Nixon once said that the moment the public begin to complain about the message is the moment that some of the public have heard the message. At 1230 on Wednesday, George Osborne will get to his feet at the dispatch box to announce the outcomes of the comprehensive spending review. Even if the precise measures contained in the review were only finalised late at night over recent days, his script was agreed months ago. With tedious repetition, Osborne will once again blame all of the country’s woes on the size of the deficit. He will say that Labour’s legacy, in terms of the public finances, was the product of reckless irresponsibility, “profligacy” and waste – and that the Tory-Lib Dem government is determined to “clean up the mess” Labour left behind. This, of course, is a complete untruth. But if Labour does not confront this argument, there is a danger that the message will not only be heard, but believed.
In recent months, whenever the government has been criticised for cancelling new schools, cutting benefits and services or throwing people out of work, the response is always the same: there is no alternative – their hands are tied, they have no choice but to cut the deficit in the scale, pace and manner in which they now propose to do so.
Yet when we were in office, Labour was already committed to a greater and faster reduction in the budget deficit than any British government in living memory. We are not, as Osborne would have it, “deficit deniers”. We simply believe that the deficit must be reduced in a way that does not put in jeopardy our economic recovery, leading to more job losses, more firms going to the wall, and consequently less tax revenue, more benefit pay-outs, and a deficit which is even harder to reduce.
But whereas the Tories and Liberals want overwhelmingly to use public spending cuts, together with a VAT rise that clobbers the unemployed and the poorest pensioner to the same extent that it hits the banker and the millionaire, Labour understands that there are three ways to drive down the deficit. Yes, you must cut spending. Labour was already committed to difficult reductions – the Tories want to see £87 billion over and above Labour’s cuts – but you must also use fair taxation, and, critically, policies for jobs and growth.
According to reports over the weekend, the “push for growth” will be a central part of Alan Johnson’s first major speech as shadow chancellor today. He will say:
“We are constantly told that there is no alternative to the current economic strategy pursued by the government. But there is another way. A balanced approach. That gets the deficit down, but recognises that growth and jobs are not a sideshow to an economic strategy. They are what it is for….Without growth, attempts to cut the deficit will be self-defeating.”
In caricaturing Labour as economically inept and incompetent, the Conservatives are trying to resurrect one of the most enduring myths in British politics: that the Conservatives are the rightful masters of the purse. In their version of history, the Conservatives left a booming economy to Labour in 1997 – a ‘golden inheritance’ is how the former chancellor Ken Clarke used to describe it. In a Progress pamphlet, written by John Spellar and myself in 1999, the reality of this so-called golden inheritance was exposed.
In 1997, after a period in office that had seen the young David Cameron acting as special adviser to the chancellor Norman Lamont, the UK had a £350 billion national debt – despite the infamous ‘22 Tory tax rises since 1992’ – and interest payments of £25 billion a year. This was in spite of windfall of North Sea Oil revenues of £128 billion and privatisation receipts to the tune of £80 billion.
For all Margaret Thatcher’s rhetoric about “rolling back the frontiers of the state”, public spending was no lower in 1997 than in 1979. Labour inherited rising inflation and, despite rising economic growth, a country with one in five households workless, costing the taxpayer some £24 billion to fund the Tories’ legacy of social failure. Mass unemployment is what really defined the Conservative years, with spending on social benefits reaching a high of 14.3% in 1994.
It is easily forgotten that by 2007, after ten years in office and before the global financial crisis hit the UK, the Labour government had managed to guide the public finances to a stronger position than they had inherited, despite the massive, sustained investment in public services, so badly needed after decades of under-investment. Under Labour, the average annual increase in spending on public services was 4.4%, compared with just 0.7% per year under the Conservatives.
Figures from the institute of fiscal studies show that even though public spending increased from 39.9% in 1996-97 to 41.1% in 2007-08, revenues grew by 2.3% over the same period, resulting in a fall in total borrowing. In the same period, public sector net debt fell from 42.5% of national income to 36.5% as the UK economy grew faster than the accumulation of new borrowing.
By the time the UK fell victim to the global financial crisis – the biggest economic shock since the Wall Street crash in 1929 – the Labour government had managed to increase vital spending on public services by the second largest amount in the whole of the OECD, while at the same time keeping debt down to the second lowest in the G7.
The size of the current budget deficit is due to the choices we made, rightly, in response to the credit crunch. It is not true to say that it came about because we had “lived beyond our means” or because of “profligacy” in the preceding decade. As Robert Skidelsky points out, not being able to “support yesterday’s spending with today’s income does not mean you could not do so yesterday – the only thing a slump reveals is that some event has cut your income and you need to adjust your spending”.
In addition to the falling tax receipts when the credit crunch hit, the deficit increased when the government stepped in as the market failed. In order to prevent another great depression, we supported demand in the economy, prevented the complete collapse of the banking system and attempted to mitigate the impact of the recession on families and businesses.
This week, the shadow cabinet reaffirmed Labour’s commitment to halve the deficit in four years. We now have a settled position and one that is in stark contrast to the coalition government, as Alan Johnson will no doubt demonstrate this week. We do have to get across our message that we are determined to tackle the deficit – that is key to demonstrating our economic credibility and trustworthiness for government. But, unlike before the election, we have to win the argument that there is an alternative.
And we also need to take on the Conservative argument that Labour was somehow irresponsible and incompetent in managing the public finances in government. The truth is, we brought about a once-in-a-generation revolution in terms of improving our public services and we did so while reducing government borrowing. But when the global storm hit the British economy, we were right to support the economy, and families and businesses in particular. That action, together with the effects of the recession, inevitably drove up the deficit. But the consequences of doing nothing would have been far worse.
It is often said that winners write history. But the Conservatives didn’t win the election, even though Labour lost it. When it comes to the economy and to the battle over the public finances, we cannot allow the Tories, or the Lib Dems, to re-write our history or negatively caricature Labour’s economic legacy. If we let Osborne get away with it, the task of winning again will be that much harder.
Michael Dugher is Labour MP for Barnsley East
Tags: CSR, deficit, George Osborne, John Spellar, Michael Dugher
At last – thank you. A clear response to this incessant whine with which all ConDems preface any utterance, (even when ordering a drink at the bar, I hear). I am going to print this off, make lots of copies and hand it to every flipping person who tells me ‘yes, but it’s all Labour’s fault’, or ‘Labour are economically inept’. In fact, I might just go down to the town centre on Saturday and hand it to everyone I see, (I live in a v Tory town!).
Yes, terrific, but why are we only hearing it now, 4 months after the election, having had to endure 4 months of daily, Tory put-downs in the Commons and media, and accusations concerning Labour’s deficit legacy and economic incompetence; with only a meek defence of our economic credentials in 13 years of government offered up in response?
We lay down for too long and with too little fight and did little to counter the Tories dogmatic economic agenda when we should have been defending our record and hitting back twice as hard.
Christ, I’ve been having a right old moan on here lately, I think I need a little break from it all….but could I have chosen a worse possible week to so I wonder?
Look, I want Labour to be a party I can vote for. One of my criteria is economic sanity, as in “living within our means”.
I live in a Con/LD constituency. At the last GE I felt obliged to vote Conservative because I feared the LDs would support a continuation of the previous Labour government, who at that time were staunchly denying that a huge & increasing deficit was any problem at all. Even the vaunted Deficit Reduction Plan was no plan, merely a goal. Had it been a plan, we would have known how the goal was to be achieved.
I have listened to, I have tried hard to understand, I am totally confused by, the diametrically opposed claims on both sides of this argument.
What I do know is that the LDs, whom formerly I did not trust on the issue, now take a fairly similar view to the Conservatives.
Staunch Labour supporters may view that as a betrayal. Less partisan people may surely be forgiven for concluding that Labour’s take on the matter has been out-voted.
I fully understand that the banking crisis required extraordinary measures. However, I cannot accept the idea that a government is fundamentally any different to a well-run household. In my own household, we build up savings during the good times so that, when times are hard and local people are short of work, we can help them out by spending on improvements – building an extension (yes: a bigger mortgage), renewing fixtures & fittings, or whatever’s appropriate at the time.
You rightly say that Labour needs to demonstrate economic credibility & trustworthiness for government. Key to that is your determination to tackle the deficit. Mr Miliband’s new shadow cabinet may not have had time to flesh out concrete proposals of their own, but there is no reason why they should not reveal the measures that were actually being planned before the GE. They would have been drafted & costed whilst still in government, so the detail would be helpful, even if the change of leader means some changes of emphasis or direction.
Who knows, if you’d engaged in the argument before the GE, Labour might even have won the election!
Anne: “I cannot accept the idea that a government is fundamentally any different to a well-run household”
The household analogy is politically powerful (which is why so many people use it) but an economic nonsense, for all sorts of reasons. Both on its own terms (60% debt to GDP would be considered “not bad” for most indebted households, mortgages generally kicking off at around the 300-350% mark), and because when you spend, or save, as a household, that doesn’t have much in the way of feedback.
Your reduced spending is unlikely to send your employer out of business, for example, whereas a state sharply reducing spending not only has to bear the social and economic costs of the newly unemployed, and forego the tax revenue from them (meaning that if you make someone redundant from a £30k job, you probably only actually save £10k or so unless a thriving private sector recruits them), but also reduces the likelihood of that private sector existing – actual and feared unemployment lead to lower spending, and further job cuts in retail, services, manufacturing; a further fall in tax revenues therefore leads to a demand for more Government austerity, and the economy risks falling into a spiral of decline.
These are still the ‘hard times’ you talk about, and large cuts are too much, too soon – the equivalent of cancelling your evening class and selling your car, resulting in no promotion, no extra income, and lost earnings when you can’t make it to work any more.
Oldpolitics, thank you for your response.
I do accept that the analogy doesn’t scale up in many ways, just as a domestic quantity cake recipe doesn’t scale up to factory mass-production proportions (so I’m told).
When I say fundamentally, I mean in terms of exercising good stewardship, or good husbandry. Fundamental principles.
Politically committed people of whatever persuasion have their approved economic model(s) to guide their judgment of what represents good husbandry at government level.
People like myself don’t. That is why I am confused by the conflicting claims of what represents good husbandry at government level. Explanations from all sides sound equally plausible.
There are only two ways I can judge between them: one is by looking at outcomes, after the event.
My only forward-looking way of judging is by transposing fundamental principles up from, or down to, my own level. I daresay this is what gives the household analogy its political power.
Michael Dugher says “but you must also use fair taxation, and, critically, policies for jobs and growth”. So what are his “policies for jobs and growth”? He hasn’t got any. So Michael: do us a favour and just put a sock in it. Not that I’m suggesting the Tories have any inspired ideas for “jobs and growth”. In other words if a large number of socks were put in a large number of mouths in the Westminster village, we’d all be better off.