Europe and the economy: the electoral line for Labour

The political and economic scenes in Britain are warming up nicely as the May election approaches. Both the main parties are trying to establish the issue which they hope will determine the election result, Labour focusing on the NHS, on which it is more generally trusted than the Conservatives, the Tories spreading the false claims that Labour government spending caused the 2008 global financial crash and that if Labour wins in May, it would wreck the economy again.

In reality however the central issue at stake in the election is Britain’s future in the EU, on which David Cameron is desperately vulnerable, having recklessly capitulated to the demands of his own back-bench Neanderthals and UKIP for an ‘in/out’ referendum on ‘Brexit’, short for ‘British exit’. The great majority of literate pundits and the British financial and business communities acknowledge that Brexit would be a catastrophe for the UK in virtually every area. Yet it looks increasingly as if in a Brexit referendum, promised by Cameron for 2017 if the Tories have won the election outright, there might well be a majority for leaving the EU. Labour rightly opposes a referendum and advocates staying in the EU, working for reform from within. On any measurement the vital importance for Britain of its relationship with the rest of Europe means that this election issue eclipses any other. There are plenty of other reasons for replacing Cameron with Miliband in No. 10, but the EU issue on its own should be enough to convince all thinking people, whatever their normal party allegiances, that a vote for the Conservatives (or UKIP), and thus for a serious risk of Brexit, would be indefensibly irresponsible.

To maximise the Labour vote in May, the party can’t just explain the risks to Britain’s place in Europe and the world posed by Cameron’s referendum gamble. Labour needs a convincing line of attack on the economy, the budget deficit, and the Tories’ mendacious claim to have engineered a miracle ‘recovery’. Several questions for Labour to ask suggest themselves.   Why has Britain’s recovery from recession been so slow and uncertain? Why are the limited fruits of such recovery as there is so unfairly distributed between richest and poorest? Why have the Chancellor’s sadistic cuts in government spending so signally failed to bring down the budget deficit to the level he had promised? Why is government borrowing so stubbornly resistant to the reductions promised by Osborne and Cameron?

The answers to these questions are there in the financial columns of the serious media. Capitalism is like riding a bicycle: it has to keep moving ahead and growing if it is not to collapse. Durable growth depends on consumer demand, reflected in economic activity by households, firms and government — especially ordinary individual consumers. But for years the richest few in society — bankers and financiers, oligarchs, big shareholders, senior company executives with their astronomical salaries and bonuses — have been seizing an ever increasing share of national income, including an increasing share of annual growth (if any), leaving a shrinking share for everyone else. A shrinking share for ordinary consumers means a steady reduction in their ability to consume: ever lower wages mean reduced spending, even when bolstered by increased debt, itself eventually a source of instability. As the prospect of steady growth in spending fades and the spectre of deflation looms, firms are increasingly reluctant to invest or to recruit labour,  fearing that ordinary consumers won’t be able to afford to buy their products. Lack of aggregate demand lies at the root of our teetering economies, especially in the drowning eurozone, but in Britain too.

There are several remedies:

• put more money in the hands of those who will spend every additional penny they receive, namely the poorest and weakest in society, for example by increasing welfare benefits, and reducing or suspending VAT which imposes a disproportionate burden on the poor, reducing their ability to consume;
• use fiscal policy to reduce inequality, increasing taxes on those with the lowest propensity to spend marginal income (i.e. the already rich);
• increase government spending on capital infrastructure projects, especially social housing — think big, remember Roosevelt’s New Deal;
• actively encourage immigration (yes!) by people of working age — their contributions to the economy help to pay the pensions of Britain’s ageing population and their taxes increase government revenue, reducing the deficit;
• pour money into education and training, research and development, vital investments for the future.

The Tories will sneer at such a programme as superannuated Keynesianism. Actually it’s common sense.

Labour can demonstrate that on every single count the Conservative-led coalition, since taking office in 2010, has adopted the precise opposite of every one of these urgently needed measures, choking off the incipient recovery instigated by its Labour predecessor and actually throttling demand in the economy by axing public expenditure, increasing taxes on the poorest and cutting, instead of increasing, welfare benefits, thus transferring even more resources from the poorest many to the richest few. No wonder Mr Osborne has failed so miserably to hit any of his targets. Yet the Tories boast of their superior economic management skills and their success in presiding over Britain’s ‘miracle’ (but mostly invisible) recovery. How do they get away with it?