We need to seize the growth agenda – not give cover to Tory cuts

By Lee Brown

Summer brought unrelenting bad economic news on nearly every front. Anaemic growth means the economy has flat lined, expanding just 0.2% in 9 months. Unemployment is mounting – with women and young people especially hit. Inflation is eroding living standards and the cuts are starting to bite deeper. Consumer and business confidence is dropping whilst stock markets have been in free fall. Almost nowhere are there any positive signs of recovery.

Double-dip recession may or may not happen. Either way, the bigger issue is that the evidence increasingly points to a very slow and very weak recovery. With GDP still 4% below the pre-recession peak, comparisons with Japan’s stagnation over the past 20 years are now frequently invoked. The FT’s Martin Wolf said last week :

“The UK is in the midst of what is set to be the longest …of its depressions in over a century. The characteristic of this depression, compared with its predecessors, is the frightening weakness of the recovery phase.”

You know it’s bad when even the International Monetary Fund has called on the US and Europe to abandon fiscal austerity and switch to stimulus policies, warning that the global economy faces a “threatening downward spiral”.

The piling up of bad economic news offers the chancellor cover to change track. But the signs are he won’t – being politically and ideologically committed to cuts. And if he does act it seems it will be to go even further down the Thatcherite path with talk of abandoning the 50p tax rate.

As we can’t rely on bad news leading to a good outcome, progressives need to rack up the political pressure to win a new direction.

This means setting the economic debate – not following it. If we are stuck in the Tory trap that says cuts are the solution, with disagreement only on their scale, the Tories will win hands down. Even if people think the cuts are bad for the economy and unfair, the evidence suggests they still see cuts as a necessary evil.

That’s why the Alistair Darling’s intervention is so damaging – it gives the Tories ammunition in their claim that there is no alternative. As the Daily Telegraph says Darling’s book “is a gift to the coalition; no doubt Cameron will make good use of it”.

A focus on growth can be the game changer for Labour in the economic debate.

Advocating job creation and higher living-standards through stimulating the economy could combine economic solutions with social opportunity. It would not just be good economics but good politics and much more appealing to millions of people than the Tory message of ‘jam tomorrow’.

Ed Balls and Ed Miliband are totally correct in stating, over recent days, that the country needs a growth plan.

It’s also why a pamphlet launched this week, ‘A Brighter Economic Future for Britain’, should be taken up by the wider labour movement. It offers ways forward on how we can achieve this economic growth, having identified that the recession is being prolonged by ongoing lack of private sector investment.

What they call a “private sector investment strike” accounts for 80% of the total lost output since the economy began to contract three years ago.

They argue that “No sustained recovery can take place without breaking this pattern” adding “The message is simple: austerity doesn’t work. In our view what is urgently needed in Britain is first, economic stimulus, and secondly a public-investment led strategy for growth, jobs, housing and sustainability.”

This would be achieved by the creation of a state-owned British Investment Bank using the majority shares in the state-owned banks to fund much needed investment. The funding they argue would come from excess capital held by the RBS, creating a virtuous cycle of higher growth, higher tax take and lower deficit.

Investing in the cutting edge industries of tomorrow could see a fundamental shift to a high-skill, high-wage economy offering hope to the jilted generations feeling left behind in our society.

As Shadow Minister Jon Trickett MP points out in the foreword to the pamphlet:

“It may be that the Tories will seek to sell off the public’s stake in the banks at a knock down price and then attempt to use it to justify a pre-election tax give-away. The authors say – by contrast – that the publicly owned banks should rather be used to help finance the long term regeneration of our economy.

This would undoubtedly be popular as latest polls shows 77% believe the government has been too soft on the banks. Trickett rightly adds: “There are those who would argue that this would indeed be poetic justice. For it was the private banks’ recklessness which helped to precipitate the crisis in the first place.”