Harman’s Budget Challenge, by Jonathan Todd

The budget response is the great set-piece political challenge. Your opponent has an age to prepare and all the resources of treasury. You stand up when they sit down. By the time you sit down, the political context is virtually set, not least because your opponent’s spinners have tried to fix this. Given the centrality of economics to present politics, it is a bigger challenge than ever. Harriet Harman must rise to this as our acting leader.  Which transience of tenure, of itself, reduces her potential agility compared with a permanent leader. You have to feel for her. Here are a few, hopefully helpful, suggestions.

The first task is to distinguish pragmatic economics from small-state ideology. As the need for deficit management is widely acknowledged, pragmatism is required, but only Thatcherites see this crisis as an opportunity for ideological resurgence.

The second task is to oppose the manifestations of this ideology, while the third is to provide a coherent alternative economic prospectus. This prospectus must contain tax increases and spending cuts, but the mix should reflect a very different ideology from that supported by Tory MPs agitating for a budget akin to the Thatcherite “cold shower” of the 1981 budget. Overarching all of this is the need to gain an audience in a media climate favourable to the coalition.

These steps are crucial to Labour’s hopes of returning to government. However, while this budget intends to frame public finances over the full parliament, Labour’s navigation of these steps will evolve. Harman cannot provide a definitive take. This isn’t just because events – for example, a double dip recession; the risk of which is increased by Osborne’s cutting – could overtake whatever fiscal consolidation plan Osborne has. It is also because the necessary Labour policies will only emerge under new leadership.

David Miliband last week produced some neat ideas: mansion tax on £2m homes (ok, but why not simply a land tax?); extending the bankers’ bonus tax (fine, while it works – evasion this year was surprisingly low and the tax take, therefore, unexpectedly high, which is unlikely to persist); and ending the tax subsidy to private schools (great for Croslandites like me, but Friday’s “Miliband’s class war” editorial in the Evening Standard indicates that it won’t be a completely easy sell).

Ed Balls has played the VAT card, stressing its regressive nature. However, the coalition probably sees this coming and will try to protect those who are on low incomes through changes to income tax – and in so doing, protect themselves from Balls’ attack. Balls isn’t wrong to be assertive on VAT, but our VAT-based attacks should acknowledge the full consequences of the coalition’s tax changes or we will appear partial.

While I expect any VAT increase to, rightly, produce Harman fireworks, as acting leader she has limited ability to pick up the good ideas that the leadership contest is generating and craft them into a response redolent of Labour philosophy. Perhaps a permanent leader would have already made a better fist of the case that, rather than scrapping the child trust fund, it would be fairer to reduce tax relief on ISAs, say. Sadly, we can expect many occasions today when it would be preferable to have someone at the dispatch box able to say: “you wouldn’t need to do X if you had done Y”, where, to paraphrase J K Galbraith, X equals something disastrous done by the coalition (e.g. scrapping the child trust fund) and Y equals something unpalatable that Labour would have done instead (e.g. reducing tax relief on ISAs). The coalition knows this and will try to take advantage.

However, disastrous things have already been done and popular protest has been underwhelming. Since the election of President Obama, possibly the biggest change to the American political landscape has been the emergence of the tea party movement. This has been fantastically effective at mobilising grass-roots opposition to Obama’s “big government”. Labour leadership contenders grasp towards elements of Obama’s movement politics. But, this is already slightly old-hat. Alternatively, they could plant more seeds for the emergence of a leftist equivalent to the tea party movement to rally against injustices like the abolition of the child trust fund.

Robin Cook once said that millions of people think that they benefit from tax credits due to obscure machinations of the inland revenue, not because of Labour decisions. A leftist equivalent to the tea party movement – building on campaigns like don’t judge my family – would leave people in no doubt as to which politicians are responsible for reversing popular Labour policies.

The utility of such a movement is underlined by how quickly media coverage of the deficit has shifted since the General Election. Then, the main focus was when to start cutting and the £6bn at issue is the tip of the iceberg to come. We rightly conceded, during the election campaign, the need to address the deficit over this parliament, but were also right to argue that this job shouldn’t begin this year, as to do so would imperil a fragile recovery. Harman should repeat these points in her budget response, but she shouldn’t expect much media kudos for them. Coverage has moved on, swallowing the coalition’s line that cuts had to come this year, with too few tears shed for the child trust fund and the future jobs fund. The outrage that these cuts merit won’t come from the media, but should come from a mobilised grassroots movement.

Another thing illustrated by the speed with which debate has moved on since the General Election is the thin, but real, distinction between economics and ideology. Were the cuts this year pragmatic or Thatcherite? Certainly the micro consequences – the loss of the child trust fund and the future jobs fund – should be resisted. But lots of economists who would balk at being labelled Thatcherite, including the Labour peer Lord Desai, indicated that cuts this year should be part of a pragmatic deficit response. Economists do not speak as one and it’s usually possible to find one who buttresses your ideology.

The easy course is to seek out this economist and use their arguments to provide a veneer of protection for ideological positions. However, like most veneers, cracks can easily be exposed. The tell-tale sign of this tactic is argumentation predicated upon less than credible claims. For example, the coalition’s habitual canard that their austerity programme is needed to stop us turning into Greece. Harman should read Rachel Reeves on why their scaremongering is ideological motivated. But, just as the coalition are grasping towards economic arguments that allow them to retreat to their Thatcherite comfort zone, so, too, there are economists who encourage Labour to remain in our ideological comfort zone.

Their charms should be resisted by Harman, who should instead be carefully studying last week’s report by the office of budget responsibility (OBR). It showed that the economy is in stronger shape than the coalition’s apocalyptic talk implies. Consequently, if Osborne takes actions as dramatic as this talk suggests, then, he will have defaulted to Thatcherite instincts. If Harman can use the OBR’s report to expose this, she will have done a great job. The other things that we need – a full Labour plan for deficit management and growth; a left-ist movement to resist the coalition’s extremes – are for further down the line; hopefully, to be crafted and inspired by our next leader. But an important task can be accomplished today: to damn Osborne’s fiscal trajectory as regressive, ideological and Thatcherite.

Jonathan Todd is a consultant at Europe Economics and was a Parliamentary candidate at the 2010 election.

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One Response to “Harman’s Budget Challenge, by Jonathan Todd”

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