We need a politics for long term economics

Politics – like economics – is cyclical. Parties go in and out of power and priorities change. Democracy is – by its very nature – short term. Planning projects that will complete more than five years ahead means potentially handing successes to your successors. That’s hard to do. Human nature makes it so. We shouldn’t deny that, but try to work with it.

Today, the Fabian Society have taken the first steps into looking at how a Labour government could start to do so as well as looking at how a Labour government can implement our priorities in a restrictive fiscal environment.

Accepting the reality of the weakness of the economy Labour could inherit in 2015 is not the same as accepting the principles of economic mismanagement that led us to this situation. As it now seems, the worldwide economic crash of 2008 hit the UK harder than was even known at the time. That Labour managed to return the economy to growth in such a short time is a huge testament to the state action they were willing and philosophically able to take. Thanks to the ineptitude of George Osborne, we have seen what happens when the state withdraws from a weakened economy: flat line at best.

There are signs that anaemic growth may be returning to the economy. If Labour do inherit an economy shakily returning to growth, the pressure to simply reverse the Tory cuts will be great. And some of the most damaging – especially those that are more ideologically than fiscally driven, like the hated Bedroom Tax – should be reversed. But we won’t be able to reverse them all. Some because they will be impossible financially and some because the damage is irreparable. We will have to move forward from the position of weakness we inherit.

To do so we must be honest about some of the myths that have grown up around Labour’s last period in power and some of our failures. And we must ignore some of the worst, but most politically potent, economic illiteracies of the Coalition government.

The last Labour government did not “spend like drunken sailors”. In 1997 Labour inherited a debt of 42% of GDP and by the time of the crash of 2008 had reduced this to 35%. Economic policy was led by a man who was famous not for overspending but for prudence. There was spending needed, as the Tories had driven public services into the ground with schools and hospitals literally crumbling. But most of this spending took place as Labour reduced the national debt.

Not all of the spending was managed well though. There were projects that Labour should not have spent on (the Dome springs to mind) or should not have signed up to such poor deals for the taxpayer. Many of the PFI contracts, which brought in much needed cash injections, were badly drawn for the long term interests of the government and taxpayers. Perhaps in the proposed new powers for the Office of Budget Responsibility (OBR) could be a remit for apolitical oversight of long term contracts over a certain limit to ensure that catastrophes like that happening to South London Healthcare can better be avoided.

One of the most egregious efforts of spin is the way the Coalition talk about the national debt. Manageable debt is not – in itself – a bad thing. Ask any business with an overdraft. If we are borrowing less than we will gain from the investment of that borrowing, then debt is a helpful lever to allow you to expand your economy. I know the difference – for example – between my credit card debt and my mortgage (and I don’t even get to borrow cheaply as government can by issuing gilts). I’m a lot happier about the latter and determined never again to be trapped by the former. Labour too can and should distinguish between good and bad debt – which Ed Balls has been doing if somewhat obliquely at times. The public can understand these arguments politically as long as we veer away from the language of economy and closer to home – just as the coalition have successful achieve with their false “national credit card” analogy.

We need to be very clear that we did not and will not “end boom and bust”. We know that economics remains cyclical and that tax receipts in the UK can be threatened by financial crises that originate overseas where our government has no jurisdiction. This is not an argument against better regulation for the City – this will be vital. But we cannot rely on this alone to protect the funds government has come to rely on from the financial services. We must also take longer term action both to rebalance our economy towards more sustainable business models.

Hardest of all, politically, will be to ensure that we have a “rainy day” fund to protect ourselves long term against the kind of shocks we have experienced over the last five years. This will mean continued fiscal restraint even after the worst of the recession is past us. It will be hard to sell that to some, but there is no point in pouring money into services only to see them destroyed when times are bad and Tories are in power. We need to ensure we can protect good services in the bad times, and that can only be done by saving for them in the good times.

Governments want to change things in the space of Parliamentary terms. It is not always the wisest course to do so. These do not necessarily match with the economic cycles or with the need to invest sustainably for the long term. It is hard to reward your successors with triumphs that should be yours, but if Labour is truly to be the natural shepherd of our public services, it must be the party that can take and manage them long term – allowing them to thrive whoever is in Government.