There is a Plan B, Mr Osborne

By Alexandra Kemp

Last night in central London, a leading network of economists, social scientists and opinion leaders from the left rose to the challenge of Labour leader Ed Miliband’s weekend speech. That speech trailblazed Labour’s new hope-filled promise to the people of Britain of a credible, growth-centred alternative to the current Tory pessimism of cuts.

We wish the government’s Plan A well but take a look at the tangible signs after the first year of extreme fiscal consolidation (with many cuts yet to bite) – the flatlining of the economy, 2.5 million unemployed, inflation way above target, the value of real wages squeezed, reduced consumer demand and growing household debt – and a critique of the failure of similar severe cuts in Ireland, Portugal and Greece compared to the success of Germany’s continuing fiscal stimulus. All suggest that the most incisive programme of fiscal consolidation within living memory may not deliver growth or even successful reduction of the deficit, as increasing unemployment leads to falling tax revenues and a higher welfare bill. Come 2015 – or whenever the coalition chooses to go to the country – the left will need to be prepared long beforehand with a rescue plan for a weakened and shrunk economy.

This September, “Plan B” will be published by Howard Reed, Neal Lawson, Stewart Lansley, Richard Murphy and others as an economic alternative-in-waiting. The electorate knows that the left is against cuts that they are too deep too fast but is entitled to know what we would do differently next time we win power. We need to move the narrative from cuts to growth now.

So Plan B will be firstly an analysis of why the coalition’s Plan A is failing – a forensic examination of the Office for Budget Responsibility’s projections, with alternative estimates in the light of work by the National Institute for Economic and Social Reseach and the IMF of the impact of the government’s savage spending cuts on demand and exports. Secondly a set of alternative tax and investment measures – and thirdly a plan for economic rescue and regeneration and a strategy for the sustainable growth Britain needs, with a holistic approach to the economic health and social wellbeing of the UK.

How can we create jobs throughout the economy and the regions? How should government invest for growth? How do we unsqueeze the squeezed middle – and bottom – and empower people at work? How are we to value the core economy of families and community networks? What would an industrial activism look like? Is there a role for state enterprise ? How do we tackle income and asset inequality and the encroachment of profits on wages? How do we utilise spare capacity? How can we regulate the financial sector and rebalance the economy with more productive and green enterprise? How do we regulate labour markets? How should we interact with the Eurozone? How do we forestall a future financial crisis?

Plan B will appraise New Labour too. Its investment in public services and its world leadership in the banking crisis. Its tolerance of the housing and debt bubble. Its – albeit modest – deficit during the boom years and its incapacity – with the rest of the global economy – to regulate the bank bonus culture and the financial sector’s esoteric risk models and excessive risk-taking which precipitated the economic crisis and still elude the moderating capacity of the nation state.

Plan B is about a New Political Economy. There should be no return to business as usual and Britain needs and deserves the hope of nothing less.