How to (re)achieve economic credibility

By Luke Bozier / @lukebozier

Today the Labour Party has next to zero credibility on the economy. This is despite the economy flat-lining fifteen months into the coalition government. Growth is paltry and unemployment is stubbornly high, yet nobody is clamouring for Ed Balls to take over the reins at the Treasury. Many of us in the party, even in the PLP and the shadow cabinet haven’t yet learned the single most important lesson which we must learn in opposition in order to be a serious party of government again.

The lesson is clear and simple. We have to take a proportional share of the blame for today’s economic mess, because our spending patterns between 2001 and 2007 created an unsustainable burden on the public finances. That burden appeared in the shape of high budget deficits, particularly in the good years when unemployment was down around 3%, which gave us little room to manoeuvre when the credit crunch happened and tax revenue fell off a cliff. We claim to be the party of Keynesian economics, but we seem to have forgotten 50% of what Keynesianism stands for; that is to say that in the good times you spend as little as possible and try to run a budget surplus.

We complain about spending cuts, but if we had left a decent economic inheritance in 2010, in the form of a smaller budget deficit, the cuts would have been smaller than they are today. Indeed if we had a budget deficit of 1% in 2007 instead of the 2.7% which it was, the deficit in 2010 would have been below 10% and therefore the spending cuts to reduce the deficit and ensure credibility in British debt would have been less harsh. Nobody in the shadow cabinet, and certainly not our shadow chancellor or our leader seem to want to acknowledge this; it makes sense when you consider it was Balls and Miliband who led much of the high spending in the mid-2000s.

Considering all of the above, what is the route back to economic credibility for the Labour Party? The following three steps are a start:

1) Apologise. Loudly, and regularly, apologise for the high spending on the nation’s credit card when times were good. Unemployment didn’t go above 3% (JSA claimant count) between 2003 and 2008, yet our budget deficit was only below 3% for two out of those five years. We made a mistake. Ed Balls, Gordon Brown, Ed Miliband pushed for this and it was a mistake. Tony Blair should have pushed harder for a comprehensive spending review and more fiscal restraint.

2) Develop a statutory budget deficit cap policy. Germany has one, Chile has one, Spain wants one, yet we aren’t even discussing a budget deficit cap in this country. We should start looking at sophisticated ways of developing legal limits on how much any future government can borrow above the tax revenue it takes in. That’s a sure way to stabilise spending and build Keynesian fiscal prudence into the system. We can start this debate now, and in tandem with the apology in point 1 above, will go a long way to restoring our credibility.

3) Become the party of jobs and enterprise. Alex Smith and I are working with a talented and wide-ranging group to develop ‘Labour’s Business’, which will recommend a number of pro-enterprise policies to the party this Autumn. There are pro-enterprise voices in the party, but they need to become louder. We have to stop concentrating on the sideshow that is the ‘good economy’, and concentrate on a strong economy. We must be seen as the party which understands the central role that entrepreneurs play in our society, and we need serious policies to create jobs (Ed Balls’ ‘tax the bonuses to get youth into work’ isn’t a serious enough, or anywhere comprehensive enough policy to demonstrate our ability to create jobs).

Labour needs to start down this road soon, and we need to do it with vigour. We can’t possibly go to the electorate in 2015 led by the very people who contributed a great deal to the fiscal mess we are in, unless we have convincing, wide-ranging and realistic plans to show that we are repentant for our mistakes and serious on the economy. I want Labour to be the party of government again, and I want that to happen soon. There is no reason why we must be out-done on economics by the Tory Party, especially considering their current hands-off approach. But to be taken seriously in 2015, we need to take action now, and start leading the economic debate.

It’s really not that difficult.

Related posts:

1. The long, slow and necessary march to economic credibility
2. Britain’s economic recovery has ground to a halt
3. A new economic narrative for Labour’s New Generation
4. Causes to fight for: sustainable economic growth
5. Pickles admits government’s economic policies may fail as Obama gives Cameron an economic snub