Philip Hammond’s deficit denial
With a hard Brexit looming, the government is keen to forget all about the deficit – it is Labour’s job to make sure it does not, argues Christabel Cooper
Back in the summer of 2015 – those halcyon days when Labour were a piffling eight points behind in the opinion polls – I attended a Progress event in the West Midlands, where the subject for discussion was how Labour could recover its reputation for economic competence.
Polling analyst Lewis Baston delivered the message that broadly, the electorate have ingrained assumptions about political parties; they assume that the Tories are not all that nice but are good at managing money, whereas Labour is kind to children and animals but a bit hopeless at budgeting. George Osborne’s message as chancellor (long before his inexplicable appointment as editor of the Evening Standard) that Labour had wilfully wrecked the public finances played directly into existing preconceptions. It was clear that as long as the deficit remained uppermost in voters minds – with Labour’s profligacy held responsible for it – our chances of ever being given another go at running the economy were slim. But after five years of silence on the subject from Ed Miliband, it equally seemed pointless to go back and try to win the argument that the last Labour government’s economic record was actually very respectable. Baston concluded that Labour’s only hope lay in voters turning their attention away from the fiscal situation and towards areas where Labour was stronger: ‘the deficit must stop being a thing’ as he put it.
At the budget last Wednesday, the deficit finally did stop being a ‘thing’. Not by coincidence, this happened at the moment that it changed from the Tories’ best weapon of attack into an issue which was potentially damaging to them. Having to abandon the manifesto commitment to eliminate the deficit by the end of this parliament is embarrassing, and unsurprisingly Philip Hammond did not want to talk about it.
But Labour should be talking about it, for several reasons. First, the continuing deficit stands as a refutation of Osbornomics. During his time as chancellor, Osborne implied that a failure to rapidly eliminate the deficit would send the UK hurtling towards a Greek-style tragedy – bankruptcy, mass unemployment, IMF-types crawling over the economy looking for public assets to flog off to foreign investors. As most economists correctly predicted, none of this has come to pass. The deficit is not unsustainable at a time when interest rates are so low and this gives credibility to Labour’s long-held policy (supported by many economic experts) of using government borrowing to invest in infrastructure – which would ultimately generate more tax revenue.
And then there is a more fundamental question: why do we still have a deficit?
If it was solely caused by Labour’s unnecessary spending, then after ten years of a Tory government kicking the poor, the young and the disabled, why will the deficit still be hanging around in 2020, like a troublesome drunk who refuses to leave the pub after closing time. The global financial crisis happened nine years ago. Today unemployment is low, the economy is growing, public spending in many areas has been cut, and yet tax receipts are still not enough to cover the bill.
The reasons are behind this are complex, a lack of growth in productivity is part of the problem. But changing demography is a huge factor – Britain is getting older and (mainly due to obesity) unhealthier. This costs money, both because of the increasing need for health and social care, and because it makes pensions even more expensive. A hard Brexit which results in a significant reduction in immigration, will make the fiscal situation even worse. The deficit is still with us because it is much more structural than the government is willing to admit.
In the end Hammond’s first budget ended up being dominated by the row about the national insurance rise for the self-employed. While the broken manifesto commitment to eliminate the deficit was ignored, the broken commitment on raising tax by a relatively small amount, provoked such incandescent outrage among Tory backbenchers and the rightwing press that it was quickly – and humiliatingly – reversed. There is absolutely no willingness among Conservatives to contemplate plugging the fiscal hole with increased taxation. So if the deficit is to be eliminated for good then it must be done by cutting government spending still further, at a time when demand for public services is rising.
This means that the government is inevitably taking us towards a future where the National Health Service is a third-rate service, only providing for the emergency needs of those who cannot afford private healthcare, where social care is an expensive lottery in which the losers face a dreadful choice between receiving inadequate care in old age or taking on a crippling financial burden, where the welfare state only provides a sporadic and threadbare safety net for the most vulnerable, where working families on low incomes are completely left to fend for themselves, thus making a mockery of Theresa May’s purported concern for the ‘just about managing’.
Osborne at least had the grace to be relatively overt about his ideologically-driven mission to reduce the size of the state, whereas our new prime minister issues soothing words about using the power of government to help ordinary people, while ultimately pursuing the same course as her predecessors. We urgently need an honest conversation as a nation about what we expect from public services and the welfare state, and how we fund them in a fair and sustainable way. The government is desperate to avoid this conversation; it must be up to Labour to make sure it happens.
Christabel Cooper is a member of the Progress strategy board. She tweets at @ChristabelCoops
Brexit, deficit, deficit reduction, Ed Miliband, Europe, European Union, George Osborne, Philip Hammond, Theresa May