The deficit must not become the elephant in the room of Labour’s leadership election. Labour needs economic credibility to form the next government. Good candidates should – among other things, obviously – demonstrate that they would provide the leadership necessary for this credibility.
The deficit will define much of the politics of this parliament. The temptation will be great for Labour to duck its tougher questions. This won’t just be because ducking is always a tempting response to tough questions, especially questions as tough as those raised by public spending cuts. Temptation will also derive from a Labour reading of the future that is so optimistic that it risks complacency. On this interpretation, the deficit will require the coalition to do deeply unpopular things and a horrified electorate will therefore rush to the comforting embrace of Labour government on the next occasion that they are offered the chance.
This analysis seems to come recommended by Mervyn King. The Governor of the Bank of England is said to believe that the present parties of government will be forced into such extreme austerity measures as will keep them out of power for a generation. But this thinking has a worryingly “one more heave” characteristic to it. It tends towards a view that simply says: “We told you the Tories and Liberal Democrats were horrible and they are now being horrible. Come home to Labour.”
It is always mistaken to react to election defeat by thinking that you were right, the electorate was wrong but, soon enough, they will see the error of their ways. Labour cannot afford such an elementary error, particularly after a “near death experience”.
In George Osborne we see a Chancellor who does much to remind us why we hate Tories. But we shouldn’t let this cloud our judgments. Many Labourites presumed that a buffoon like Boris couldn’t become Mayor, until he did. The assumption was grounded in an inability to see things as the broad mass of the electorate sees them.
The best response to the deficit requires us to look beyond any similar feelings that we may have towards Osborne. Doing so begins by noting that the concept of the coalition is popular. Pollster Deborah Mattinson told the recent Next Left conference that for years the public have told her that what they really want is for the best people in the various parties to put aside their differences and tackle the biggest challenges facing the country. Perhaps this sentiment explains the coalition’s 60 percent approval rating.
While the public are nervous about the consequences of deficit reduction, the deficit is recognised as a big national challenge. Where appropriate, we should resist the micro consequences of the deficit reduction – say, closures of Sure Start centres; the scrapping of the Child Trust Fund, and so on – but we shouldn’t lose sight of the macro picture: that we need to speak credibly on deficit reduction.
If Labour cannot do this, we risk, no matter how ill-advised the specific cuts at issue, appearing sectional and lacking in ability to tackle issues of national concern. The coalition would be glad to see this view taking hold. They want people to think that they are responsible and reasonable, while Labour are vandals who got drunk wrecking the economy and now can’t sober up enough to play any sensible part in putting it right. The media will largely encourage this perception. All of this was crystallised in the reaction to Liam Byrne’s Reginald Maudling-inspired non-gaffe.
Leadership contenders must not forget the importance of rebutting the charge that we were economic hooligans in government. As well as defending our past, candidates should, of course, also set out future economic prospectuses. This demands serious thinking on economic growth, as the manageability of the deficit is correlated with the economy’s rate of growth, and the mix of spending cuts and tax increases in Labour’s deficit reduction plan.
Intelligent thinking on economic growth requires further development of the new industrial strategy that Peter Mandelson was taking forward at BIS. While the early signs from Vince Cable are of a retreat to a misguided laissez-fairism, we shouldn’t rest on the laurels of Mandelson’s solid achievements. The economic challenges that confront industrial policy are complicated and profound. As well as resisting Cable’s dismantling of Mandelson’s approach, we need a positive platform that fully addresses these challenges.
In addition to decisions on growth, there are many decisions to be made on the best mix of reduced spending and increased taxation in deficit management. We should put more emphasis on taxation than the coalition, while being redistributive and imaginative, in terms of what we propose to tax. There are, for example, cases for revisiting land and carbon taxation, as Philippe Legrain has argued.
Labour should never shirk from addressing key national concerns. But we should always address them in ways consistent with the values that define us. The deficit is no exception. This necessitates candidness about the scale of the challenge, sophisticated policy thinking and communication that cuts through the vandal narrative that the coalition and the media will run against us.
Nothing less than this, and certainly much more than “one more heave”, is needed for Labour to provide the best response to the biggest problem.
Jonathan Todd is a consultant at Europe Economics and was a Parliamentary candidate at the 2010 election