Closing Labour’s deficit

The Conservatives may not have won the last general election but Labour lost it. Labour was thought too keen on spending other people’s money, particularly in areas where the public are least keen to see their money spent, such as working-age welfare. As the Labour leadership candidates were reaching for the party’s erogenous zones, which are rarely associated with fiscal discipline, George Osborne was trashing Labour’s record, which was supposedly so disastrous that an ‘emergency budget’ was deemed necessary. This budget anticipated a surplus by the next general election. Tough commitments on welfare and immigration also quickly emerged.

The government has over-promised and under-delivered. Next May the deficit is expected to be a yawning £75bn and annual net immigration will be well above the commitment of ‘tens of thousands’, while universal credit, the cornerstone of welfare policy, will only be a spectacularly expensive pilot project. Labour is not benefitting from these failures by as much as we might.

In the Black Labour, a seminal paper published in 2011 by Policy Network, reminded the party that fiscal conservatism and social justice, a concept closer to the party’s erogenous zones, are complements. Years of Gordon Brown proclaiming his love for prudence, especially after 1992 when Labour’s economic reputation was in the gutter and almost all the media wanted to keep it there, seems to have taught us little. Prior to 1997, Brown succeeded in recovering public trust, particularly on taxation. Labour faced a similar challenge after May 2010, albeit with public spending, rather than taxation, being the area where trust was most lacking.

Ed Balls has sought to meet this challenge. He has curbed the spending commitments of colleagues. He is seeking new efficiencies by undertaking a zero-based review of all public spending. He has set out fiscal rules for the next Labour government and given some colour to the implications of these rules: reducing Home Office spend by scrapping police and crime commissioners; making spending on schools more efficient by not building free schools where there is no lack of good places; and reinstating the 50p rate of income tax.

Notwithstanding capping increases in child benefit at one per cent for the first two years of the next parliament, Labour has found it easier to identify savings when this chimes with rubbishing Tory policy. As voters anticipate Labour opposing Tory policy, these savings are unlikely to register as evidence that the party will live within its means. The proportion of voters who see Labour as being prepared to take tough and unpopular decisions has fallen from 19 per cent to 12 per cent over this parliament, according to YouGov.

In a book published for Labour party conference last year, Labour Uncut demonstrated how such decisions might be taken by highlighting an additional £34bn of cuts for 2015-16 that might be reallocated to Labour priorities, such as housebuilding and childcare. We also sought to refocus Labour’s critique of the Conservatives as being less about moral failing and more about incompetence, as well as redefining Labour achievement in terms of outcomes, not inputs.

One year on and Labour is still failing to convince the public of the government’s incompetence, in spite of the ample evidence in this direction, and the party’s flagship conference announcement was the input of 20,000 additional nurses. Labour is not convincing on government incompetence because it has not really tried, preferring instead to focus on presumed immorality. At the same time, the value that the public attach to promises of additional inputs from it may be limited until they are persuaded of Labour’s competence.

There were numerous references in Balls’ latest conference speech to the next Labour government ‘balancing the books’. Previously, Labour policy had been to run a surplus on current spending by the end of the 2015 parliament. These references might be interpreted as extending this commitment to capital as well as current spending. This would require a Labour government to both implement greater cuts than otherwise and to cut into the kind of spending – capital – that does most to generate growth, so lowering tax receipts and extending the deficit that we are seeking to close.

For these reasons, it might be preferable for Labour’s commitment to balancing the books to remain restricted to current spending. In any case, however, I suspect that winning public credibility is not about promises to be fulfilled by the end of the next parliament but actions to be taken at its beginning. These actions should extend beyond Labour scrapping Tory policy – PCCs, free schools – if they are to illustrate a capacity to take tough decisions. It is cutting Labour, not Tory, pet projects that most strongly demonstrates toughness.

As much as Labour has left it late to do this, the alternative is hoping that the party gets over the line via the strong performance of the United Kingdom Independence party, the weak performance of the Liberal Democrats and the fear of what continued Tory government may mean for the NHS. Cameron was clever enough in his conference speech to link a Tory weakness (NHS) to a Tory strength (the economy), arguing that NHS resources depend on a strong economy.

Labour should counter this by identifying further cuts outside the NHS that show it will close the deficit without cutting the health service. It also needs to set out plans for improving the NHS, such as the mutualisation of a combined health and social care service, as set out by Frank Field in an essay for Labour Uncut, that convince voters that it does not see extra spending alone as the way to better outcomes.

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Jonathan Todd is a contributing editor to Progress and deputy editor of Labour Uncut

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Photo: Dominic Campbell

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Comments: 2...

  1. On November 6, 2014 at 6:39 pm john knowles responded with... #

    The problem is that it was not just Labours deficit . Britain has been historically in deficit most of the time , for very many years . In fact we won the war against Napoleon because we borrowed money, for war , and France didnt .
    Even when we hit the world recession we were better set up than most developed Countries to deal with it . Only Canada was in the same sort of position . Gordon Browns action not only saved the day for us but for many other Countries also . Then the Tories scraped in and the deficit has increased for most of the time since ,which of course means our debt has increased massively .. And of course we ordinary hard working decent people have had to pay the price for the Tories Austerity . Austerity was invented as a measure this time around to force privatisation of government and local government services .This was so that the Tories friends and paymasters could make more money and force down wages and living standards . Unfortunately the Press and media have backed the Tories in this , even the BBC have been forced down that road by this right wing reactionary Rich mans government . If Labour continue to not to stand up for decent hard working people ,then Labour voters will have no choice but to turn to the horribly Thatcerite UKIP , or other Party,s . Decent hard working people deserve better . However with few if any hard working people in the Labour Party anymore let alone in Government ,there is fat chance of change . There is also fat chance of Labour lasting more than 10 years as a major party

  2. On November 17, 2014 at 4:57 pm Roger M responded with... #

    I think we could do with rethinking what we actually mean when we say credibility. We’ve developed a compelling narrative around the cost of living crisis and that’s difficult for the Tories to shake off. However, it’s a fairly negative message without any offer of hope. If we want credibility we need to work on establishing a narrative that clearly establishes how life would be better under Labour.

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