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| Three ways Labour can distance itself from coalition economics | Three ways Labour can distance itself from coalition economics |
| (6 months later) | |
| Labour has a twin deficit problem. Ed Miliband is seen as less fit to be prime minister than David Cameron. And the Conservatives are a long way ahead on economic competence. | Labour has a twin deficit problem. Ed Miliband is seen as less fit to be prime minister than David Cameron. And the Conservatives are a long way ahead on economic competence. |
| Parties sometimes win with unpopular leaders. Jim Callaghan was better liked than Margaret Thatcher in 1979. They can also win when they are behind on the economy, as Tony Blair was in 1997. But there is no recent precedent for victory when voters like neither a party's leader nor its economic policies. | Parties sometimes win with unpopular leaders. Jim Callaghan was better liked than Margaret Thatcher in 1979. They can also win when they are behind on the economy, as Tony Blair was in 1997. But there is no recent precedent for victory when voters like neither a party's leader nor its economic policies. |
| Labour has eight months to deal with its twin deficit problem, starting this week. Things are not quite as grim as they might seem, since the Conservatives have a few problems of their own. Parties in power for more than one term tend to get less popular over time: no re-elected government since 1955 has increased its share of the vote [see footnote]. And governments that preside over periods of falling living standards – as this one has – tend to get turfed out. | Labour has eight months to deal with its twin deficit problem, starting this week. Things are not quite as grim as they might seem, since the Conservatives have a few problems of their own. Parties in power for more than one term tend to get less popular over time: no re-elected government since 1955 has increased its share of the vote [see footnote]. And governments that preside over periods of falling living standards – as this one has – tend to get turfed out. |
| So, with all to play for in the election, Labour's economic strategy has three elements. Firstly, the shadow chancellor, Ed Balls, has sought to rebuild the party's reputation for economic competence by agreeing to stick to George Osborne's spending plans during his first year at the Treasury and to reduce the national debt as a share of the UK's annual output during the course of the next parliament. Balls has said Labour would be prepared to borrow for investment in areas such as public transport and house building. | So, with all to play for in the election, Labour's economic strategy has three elements. Firstly, the shadow chancellor, Ed Balls, has sought to rebuild the party's reputation for economic competence by agreeing to stick to George Osborne's spending plans during his first year at the Treasury and to reduce the national debt as a share of the UK's annual output during the course of the next parliament. Balls has said Labour would be prepared to borrow for investment in areas such as public transport and house building. |
| Secondly, Labour has a series of tax and spending measures designed to show it has a different set of priorities to the Conservatives. Miliband announced on Sunday a plan to raise the minimum wage to £8 an hour during the next parliament. There are also proposals for a bank bonus tax to fund a compulsory job guarantee for young people and for a mansion tax on homes worth more than £2m to pay for a new 10% starting rate of income tax. | Secondly, Labour has a series of tax and spending measures designed to show it has a different set of priorities to the Conservatives. Miliband announced on Sunday a plan to raise the minimum wage to £8 an hour during the next parliament. There are also proposals for a bank bonus tax to fund a compulsory job guarantee for young people and for a mansion tax on homes worth more than £2m to pay for a new 10% starting rate of income tax. |
| Finally, what Miliband calls his "One Nation" approach is part of a broader critique of an economy in which the link that long existed between growth and rising living standards for all has been severed. Hence the commitments to freeze domestic energy bills and to break up the banks if there is an insufficiently strong ringfence separating the high street from the investment operations of the big banks. | Finally, what Miliband calls his "One Nation" approach is part of a broader critique of an economy in which the link that long existed between growth and rising living standards for all has been severed. Hence the commitments to freeze domestic energy bills and to break up the banks if there is an insufficiently strong ringfence separating the high street from the investment operations of the big banks. |
| The Labour leader believes the strong showing for the yes side in the Scottish referendum was about economics as much as politics. "The overwhelming mood in this referendum was not actually different from the mood in the rest of the United Kingdom and this is why Cameron has got it so wrong," he said in an interview with the Observer. "It is about the way we are governed, yes, but as much if not more it is about change in the way our economy works." | |
| The likelihood is that earnings will not start to rise more rapidly than prices this side of the election. That means living standards will continue to be squeezed, and that is a big plus for the two Eds. They should also be able to exploit any signs of a slowdown in the pace of growth over the coming quarters. | The likelihood is that earnings will not start to rise more rapidly than prices this side of the election. That means living standards will continue to be squeezed, and that is a big plus for the two Eds. They should also be able to exploit any signs of a slowdown in the pace of growth over the coming quarters. |
| Even so, Labour's strategy has its problems. Balls did well in his first two years as shadow chancellor by saying repeatedly and correctly that Osborne's austerity plan would arrest economic recovery and make deficit reduction harder. But by accepting the need for austerity – even if it is austerity lite – he has undercut his own argument. Labour thinks it can have the best of all worlds through a mixture of tough spending commitments coupled with a bit more wriggle room for capital spending. It may instead get the worst of all worlds: viewed as not being tough enough on the deficit and not deemed credible to deliver on its promises. | Even so, Labour's strategy has its problems. Balls did well in his first two years as shadow chancellor by saying repeatedly and correctly that Osborne's austerity plan would arrest economic recovery and make deficit reduction harder. But by accepting the need for austerity – even if it is austerity lite – he has undercut his own argument. Labour thinks it can have the best of all worlds through a mixture of tough spending commitments coupled with a bit more wriggle room for capital spending. It may instead get the worst of all worlds: viewed as not being tough enough on the deficit and not deemed credible to deliver on its promises. |
| Indeed, a cynical electorate may decide that the only bit of Labour's plan they believe is the commitment for more austerity. A second problem is that only four years have elapsed since Labour was last in power. Voters may share Miliband's view that the economy is not delivering the pay rises, the house-building programmes or the public services they would like but not trust the opposition to deliver them. House building plummeted during Labour's 13 years in power. The squeeze on living standards started before the 2010 election. The failures of City regulation happened on Labour's watch. | Indeed, a cynical electorate may decide that the only bit of Labour's plan they believe is the commitment for more austerity. A second problem is that only four years have elapsed since Labour was last in power. Voters may share Miliband's view that the economy is not delivering the pay rises, the house-building programmes or the public services they would like but not trust the opposition to deliver them. House building plummeted during Labour's 13 years in power. The squeeze on living standards started before the 2010 election. The failures of City regulation happened on Labour's watch. |
| This legacy from the recent past has meant Labour's economic strategy is a mixture of the bold and the timid. It has a fundamental critique of the failings of modern global capitalism but only rather modest proposals for dealing with them. This is a point made in A Convenient Truth, a pamphlet for the Fabian Society by Richard Wilkinson and Kate Pickett (who anatomised the dangers of inequality in their book The Spirit Level). Calling for legislation that would put workers on the boards of all but the smallest companies, the pair note: "What matters most for reducing inequality is the strength of progressive politics as a countervailing voice in society. Some time after the late 1970s the political left lost its conviction that a better form of society was possible and left the way open for neo-liberalism." | This legacy from the recent past has meant Labour's economic strategy is a mixture of the bold and the timid. It has a fundamental critique of the failings of modern global capitalism but only rather modest proposals for dealing with them. This is a point made in A Convenient Truth, a pamphlet for the Fabian Society by Richard Wilkinson and Kate Pickett (who anatomised the dangers of inequality in their book The Spirit Level). Calling for legislation that would put workers on the boards of all but the smallest companies, the pair note: "What matters most for reducing inequality is the strength of progressive politics as a countervailing voice in society. Some time after the late 1970s the political left lost its conviction that a better form of society was possible and left the way open for neo-liberalism." |
| It's worth remembering, though, that many of the individual policies associated with the catch-all term neo-liberalism were quite popular with large numbers of voters. They liked the abolition of exchange controls because it meant they could take more money out of the country when going on holiday. They liked financial deregulation because it meant they didn't have to queue for a mortgage. They liked the cheap imports that resulted from globalisation. | It's worth remembering, though, that many of the individual policies associated with the catch-all term neo-liberalism were quite popular with large numbers of voters. They liked the abolition of exchange controls because it meant they could take more money out of the country when going on holiday. They liked financial deregulation because it meant they didn't have to queue for a mortgage. They liked the cheap imports that resulted from globalisation. |
| The sort of change desired by Wilkinson and Pickett requires a number of things to happen. There needs to be a crisis of the prevailing order. That has happened. | The sort of change desired by Wilkinson and Pickett requires a number of things to happen. There needs to be a crisis of the prevailing order. That has happened. |
| There need to be policies to even up the contest between capital and labour, including writing trade unions back into the script. There needs to be a willingness to take on the rich and the powerful. But there also has to be a sense of what is sellable to voters, who are a lot more sceptical of government than they were in the post-war golden age. | |
| The reason for Labour's loss of conviction was not that it loved Thatcherism but that it kept losing elections. It shifted to a more pro-market stance because that's where it perceived the political centre of gravity to be. Unfortunately, the lack of a more profound analysis of light-touch deregulation and the kowtowing to the City proved costly when the banks almost brought down the global economy in 2008. Labour, like other centre-left parties, had no alternative to put forward. It will take time – and courage – to make good that omission. | The reason for Labour's loss of conviction was not that it loved Thatcherism but that it kept losing elections. It shifted to a more pro-market stance because that's where it perceived the political centre of gravity to be. Unfortunately, the lack of a more profound analysis of light-touch deregulation and the kowtowing to the City proved costly when the banks almost brought down the global economy in 2008. Labour, like other centre-left parties, had no alternative to put forward. It will take time – and courage – to make good that omission. |
| • This footnote was added on 24 September 2014. No government that has served most of a full term has been re-elected with an increased share of the vote since 1955, although the Labour government's vote increased in 1966 and October 1974. |