Jonathan Todd on the emerging politics of deficit reduction

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

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3 Responses to “Jonathan Todd on the emerging politics of deficit reduction”

  1. Mike Killingworth says:

    Let’s get the cheap shot out of the way first, shall we? Mr Todd managed to mislay 70% of the Labour vote in the seat he fought, and now he wants to tell the rest of the Party what to do. Plenty of humility there, then.

    Nor should the fact that the coalition government enjoys a 60% popularity rating occasion any surprise. After all, 60% of those who voted earlier this month did so for one of its constituent parties. And there are almost certainly fewer sectarian Tories and Lib Dem activists “agin it” than there are non-voters prepared to give it a fair wind for now. I would suspect that Tweedledum and Tweedledee privately regard 60% as a disappointing number.

    What Todd’s article signally fails to do is to notice that Labour faces two tasks – first, to rebuild its membership and second to re-connect to enough of the electorate (in other words, back to its 2005 vote share) to win a further 30/40 seats. “One more heavism” will not be enough to do this, particularly if the coalition achieves its goal of reducing the number of seats, which will cost Labour 20 seats in England alone. Of course, it is perfectly proper to be sceptical as to whether this will actually happen, particularly if the 2011 Census is a victim of the cuts.

    There is a view that activism is boosted by local councillors. I suspect what this view comes down to is that local parties these days consist merely of office-seekers and their families – a cynical approach, but in the absence of a grand policy narrative, an understandable one. There are great swathes of England (especially in the shire counties) where there are few or no Labour councillors. Yet most local government wards are multi-member and would suit the introduction of STV. The Parliamentary Party should lose no time in dedicating an early Supply Day to a motion to this effect. It should introduce a Bill in the Lords (where it would probably carry) and see what the co-alition did with it when it arrived in the Commons.

    Yes, it would cost Labour councillors in inner London and elsewhere. But the third councillor in most wards is not a towering political giant. The gain of councillors in presently Labour-free zones (which would encourage membership – there might even be ward parties again, but let’s not get too carried away) and the embarrassment of forcing its own agenda down the coalition’s sticky throat would surely be well worth it.

    As to the economy, Labour’s position is surely clear. Neither of the coalition parties opposed Quantative Easing at the time, nor does the reaction of the markets suggest that the Brown government was uniquely irresponsible in its response to what was, after all, a global crisis and not one caused by any policy of Labour’s. Except for one, of course: its reliance on the City of London to fund the rest of us. And even that was taken over from the Tories. Replacing a City which has become “too big to fail” is the real policy challenge for Next Labour – and here, who knows, even Mr Todd may have a part to play. Although, given that he talks of “Mandelson’s solid achievements” he may have more of a future in stand-up comedy.

  2. Jonathan Todd says:


    Thank you for your comment.

    I’m glad that you think I may have a role to play in rebalancing the British economy away from finance. This seems a very noble calling. But there is nothing ignoble in being a stand-up comic. I’ll have to reflect upon my true calling.

    However, whether you want to accept this or not, there is little doubt that Peter Mandelson was responsible at BIS for the most activist industrial strategy that this country has seen for 30 years or more. The point I made in respect of this in my piece was to say that policies of this kind would assist in delivering the kind of growth rate that we shall need in coming years to make the deficit as manageable as possible.

    These policies are also what we shall need to achieve the rebalancing of the economy that you rightly call for. What a shame that Vince Cable yesterday began to dismantle them. And so many people thought him such a nice man. I might be the stand-up comic, but, may be, Vince is the one who is taking the mickey.

    Best wishes, Jonathan

  3. Fat Bloke on Tour says:

    Why doesn’t any analysis on the economy not start with the global reasons why we are in the mess we are in? All this self flagellation is very noble and probably reflects a lot of current Labour sentiment given the recent happenings in Coalition Land but it is wrong.

    After 97 public investment was badly needed.
    GB delivered on the money side to make things happen.
    Any failure was at the managerial level to get the policies understood and implemented.
    However overall the Labour party can be very proud of its efforts.
    The issues of 97 have gone, our problem was a lull in the middle.
    Responding to the Credit Crunch started the fightback.

    On the subject of the Deficit, the establishment is shroud waving.
    They do not want to pay the tax rates needed to fund the 2010 public sector standards.
    Consequently they are using the Deficit to push through long term cuts.
    The issue has been hyped up by a wide range of “Dog Boilers”.

    Thatch2 recession — 2.5% reduction in GDP peak to trough = 8.7% deficit.
    Tough as it was at the time, it is not in the Top 5 of post war economic events.

    Credit Crunch — 6.2% reduction in GDP peak to trough – 11.1% deficit.
    Biggest economic crisis in 80 years.
    Biggest banking crisis in 135 years.
    Getting through it without riots on the streets was worth the debt.

    Please note the Treasury forecasts on the 2009/10 deficit.

    March 2009 = £175bill forecast.
    Nov 2009 = £178bill forecast — Not looking good at the PBR.
    March 2010 = £165bill estimate.
    May 2010 = £156bill.

    These figures show a swerve Ronaldo would have been proud of.
    Surely the Treasury weren’t trying to box AD in?

    GB + AD have built the foundations of a recovery.
    We need a squad of brickies to build on it.
    Sniffy and the Poisoned Dwarf are sending in a wrecking crew.

    The deficit is important but it is not the prime concern.
    Keeping the show moving forward is the main issue.
    The basics were all in place, Labour has nothing to be ashamed off.
    Everything GB did regarding the banks has to be seen in context.
    That includes the mood music in the press and the situation globally.
    If the Tories had been in charge, things would have been worse.
    And it would have started 2 years earlier — UK to US not US to UK?

    Public sector borrowing — GB was right.
    He planned a slowdown in 2007/08 but events overtook it.

    Industrial policy — Mandy made a difference.
    Previously Labour did not have the confidence or the vision to argue against the civil service.
    All they were interested in was managed decline and we let them.

    Deficit — Please do not listen to the orthodoxy doing the rounds.
    The Poisoned Dwarf was told that it would be less than £100bill in 2012/13.
    Slowdown in spending and a tax rebound will do most of the work.
    The Coalition cuts agenda is pure spite.
    They are all “Dog Boilers” now.

    Please note that “Dog Boiler” is someone in the upper middle class, public school educated elite who given the chance would rather have the poor and the unemployed consume the family pet for sustenance than provide them with a decent level of support through dificult times.

    Please note that there are 19, sorry 18 millionaires in the Coalition cabinet.

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