To be credible on the economy, Labour needs a Plan B – not a white flag

What steps should Labour take to regain credibility on the economy? The last few weeks have seen intensifying debate on this issue, topped off last week by keynote speeches on the economy by both Ed Miliband and Ed Balls. My own contribution to this debate is set out in a report published by Compass today titled White Flag Labour? – Fiscal policy and economic strategy under the UK’s next progressive government. This article summarises some of the report’s key arguments.

If Labour is to overtake the Tories as the party most trusted by voters on the economy, it’s important to be clear about the reasons why the party lacks credibility at present. The recent In The Black Labour report written by Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen for Policy Network argues that Labour is losing the economic argument because voters feel the party has “a lack of commitment to addressing the fiscal crisis”. I think this explanation is wrong for two reasons. Firstly, Ed Balls and Ed Miliband were always clear – even before their latest speeches – that the deficit would need to be dealt with by an incoming Labour Government in the next Parliament if (as now seems likely) the Coalition fails to eliminate it by 2015. Secondly, YouGov tracker polling consistently shows that a majority of voters think cuts are necessary; but the same polling also shows that majorities think the cuts are too deep, too fast, unfair and are hurting the economy. This is exactly in line with the Labour message that the Coalition cuts are “too far, too fast.” It would be strange indeed for voters to reject Labour for agreeing with them about the pace and scale of fiscal consolidation.

In my view, Labour’s lack of economic credibility has very little to do with its stance on deficit reduction. Rather, it is a consequence of two factors:

1. Voters feel that New Labour’s economic policy was a failure. There is in fact much in Labour’s recent record to be proud of, but for now at least, the charge of economic incompetence has stuck, driven in large part by exceptionally well-disciplined Coalition messaging and lack of an effective Labour riposte.
2. Voters have scant reason to believe a future Labour Government would be any different from the last one, because Labour lacks a detailed and credible economic programme. All it has so far are some good but ill-formed “big ideas” from Ed Miliband (e.g. responsible capitalism) and a few headline-grabbing initiatives (e.g. the five-point plan for growth and jobs), but there is no cohesive economic strategy underpinning the soundbites.

Building a new economic strategy after fifteen years in hock to neo-liberalism is, of course, easier said than done; but Compass has made a start. Last year, Neal Lawson and I drew together a wide selection of economic and social policy experts on the left to contribute to Plan B –  a report which set out out the broad outlines of a programme to deliver a progressive economic transformation in the UK. Plan B‘s proposals include short-run fiscal stimulus to escape economic depression coupled with medium-term reforms to deliver a more robust and accountable financial services sector, increased business investment and innovation, a low carbon economy, greater equalities of income and power, first class and universal public services, a more progressive tax system with lower avoidance and evasion, and a strong safety net to protect the most vulnerable people in our society. As Gregg McClymont and Ben Jackson say in another recent Policy Network report on Labour’s economic strategy,

“if Labour builds economic credibility it can mount an appeal that focuses on economic underperformance and squeezed incomes – and which, by focusing political argument around an activist state, forces the Conservatives away from talking about public spending on to less hospitable political terrain.” 

This is exactly right, and Plan B is a first attempt in this vein. Crucially, Plan B draws a clear dividing line between what Labour’s approach to the economy should be and what the Coalition is currently doing. It also starts with a powerful critique of the damaging effects of George Osborne’s breakneck austerity measures, arguing – as Ed Balls has repeatedly done – that trying to close the UK’s “structural deficit” in just four years – would choke off growth and increase unemployment. This is precisely how things have panned out over the last eighteen months, and Ed Balls should feel vindicated by the accuracy of his predictions.

Unfortunately, the repeated clamours in the media for “fiscal credibility” in the wake of In The Black Labour seem to have spooked the Labour leadership, prompting an unwelcome change of emphasis. Although still blasting the Coalition for economic mismanagement, Ed Balls’s most recent speech on the economy seems to put most of its focus on the need to accept the Coalition’s spending cuts en bloc. This is a counterproductive stance that demoralises activists and campaigners fighting against the many unfair and regressive aspects of the cuts, while legitimising the Tory narrative that “there is no alternative”. While the next Labour Government will certainly face a tough economic environment with few “proceeds of growth” to share around, Balls needs to be crystal clear that there is no reason whatsoever to accept the particular distribution of public spending by department and function – or the overall level of tax and spend in the economy – as immutable constants handed down by George Osborne. An incoming Labour Government should instead commit to a fundamental review of both taxation and public spending, assessing each element of both on the basis of how much it meets several fundamental objectives: promoting employment, reducing inequalities, assisting the transition to a low-carbon economy, and enhancing the potential for sustainable growth.

To summarise: at this point in the electoral cycle, when the true scale of Coalition failure on the economy is becoming all too evident, the Labour Party desperately needs a positive economic alternative that puts equality, environmental stability, jobs and economic renewal centre stage. What it does not need is a meek surrender to the forces of Conservatism. In short – Labour needs a Plan B, not a white flag.