Is Labour finally overcoming its fiscal credibility problem?

Labour can now accuse the Tories of wasting public money without provoking widespread sniggering and disbelief. Shadow Chancellor Anneliese Dodds planted a flag on the fiscal credibility high-ground at Labour’s online ‘Connected’ conference earlier this week. Laying out the case against the government, she presented a “file of failure”. This is no small thing. For any opposition, accusing a government of wasteful spending is a crucial, even decisive, line of attack. But until now it has failed the ‘people in glass houses’ test – or worse, reinforced Labour’s negative association with spending.

Dodds’ predecessors over the last decade have also sought to move into this territory but fell short. The Miliband-Balls years imposed a tight fiscal straight-jacket on the frontbench. They found clever ways to switch money around and had to concede ground on day-to-day public spending. Even then, the electorate didn’t buy it: 2010 was too recent, Labour was led by two prominent Brownites, and austerity fatigue had not yet set in. More importantly, fiscal credibility and austerity were seen to be synonymous. In the eyes of the electorate, the party was perceived as facing both ways – lacking not only fiscal credibility but integrity and authenticity, too.

During his tenure as Shadow Chancellor, John McDonnell showed that he understood the importance of fiscal credibility, to a point. But it was all drowned out by the noise of announcement after expensive policy announcement, just as the public was tuning in. In 2019, despite apparently costing all policy in the ‘grey book’, all the electorate heard was spend, spend, spend. But Labour’s recent steps toward fiscal credibility have been much firmer. Now led by the class of 2015 (and 2017), and under the banner of ‘A New Leadership’, Labour is unencumbered by time in government and aided by a general sense of competence.

It’s not just Labour that has changed. Fiscal profligacy has become a prominent feature of Boris Johnson’s premiership – even before the pandemic hit. For a year now, he has charged around the country making big promises and, so far, it has worked very well for him. People have sat up and seen a new, optimistic kind of Tory, who will spend big to ‘level up’ the country.

The Prime Minister is said to have parked his tanks on Labour’s ‘Red Wall’ lawns, and to have found the sweet spot of economic interventionism and authoritarianism of the cross-pressured voters, who make up the new, working conception of the centre ground. Like any big move, it is also a big gamble. He either thinks the Conservatives are inherently seen as the party of fiscal credibility, or he thinks they have built up enough of that credibility over a decade of austerity to start spending some of it. Whether Johnson’s gamble will still pay out in 2024, we can’t yet tell. But it has exposed a vulnerable underbelly. Why does this all matter? Because, while it won’t get activists’ pulses racing, fiscal credibility grants Labour a hearing for any spending plans they make.

Dodds’ speech hinted at what can be built if you lay a solid foundation. First, and most importantly, she decoupled fiscal credibility from its association with austerity: it was an attack on wasteful or mismanaged spending, not on public spending itself. Some on the left pushed back on this speech, even before it was delivered, because they still make the connection between fiscal credibility and austerity. But we have come a long way since 2015 – so have the electorate, and so have the Tories.

Labour must now forge an association between fiscal credibility and specifically wasteful spending. There is no conflict of principle here, and it frees the party from having to disingenuously propose austerity to get a hearing, as in 2015 and 2010. It also introduces cronyism and competence as a measure by which to judge the government – a strong combination.

Fiscal credibility is hard-won and easily lost, and this was just one speech. We can expect to hear much more about it from the new leadership. It is a powerful line of attack and provides the foundation of the policy programme to come. Members and activists need to get used to talking about it. This government is spending fiscal credibility like there’s no tomorrow – but Labour has finally turned a corner and started to earn some of it back.