If we are serious about government, we need to learn to play the expectations game better than this

Last weekend an Independent exclusive reported that Labour had made an in-principle decision not to stick to Tory spending limits post-2015. It quoted the Fabian General Secretary, Andrew Harrop, who had suggested an alternative strategy, although to be fair he states, in his recent piece here at LabourList, that he believes no decision has been taken.

Finally, Ed Balls denied the story to the New Statesman, saying it was “total rubbish”; a denial that, on the other hand, the Independent on Sunday labelled “unconvincing”.

Whoever you think is right or wrong, whether you think this is all a storm in a teacup, or a sizeable political disaster, will probably depend upon the extent to which you see the size of Labour’s spending plans as crucial to its chances at the next election. And, whether you think this should be higher or lower, it’s obvious that getting the positioning right is rather important.

Those of us on the fiscally conservative end of the spectrum may be uncomfortable with the developments of the last weekend, but not – as some might readily assume – because more borrowing must be ruled out under any circumstances, or that we should somehow adopt Tory economics full stop. We should not.

There is a simple reason for this: it is obvious what needs to be done from a basic, “pure economics” perspective – the economy looks like it needs stimulus. Without some kind of stimulus, there is a risk that there will be no recovery.

Raising taxes would be likely to finish off any possibility of significant growth at this point. The only real possibility of investment, therefore, is debt, which can’t be increased very much or for very long either (we are already perilously close to the symbolic 90% of GDP mark). Our backs are pretty much against the wall every which way.

But some debt raising may be necessary to give the economy a kick. Otherwise, frankly, we are just following the Tory formula, which seems to have cut things rather too fine.

That said, even if this is the case, we are at risk of making three important mistakes:

1. Telling it too early. We still don’t know for sure. The fact is that, although it might look improbable from here, the Tory approach may just work and we should keep our options open. If we announce spending increases and then the Tories show a modest recovery, that’s the election over already, right there.
2. Giving the distinct impression, by careless framing, that increased spending is to fund our perceived statist wish-list, rather than concentrating on capital investment to stimulate growth (which it really is irrelevant, it’s the perception that counts).
3. Not being clear that extra borrowing would be a short-term thing. Labour needs to ooze credibility to the rest of the world that it is not about to go on a long-term, fiscally irresponsible splurge. More important, and more tricky, than you might think.

How then should we go about raising debt, if we need to? By doing just the opposite: we keep options open until the last possible minute, when it is clear there can be no possibility whatsoever of the Tory approach working. At the eleventh hour, you announce that – alas, more in sorrow than in anger – the Tory approach has had a good innings, and that you are now giving the electorate a straight choice: grow with Labour or stagnate with the Tories.

And you make it abundantly clear that this is a short term strategy only to stimulate growth, not to fund your favourite hobby-horse. At this point, it is still a gamble, but it is a gamble that may well pay off, as the Tories’ economic hopes would by then look rather forlorn and voters would have little to lose by switching horses.

On the other hand, what you should really try not to do is botch an announcement, either through leakage or design, two years before the election, that you are thinking about increasing spending. All that careful framing risks going out the window in favour of a simple conclusion: same old Labour, addicted to tax and spend.

Wherever is your weak point, whatever you have a bad reputation for, rightly or wrongly, is exactly where you need to have the tightest of control over your message. The slightest gaffe could play straight into your opponents’ hands, as here.

In short, the pure economics is surely the least important part of where we are now. It is the expectations we set in this critical period which will determine whether the rest of the world – including, crucially, its financial markets – will view a Labour government at election time as a credible, fiscally responsible government (and helpfully respond by pricing in reasonable interest rates).

Or, alternatively, panic and see Labour like they do François Hollande’s government: old-fashioned left-wingers out of their depth, blundering from crisis to crisis. And not to be trusted with the nation’s finances.

And this is all giving Labour the benefit of the doubt: that the whole thing was a misunderstanding, leak or gaffe, rather than a cards-on-the-table plan to open up the chequebook (that is, if the Independent was right, all bets are off. Let’s assume, for the sake of our sanity, that it’s not).

It is easy to make spending promises. It is hard to say credibly you will rein in spending to the minimum and borrow extra only when and where you really need to.

We need to understand which of the two this looks like.