George Osborne is planning to use the eurozone crisis to escape his record. Can Labour stop him?
A paradox rests at the heart of Labour’s struggle to rebuild its economic credibility. In March 2010, on the eve of the general election, the party was still managing – despite governing during the worst recession since the 1930s – to hold the Conservatives to a virtual score-draw on who was best able to manage the economy.
Unfortunately for Labour, during the four months in which it vacated the field to pick its new leader, the coalition was able to achieve what the recession had not: to shred public confidence in the party’s economic competence. Perhaps unsurprisingly, that damage has yet to be repaired. Indeed, the coalition has performed a trick worthy of Houdini: voters may dislike its ‘slash and burn’ deficit-reduction strategy, but believe it necessary, and blame Labour for it.
However, it is now increasingly apparent that the government’s harsh economic medicine is not working: growth in the last quarter is less than half what it was during Gordon Brown’s last quarter in charge and is expected to be half what it was predicted to be next year. The eurozone crisis thus presents George Osborne with a well-timed chance to escape the opprobrium that is rightly his, by providing the opportunity for him to add ‘blame Europe’ to the tried and tested ‘blame Labour’ narrative.
So how should Labour respond? The five-point growth plan unveiled by Ed Balls in September represents a series of sensible, practical measures to create jobs for young people, boost the housebuilding industry and help small businesses. Most importantly, these proposals help to demonstrate to the public Labour’s macroeconomic message: that restoring growth and cutting the deficit are two sides of the same coin, and that achieving the latter without first attending to the former is nigh-on impossible.
As the shadow chancellor suggested, however, his five points are not so much Labour policy as ‘immediate steps’ the government should take. Balls is right that Labour needs to present an alternative growth plan to that of the coalition. However, by exactly the same token it also needs to lay out an alternative deficit-reduction plan. Getting the economy growing again is clearly part of that and a necessary prerequisite, but it is not a sufficient strategy. And it certainly will not wash politically.
To understand why, consider again that paradox outlined previously. At the time of the general election, Labour was beginning to win the economic argument about the perils of cutting spending and raising taxes before the recovery was sufficiently entrenched. All of the economic statistics since bear out that Labour was right about that judgement. However, in the run-up to the general election, the party made a fatal political mistake. By failing to set out in more detail the implications of its proposed spending cuts (the tax rises were very apparent), Labour failed to demonstrate that its intentions were serious. Thus, by refusing to show that its deficit reduction plans were sufficient, Labour has been unable to win the argument that the Tories’ are excessive.
A deficit-reduction plan from Labour would need to explain its management of the finances in government. The coalition has succeeded in convincing too many voters that the deficit was simply the result of Brown’s profligacy as chancellor. That simply is not true. The increase in borrowing from £40bn to £170bn was the direct consequences of the crash of 2008 and of the rise in dole payments and collapse in tax revenues (admittedly the result of a corporate tax base which was too reliant on the financial services industry) which followed. However, Labour needs to concede that the previous government should have been running a surplus going into the recession, and pledge that a future Labour government would not run deficits when the economy is expanding.
More widely, Labour cannot see the economic argument in isolation. The public finances will remain tight for years to come; the party thus needs to find new ways both of realising its aspirations, and of ensuring that maximum value is wrung from every pound spent. That is why it is imperative that Labour develops radical plans for public service reform which place power in the hands of citizens, and work with staff to drive up standards, and increase efficiencies and productivity.
It is also why, as Stewart Wood, a member of the shadow cabinet and key adviser to Ed Miliband, says on page 22, Labour’s ‘new economy’ agenda focuses not on a ‘litany of new spending commitments’ but on ‘rewiring the rules’. Like the ‘predistribution’ agenda that rests at the heart of Progress’ Purple Book (see page 24), it recognises that the days of ‘tax and spend’ redistribution to correct flawed market outcomes are over. Instead, Labour should be looking to how the market distributes rewards in the first place.
Conservatives, economy, Ed Balls, election 2010, Gordon Brown, Labour, Stewart Wood