Compass’s Alternative Plan for deficit reduction and the end of austerity

How does Labour win back economic credibility? It’s rightly been a hot topic of discussion for LabourList over the past few months. Yesterday Compass published an alternative spending review which outlines a plan which would end austerity and importantly, we believe, progressive politicians could successfully sell to the public.

Let’s get the obvious out of the way first; austerity has failed, even on its own narrow terms – the deficit is not being reduced in any meaningful way and previous supporters of austerity are changing their position. More importantly the public are coming to the realisation that austerity has failed.

For this reason it seems madness for Labour to give Osborne a ‘get out of jail free card’ now by signing up to Tory cuts beyond 2015. Polling shows that sticking to Tory spending plans would lose Labour support and polling since Labour’s shift towards an ‘austerity lite’ position show its ratings on economic competence have fallen.

Signing up to Tory spending totals also sends a message to the electorate that there is no real distinction to be made between the major political parties at the next General Election, adding to the shared feeling amongst voters that politics cannot fundamentally change their lives for the better and adding to the momentum for maverick ‘anti-politics’ parties such as Ukip.

Labour should be offering a genuine alternative to austerity in 2015. This would include a short-term economic stimulus and medium-term economic restructuring. We calculate that a £55billion stimulus package of social and green infrastructure could generate up to 1m jobs, £187bn of additional GDP and almost £75bn in terms of additional taxation.

This stimulus package would also need to be accompanied by clear plans for managing public finances and a means of addressing the party’s association with profligacy and waste. This can be achieved by telling a story about what sort of society and economy it wants to build. If Labour is up front and honest about why it needs public spending in the first place it would receive a much more solid mandate for doing so.

An alternative plan to eliminate the structural deficit over the medium term could be achieved by arguing for a much higher proportion of tax rises to spending cuts as outlined in our briefing. Labour could also win back trust with a series of measures such as:

1. Adopting a zero-based budgeting approach that reviews all current spending to ensure public spending is well targeted to achieve maximum wellbeing, sustainability and reductions in inequality.
2. Setting clear medium term fiscal rules backed by clear and democratic fiscal oversight to demonstrate to the public that they will spend tax money efficiently. It is important that Labour continues to make a clear distinction between ‘good’ and ‘bad’ borrowing and spending and convinces the public that the Labour Party would only borrow and spend for a purpose.
3. Advocating a radical review of the state and public services in which areas of self-evident waste would be cut. This might include cutting such items as Trident renewal and the billions wasted on the Private Finance Initiative. It would also require a drive to devolve and decentralise many government functions to ensure meaningful localism and much greater efficiency and responsiveness of services. The centralised, lever-pulling basis of the British state is no longer viable as the dominant governance model in terms of democracy, accountability and efficiency.

Aping Tory spending totals after 2015 will not win back economic credibility for Labour and it would be an economic, social and political disaster for Britain if all that was on offer from the largest centre-left party in 2015 was more austerity. Economic credibility comes from outlining a genuine alternative that would begin to tackle our interlinked economic, social and ecological crises.

Joe Cox is Research Coordinator for Compass