A look into the abyss

How does the following sound as a manifesto for the next Labour government?

£5 billion in social security cuts, including extending the hated personal independence tests to the over-65s. Taxing disability benefits. A real terms freeze in education, NHS, social care budgets for the duration of the government. A 3.5 per cent annual cut in local government budgets, balanced by higher council tax bills. At best, flat real-term pay increases in the public sector for the foreseeable future.

Oh, and £20bn in tax increases.

Sounds fun, doesn’t it?

Yet this is the policy prescription that the Fabian Society’s commission on future spending choices has proposed as their preferred scenario for next Labour government.

This involves the next Labour government accepting the government’s cuts up to 2015-16, then increasing total government spending by one per cent a year in real terms from 2016 by either slowing the pace of deficit reduction, significantly increasing taxes or more likely, both.

It is not hard to see how this would be portrayed by our opponents – a combination of more taxes, more welfare, more debt and a series of tax and benefits changes that would quickly be dubbed a ‘war on pensioners’.

On the latter, the Fabian report suggests, inter alia, that Labour must at least consider abolishing the triple lock on pensions, means-testing TV licences and fuel payments, cap tax free lump sums, reduce higher rate pension tax relief, and even ‘ending bereavement and industrial injury benefits’. All this, by the way, while increasing housing benefit by more than inflation.

Nor would there be much in the way of progressive treats to make up for all this political pain.

On the positive side, the commission does propose reversing the bedroom tax and increasing housing benefit, and is hopeful that a significant increase in the minimum wage will reduce social security costs (though they describe this as ‘a plausible guess’, and don’t give any modelling of what the increase would be to, or how it would avoid a reduction in labour demand, if the rise is significant).

But instead of any new programmes, the money raised from higher taxes and entitlement cuts goes into protecting departmental budgets and social security from even deeper cuts. The commission is at pains to point out that their spending path creates no new funding for programmes like an increase in innovation spending, social care or vocational education. As the commission says:

‘The reality is that any new taxes or savings identified elsewhere, will first need to be used to avoid cuts to existing programmes, which would otherwise be likely. All new spending across these areas would probably need to be funded from switch spending from within these departments’ existing budgets’

To take just one example, this means that as the NHS and social care budgets are both frozen, so  any expansion of social care provision would have to be funded by another new tax (on top of the £20bn or so already outlined).

This leaves open the question of how long a real-terms freeze in NHS budgets is manageable in the face of rising demands.

The commission does identify an increase of around £5bn by 2017-18 in capital spending as a priority. For perspective, this is not quite enough money to fund the increase in housebuilding of 50-60,000 new affordable homes a year over the first three years of a Labour government,  we have already announced as a target. This would leave no new money for capital spending on schools, infrastructure or economic development.

It would be easy to dismiss such a programme as political madness. Yet in exposing how difficult life will be for any future Labour government, the Fabian Society is doing the Labour party a huge favour by forcing us to have a political debate that at least vaguely resembles the decisions that actually face us, as former Labour head of policy Steve Van Riel has said.

This matters because a huge proportion of political debate on the left is spent on debating how bold we should be, how ambitious, or on the merits of micro-intervention, not on the challenges a Labour government will actually face.

We have heard a great deal about predistribution policies as a way to reduce the pressure on social security spending. Yet the commission dismisses it as a fiscal relief, saying that while such initiatives are worthy medium-term objectives ‘In the short term, however, they are not likely to free up large amounts of social security spending’. They take a (rather optimistic) guess that increasing the minimum wage and expansion of childcare provision would save around £1bn in the short term. Even if they’re right, this won’t save us.

At the same time, we get very excited by the prospect of a little more regulation of payday lenders, or of a cap on train fares, as if these worthy measures represent more than small, positive adjustments to the bigger shifts in the economy and fiscal pressures.

I sometimes feel that our strange double focus on both the ‘retail offer’ and the outer limits of bold impracticality is simply a way to avoid the unpleasantness of thinking about the mess we are about to jump right into.

I might not agree with the Fabian commission’s solutions, or their priorities, but they are at least not afraid to look into that abyss.  What they find staring back at us is pretty horrible, but it is what a Labour government would really have to battle with.

Sooner or later we will all have to decide how to fight these real battles, not the phoney wars of today’s popular politics.

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Hopi Sen is a Labour blogger who writes here and writes a fortnightly column for ProgressOnline here. He tweets @HopiSen

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Comments: 3...

  1. On October 18, 2013 at 8:54 pm Anonymous responded with... #

    Worrying. This is the second time that I have read a Hopi Sen article and agreed with most of it. An even more worrying thought is that New Labour might be seen as a golden era for high public spending.

  2. On October 18, 2013 at 9:29 pm Anonymous responded with... #

    and for the economy (only education/(training?) cuts mentioned. Since the over 66’s don’t have to work I don’t see the point of ATOS evaluation. Of course you can cut disability support. but that is LA’s. Which NHS treatments with you withdraw?

  3. On October 19, 2013 at 10:33 am roy steele responded with... #

    Mr Hopi Sen brings a breath of fresh air to the wranglings of politics – I hope you are looking after him, Ed as these guys don’t grow on trees. PS: What will the ATOS/DWP going to do with all the Tory/Libdem/SNP MPs/assistants in May/June 2015? Sad really to see such fine brains going on to the dead leaves heap. But I for one will not shed a tear.

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