2030 vision – how Labour should spend money in government

Rebuilding Labour ‘s economic credibility is perhaps the most pressing challenge facing Ed Miliband and Ed Balls. Voters have been slow to forget and even slower to forgive Labour for the economic crisis. Whether you buy Tory smears linking Labour spending choices to the disaster is neither here nor there. The public will not have confidence in Labour’s economic plans unless they believe that Labour’s approach to public spending has changed.

But simply accepting the coalition’s spending plans is not an option for the left. The cuts already pencilled in for 2016 and 2017 would bring devastation. Many councils would be able to do little more than discharge their core social care and refuse collection duties; some government departments would have less than half as much to spend as in 2010; and there would be sweeping cuts to social security on top of all that has happened already.

So the left needs to forge a new path that offers a hopeful alternative to the coalition, while also providing reassurance that Labour can be trusted with the public finances. This is the challenge the Fabians set for our Commission on Future Spending Choices, which has been working for the last year and reports today. Its final report ‘2030 Vision’ contains a whole slew of recommendations on how politicians can improve the quality of public spending. Because until we give people confidence that government can spend money better, they won’t trust Labour to spend more.

The central conclusion of the report is that government needs to focus more on the long term. For understandable reasons politicians seeking re-election often think about the here and now – short term political fixes and headline grabbing initiatives – to the exclusion of the future of the country. But the machinery of government just makes matters worse, with a focus on annual budgets and narrow departmental silos. Labour must champion a different way, by demanding that every spending choice is made with a long term lens. The commission proposes that decisions are always taken with a ten-year view and says ministers should consider forcing public services to transfer money to preventative early interventions.

The overall allocation of money also needs to change, because since the financial crisis spending which brings future benefits has been squeezed by other (admittedly important) priorities. Spending on capital and education will be much lower as a share of national income in 2017 than 2007, even though Britain is crying out for new homes, modern infrastructure and higher skills.

As the party that built the NHS and modern welfare state, Labour will never want to put at risk strong, universal healthcare or pension systems. But nor must the party plan to spend so much on these areas that everything else is sacrificed.

The Fabian commission proposes that in 2016 and 2017 NHS spending should continue to be frozen and suggests there might need to be modest restrictions on older people’s social security. Meanwhile there should be an increase in capital spending and protection for spending on early years, skills, innovation and job creation, on the same basis as the current protection for schools and the NHS.

However, it will only be possible to deliver a package of this sort if a future Labour government plans on spending a bit more than the coalition. We considered an increase of £20 billion, which would hopefully be paid in part by rising revenue from economic growth but, failing that, could be funded by modest tax rises for high income households or a slight slowing in the pace of deficit reduction. We also looked at a similar combination of policies over the next two decades and concluded they could only be funded if tax is to increase a little as a proportion of national income.

Our proposals for after the election would make difficult trade-offs just a little easier, but no one should believe there is going to be lots of new money to spend anytime soon. Social security spending will still need to be kept in check; department spending would be flat, rather than cut again; and public sector pay would probably be able to rise by no more than inflation.

But even these plans will be presented by the coalition as dangerous irresponsibility. That’s why they must go hand in hand with convincing answers on how money will be spent better. The left should not be asking the public for extra money for more of the same, but for a different long-term approach to expenditure. The dividing line cannot be ‘more’ or ‘less’, but investment in the future against cynical and divisive short-termism.

2030 Vision: The final report of the Fabian Society Commission on Future Spending Choices is published today. Read it on the Fabian Society’s website here