After the celebrations

If Labour wins next May it will face huge challenges

If Labour wins next May, the joy of victory will be infectious. Gathering at cabinet to agree the Queen’s speech, Labour ministers will be eager to seize the chance to change Britain. We already know much of the party’s plan for the hectic early weeks of a new government. Front and centre will be an immediate energy reform bill to freeze energy prices, with civil servants instructed to have a bill drafted for the approval of the new prime minister on day one.

The focus on family finances will not end there. Bills giving new rights for childcare and to end exploitation of zero-hours contracts and abuses of the minimum wage will be set out. We will get a ban on upfront letting fees and the introduction of three-year tenancies. For younger people Labour will offer a cut in tuition fees and a jobs guarantee for the unemployed. This focus on day-to-day lives will run alongside plans for structural changes to our economy. There will be bills to introduce new challenger banks, a national infrastructure commission, and plans to devolve power to councils.

Ed Miliband will be confident he is delivering the radical change that won him power. Yet no government quite gets its own way. The cabinet will soon be tested.

First will be the fiscal position. Sitting opposite the prime minister, Ed Balls will deliver harsh news. The coalition has planned more cuts in the next parliament than in the current one. The Institute of Fiscal Studies says that if the NHS and education are ‘protected’ other departments could face total cuts amounting to a third of their 2010 budgets simply to meet existing targets. Every minister will have a briefing document making clear what that means for their policy area, and it will make grim reading. Even ‘protected’ budgets like the NHS will face an unprecedented squeeze. For others, the axe will be even sharper.

The first step to tackling this will be Labour’s zero-based spending review. That means weeks of painful debates inside government during the drowsy Whitehall summer. The choices will be along these lines: implement sharp welfare spending cuts, find several billion in savings, raise taxes, push back the date the government runs a current surplus, or do all of the above.

Then too there will be demands for Labour to meet real social and economic needs. Emma Reynolds will want to build social housing to help Rachel Reeves reduce the benefit bill. This will require upfront money from the Treasury. Reeves herself will have to unpick the mess of universal credit, and will face pressure to limit welfare sanctions to cut foodbank usage, while Chuka Umunna’s plans for an innovation economy will require funds for infrastructure, investment and a business bank.

One way to fund this will be to levy higher taxes on the rich. But this will not be enough to fill the gap. A broader tax increase, perhaps on national insurance, as suggested by IPPR, or increasing the tax on higher-rate pensions contributions would give Labour more fiscal room. Yet this would be controversial, not least because of the impact on the cost of living. For example, a return to the fuel duty escalator means more revenue and lower emissions, but increased costs for business and families.

One solution might be a funding system for social care outside current taxation models. This would meet an urgent social need without increasing the burden on working families immediately. Social care could therefore move to the foreground of British politics, and not before time.

Labour’s agenda on education will be more straightforward. It will support all schools having operational independence, while improving audit and inspection so that parents can be confident in standards whatever school they choose. The main challenges for Tristram Hunt will be mines left by the Tory government – poor quality free schools and a crisis in places. An emerging problem for Labour ministers will be how to match places to children without insisting on school closures in areas of lower demand, or for poor-performing schools.

There will be early decisions to be made on transport. The Great Western, Anglia and West Coast lines will be in the middle of franchise renewal. Halting these to allow state bids, or even ending the franchise process altogether, will be a big call for Mary Creagh.

In the crucial area of energy, Labour will want extra low-carbon generation, though with stricter regulatory tests and greater green emphasis, while reforming the wholesale market to help consumers. Caroline Flint will need to deliver both at once – tough if the energy companies are worried about their margins. Success might depend on the impact the energy freeze has on business confidence. This highlights our global role. Cheap global energy will make domestic reform and price freezes easier, but instability in Russia and the Middle East could mean higher energy prices, meaning global stability in 2015 will be critical for domestic success.

But how to secure a stable world? The 2015 strategic defence review will see military chiefs demand greater funding, or warn that Britain will be unable to defend its interests. Miliband and Vernon Coaker at defence will quickly need to set out Britain’s military priorities. This will decide not whether Britain should carry out military operations, but whether such intervention will be possible.

Britain’s place in Europe will be under question in 2015 too. Tory members of parliament will demand a referendum, and Angela Eagle and Rosie Winterton will warn Douglas Alexander that parliamentary rules and rebels might make that call hard to resist.

So many challenges ahead, and even this does not touch on whether Scotland is in, out or devolving further.

As they left their first cabinet meeting, Labour’s ministers would be forgiven if the celebration of achieving power had been replaced by a sombre appreciation of the many challenges ahead.

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Hopi Sen is a contributing editor to Progress

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Photo: Dominic Campbell

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Comments: 1...

  1. On June 25, 2014 at 4:40 pm Anonymous responded with... #

    This is where previous experience in local government can come in handy for ministers new to office. If you have spent a long hot drowsy summer cutting £7.5million off a net £60million in-year budget, it’s good preparation for doing the same with a couple of noughts added on once in office in Central government. This isn’t to say that these scenarios do not occur in business, but rarely I suspect on this scale outside the world of failing businesses and banks.

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