Real choices for Labour
Progress launches a debate on the challenges the party faces
The aftermath of the financial crisis can hardly be said to have ushered in a golden era for European social democracy. Throughout the continent, centre-left parties have struggled to present a plausible alternative to the right’s message of belt-tightening and budget-balancing, and have paid a harsh electoral price.
The election of Helle Thorning-Schmidt’s social democrats in Denmark last October and François Hollande in France this year were notable exceptions. The fate of both, though, should be at the forefront of Ed Miliband’s mind as he builds on the momentum of his ‘One Nation Labour’ conference address.
Six months after its election victory, Thorning-Schmidt’s party had plummeted to 16 per cent in the polls, its lowest ratings in a century. In France, Hollande has seen the sharpest decline in popularity of any newly elected president in the history of the fifth republic. Hollande’s socialist deputies and their Green allies are in revolt against the president’s request that they approve the European fiscal pact he disingenuously vowed to renegotiate. The Red-Green Alliance, which formed part of the electoral bloc that brought Thorning-Schmidt to power, are up in arms at the prime minister’s tight fiscal policy and centrist welfare reforms. While the fate of neither government is by any means sealed, both are suffering from a failure to prepare the voters prior to coming to office for the tough decisions they would have to take.
The challenges an incoming Labour government would face in 2015 are akin to, if not greater than, those the left faced in Denmark and France. As Nick Pearce, director of IPPR, and Gavin Kelly, chief executive of the Resolution Foundation, suggested recently, if the structural deficit is to be eliminated over the next five years, and health and aid spending to be protected, other departments face cuts of six per cent a year. ‘Simply to keep the average rate of public service cuts to its current annual pace of 2.3 per cent would require £10bn a year of extra welfare cuts or tax rises by 2016-7,’ they warned. Moreover, these calculations are based on over-optimistic growth and fiscal forecasts by the Office for Budget Responsibility which are likely to be revised downwards later this year.
But, suggested Pearce and Kelly, beyond the immediate challenge of closing the deficit, Britain faces a ‘long-term fiscal black hole’: between 2018 and 2030, for instance, meeting the costs of our ageing population will add 1.5 per cent of GDP to public spending; by 2060 it will add five per cent to the NHS budget alone.
In a new report, Pressures and Priorities: The long-term outlook for Britain’s public finances, Kayte Lawton and Amna Silim of IPPR outlined four broad approaches that politicians could adopt if the country is to avoid that ‘black hole’: raising the long-term rate of growth and the employment rate; increasing tax revenues; identifying priorities for public spending; and reforming public services
To open a debate within the party on these options, Progress this month launches The Purple Papers: Real Change for Britain, Real Choices for Labour, building on the argument of last year’s Purple Book. The Purple Papers seek to examine some of the very real choices and challenges an incoming Labour government would face in 2015. Take the following four examples.
First, Labour left office with NHS satisfaction levels at a record 70 per cent, but with the fact remaining that 10,000 lives in England each year would be saved if cancer survival rates were raised to the European best. Such instances can be found across the public services. How, then, without the money of its predecessor, does the next Labour government devolve power to excellent public service providers while reforming those which are currently failing or face huge future challenges?
Second, by 2015 for 13 years in a row the British state will have spent more than it raised in taxes, leaving it with interest payments on the UK’s debt of £60bn a year, twice the size of the tax credits budget. We know that a return to growth will help to ease this challenge, but how much risk will the next Labour government be willing to run in order to attain it? And – once it has cracked down on tax evaders and benefit cheats – how much is Labour willing to ask of those who are more deserving of its sympathy as it seeks to restore the public finances and rebuild the economy?
Third, before the financial crisis, employment in Britain topped 74 per cent, but despite 17 years of growth, the number of people on out-of-work benefits never dropped below four million. How, then, can Labour develop a pro-jobs employment policy and spending strategy, and enhance the social insurance principles which William Beveridge intended to underpin welfare?
Finally, universal childcare will cost the country an estimated £7bn per annum, while the OBR predicts public spending on long-term care will rise by 40 per cent by 2030. Investment in childcare will help boost the employment rate, ease living costs for families with children and reduce child poverty. But finding the necessary funding will involve some difficult calls: should Labour seek to freeze child tax credits and child benefit or reform wealth taxation to generate additional revenues? Should the party aim to close the social care funding gap by introducing a ‘mansion tax’ or curtail ‘welfare for the wealthy’?
A consistent poll lead has earned Ed Miliband some political capital. Starting to prepare the party and the country for the challenges it would face under his leadership would be a good way to spend it.
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Denmark, Ed Miliband, France, Francois Mitterand, Helle Thorning-Schmidt, ippr, Purple Book, Purple Papers, William Beveridge