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24 November 2014updated 25 Nov 2014 12:34am

To fight Ukip, Labour should make the case for borrowing to invest

A confident stance on the economy will offer people hope to combat Farage's despair. 

By John Healey

Their by-election victory in Rochester and Strood showed that the Ukip surge has yet to peak. The temptation for all parties will be to cede more political ground. But to do so would be to ignore a core part of the Ukip appeal. They thrive on pessimism, and the politics of pessimism can only be beaten by confidence in collective endeavour. The lesson for my party from events this week is this: you don’t beat Ukip by being more Ukip, you beat them by being more Labour.

Ukip’s success goes hand-in-hand with despair about Britain’s ability to build a successful shared future. This feeds off their small state ideology. If you don’t think we can improve our lot as a country, then in tough times it’s easy to blame someone else.

Labour’s ability to take charge of our collective future is much tougher in a tight fiscal climate. But I believe that now, as in 2010, there remains a powerful political and economic case for government to play a bigger part in rebuilding after the global economic crisis, even if that means more borrowing. Not any type of borrowing, but good borrowing – borrowing to invest for the long-term, which brings an economic stimulus in the short-term too. When I was housing minister, we had a widely accepted impact analysis which showed every £1m in public housing investment meant 11 extra jobs.

The UK currently sits near the bottom of the investment league table: in the OECD, only Greece and Ireland invest a lower proportion of their GDP.  Since 2010, the Chancellor’s cuts to public investment have wiped over £20bn off of the UK’s national income. And business investment has completely failed to fill the gap, as the IMF among others has pointed out.

The economic case for good borrowing to invest is clear. The government can borrow cheaply, especially now when wages are depressed and demand is weak, while monetary policy has nowhere to go. But most compelling of all, we have a wide range of projects of vital national importance, that are crying out for investment – from more energy capacity, to better transport, to new homes and schools, including in the parts of the country such as my home area in South Yorkshire that still see few signs of any economic recovery.

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Take new homes. If we made roughly the same annual public investment in each year of the next Parliament as we made in Labour’s last year in office, we could be building 100,000 new, genuinely affordable homes every year by 2020. It’s credible. It’s doable. And it’s harder for Ukip to complain about the pressure of immigration on homes if public investment ensures supply is meeting demand. As things stand, based on Conservative funding commitments, there is zero chance of this being the case. A similar case could be made for other key public services and infrastructure.

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None of this is to say that we discount the concerns that people have about immigration or Europe. As Ed Miliband has rightly said, we can take a position on these issues that is true to our values. With six months until the general election, giving people hope is the best way to combat Ukip’s despair. And a confident Labour stance on the economy, jobs and investment will save us from waking up with the Tories next May.