Labour's Spending Plans

The Times ran two opposing comment pieces the other day - with considered advice for the Labour leadership over their future spending plans - which will be a key issue in the run up to the next general election.

Now Dan Hodges and Neal Lawson are both Labour supporters - they just see the politics differently which is fair enough because the People's Party is a very broad church - or a 'large house with many rooms' to paraphrase one of the readings from Margaret Thatcher's funeral service.

To my mind Dan Hodges has a much better argument - because it's clear that even if Labour were in power now, their total spending would differ very little from Coalition Government - Alistair Darling, the former Labour Chancellor, conceded as much before the 2010 election.

And Neal Lawson's analogy of American 'GIs in Vietnam burning the village to save the village' just doesn't work for me as a credible description of what the Coalition Government is doing to re-balance the economy and bring public spending under control.

For God's sake, are we supposed to believe that the Coalition Government is wiping out whole communities - using a deadly mixture of Napalm and Agent Orange or is that taking things just a bit too far?

So we shall see what happens - but it certainly makes for a lively debate.  

Should Labour stick to Tory spending plans?

Two different pieces of advice for Ed Miliband ahead of the next election

YES says Dan Hodges. Ed won’t win back voters’ trust without telling the truth about the deficit.

Last year, with ministers omnishambling around Westminster, Ed Miliband told everyone who would take notice that his party had “earned the right to be listened to on the economy”. It hadn’t. No one is listening to Labour’s economic offer. Or if they are, they’re taking a distinct dislike to what they hear.

The Tory poll lead on economic competence is growing; yesterday’s Opinium/Observer poll has it back up to 7 per cent. That’s staggering, given that this week the country could find itself in the middle of an unprecedented triple-dip recession.

Privately, Labour insiders are nervous. They see a coalition that is defying political gravity. Every warning that Ed Balls has issued over George Osborne’s strategy has proved prescient. But it’s done nothing to convince voters that he, rather than Mr Osborne, is the man to guide the economy to safety. Mr Balls and Mr Miliband need a game-changer — a bold statement that Labour can be trusted to manage the public finances, not just to critique them.

Soon Mr Osborne will set out the spending settlement covering part of the next Parliament. When he does, Labour should match him in net terms. This would let it shelter behind the shield of the Tory spending envelope, but allow flexibility to alter priorities, especially on capital expenditure.

There is also a sound economic basis for this approach; namely that the public finances are utterly screwed. The Government has conceded that it will greatly overshoot its borrowing targets; by £245 billion according to Labour’s figures. The deficit will be significantly in excess of what Labour proposed in 2010; the Darling Plan was for a 33.9 per cent reduction by 2013, compared with the 24.3 per cent that Mr Osborne is set to deliver.

Labour claims no hard decisions can be taken until nearer the election. But if that’s the case, how can Mr Miliband bind himself, two and a half years out, to a top tax rate of 50p in the pound and to the return of a bottom rate of 10p? Why does his crystal ball reveal the required rate of taxation, but not the required level of public expenditure?

There is also a pressing political imperative. The public’s doubts about Labour’s economic competence are not based on fears that the party won’t spend or borrow enough. “Not sure about that Ed Miliband. Think he’d be too stingy with the nation’s credit card” is not a view that you hear in the pubs and supermarkets of Britain.

There’s also another, slightly naive, reason why Labour should say that it would cut as deeply as the Tories. It would be telling voters the truth.

Whoever wins the next election, austerity will be their inheritance. The Tories will have to cut. Labour will have to cut. Nick Clegg will wring his hands and beg forgiveness. But if he’s back, he’ll have to cut as well.

Mr Miliband is fond of telling friends he won’t go into the 2015 election “fighting the last war”. Fine. But when the Tories’ 1992 “tax bombshell” lands in his lap, warning of blood-curdling new taxes to finance Labour’s extra spending, he’ll wish he had.

Dan Hodges is a political commentator and former Labour adviser

NO says Neal Lawson. People know that austerity is failing and won’t vote for more of the same.

Political destinies can be forged by a single decision; to go to war or keep the peace; to call an election or hope something turns up. For Ed Miliband and Ed Balls their destinies could be determined by whether they match Tory spending plans — or not.

Siren voices warn that the task is simple — play it safe, give George Osborne no room for attack and do exactly as the Conservatives plan to do. After all, they claim, this game of political snap worked in 1997. But it was economically damaging, as it stalled growth, and politically unnecessary. Instead of rerunning its past, Labour should modernise itself once again.

The economic case is clear. Cutting spending at an unheralded rate is disastrous for growth. Unemployment is rising; the Chancellor is missing his deficit reduction target by tens of billions of pounds. The credit rating agencies are cutting him adrift and even the IMF worries that he’s got it wrong. Austerity is certainly hurting, but it’s not working. Most voters say the Government is cutting too quickly, too much and too unfairly. More fundamentally, most economic experts agree that the big problem isn’t the government deficit but the demand deficit and lack of confidence.

Labour should make the case for a growth-based deficit reduction programme; arguing that big investment projects — focused, for example, on home building — will create jobs, cut unemployment and, hey presto, reduce the deficit. It is possible to argue that a stimulus-based deficit reduction strategy was not a winning argument at the last election but Mr Osborne has shown you can’t cut a deficit by flattening the economy.

Labour can show its seriousness about spending by cutting Trident and other wasteful projects. We must also insist that the public services can be run more efficiently. Co-production in the public services, for example, where employees and users work together, can deliver efficiencies. Money can also be saved by shifting services upstream to prevent rather than cure expensive social problems.

The diminishing number of new Labour diehards are wrong to argue that credibility comes from aping the Tories. What’s the point voting Labour when there is no difference from Tory policies that are palpably failing? As Mr Osborne looks increasingly isolated, why come to his rescue by saying he is right after all? As with GIs in Vietnam who burnt the village to save the village, this policy alienates all classes of support. It left Labour with just 29 per cent of the vote in 2010.

People know that the economy is broken in fundamental ways. They don’t want more of the same. People will vote for Labour if it has a credible plan and argues confidently for it. Not only is Labour more likely to lose without such a plan, it will lack a mandate to reform the economy if it isn’t honest about the radical changes it wants to make. Labour must move beyond the 1980s politics of denial and the 1990s politics of accommodation. It’s time for something new if we are to avoid a decade of stagnation.

Neal Lawson chairs the pressure group Compass and is co-author of its Plan B: A  Good  Economy for a Good Society