources flowing into public services, while improving living standards and real wages which have fallen more than 10% since their pre-recession peak.

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Finally, if Labour is in power it can complete the work of the post-1997 government, ensuring the UK has a modern constitutional settlement. The future is of Britain as a federal polity with a distinctive constitutional role for England (including “English votes for English laws”) within a diverse, multinational state retaining a strong commitment to European Union membership. The guiding principle should be maximising the decentralisation of power, not only to new political institutions and representatives, but to citizens themselves and the localities where they live. 

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These are the priorities for Britain in the next decade to achieve a fairer society and a competitive economy: moderating the cuts; regalvanising economic growth; forging a modern constitutional settlement. These are only some of the reasons why Britain would be immeasurably better off with a Labour government.

In the late Seventies, the British left lost heart. The purity of opposition was ultimately preferable to the tough compromises of office, symbolised by the austere IMF cuts which bitterly divided the British Labour movement. Labour’s error was to believe that Thatcherism was an aberration – it was assumed the Tories would soon be out of office, as the British electorate rejected the harsh medicine of market liberalisation. Exactly the opposite occurred: the Conservatives governed for 18 years unleashing a Thatcherite “firestorm” that restructured Britain’s economy, liberalising its industrial base for an age of “globalisation” – but at vast human cost.

If Labour had held on in 1979, it would undoubtedly have faced immense challenges, carrying out economic reforms that would have further destabilised the labour movement. Jobs would have been lost. Industries would not have survived. Cuts in Britain’s social service state would have been unavoidable.

What is undeniable, however, is that the worst excesses of Thatcherism could have been avoided. Since it is always better to be in power, Labour should be prepared, if necessary, to enter into a coalition with other parties. Of course, it is always preferable to govern alone, but that may no longer be possible in an age of party political fragmentation. Not to do so would be a betrayal of Labour’s animating purpose, protecting the most vulnerable in society. RH Tawney once decreed the party exists to ensure that every citizen has access to “the means of civilisation”. That can only be achieved by using the power conferred by governmental office, with all the inevitable compromises it entails.

Patrick Diamond is vice chair of the Policy Network, lecturer in Public Policy at Queen Mary, and a former adviser to Tony Blair and Gordon Brown