by Jonathan Todd
“What he is now doing is the equivalent of ripping out the foundations of the house just as the hurricane is about to hit”.
Ed Balls said this of the government’s economic strategy in August 2010. It is curious, then, that last week David Cameron told the CBI that controlling Britain’s debt was “proving harder than anyone envisaged”. That’s anyone besides Balls and an increasing number of others convinced by him.
The day after Cameron’s CBI speech The Financial Times reported that it now looks impossible that George Osborne will be able to fulfil the boast made in the March 2011 budget that the structural deficit will be eliminated by 2014/15. Indeed, The Financial Times went on, achieving that goal in 2015/16 also appears unlikely.
To acknowledge that the structural deficit can’t be closed this parliament, John Redwood concedes, “is a defining moment … This, after all, was said to be the (government’s) fundamental point”.
The TUC are clear about the economic causality leading to this political failure. They have compared the current state of the UK economy with the government’s forecasts at the time of the June 2010 budget and found that poor GDP growth, lower than expected tax receipts, rising unemployment and higher welfare spending are likely to leave the economy around £65bn smaller than anticipated in 2015.
The scale of the deficit means that Labour has never denied the need for cuts. But it is because we understand that growth, and consequent increased tax receipts and reduced welfare spending, are preconditions of tackling the deficit that we would have avoided cutting into that spending which raises the economy’s productive and growth capacities.
We wouldn’t have scrapped the future jobs fund only to reintroduce a paler version 18 months later. We wouldn’t have talked about economic rebalancing, while launching a Maoist assault on regional economic architecture. We wouldn’t have reaped chaos everywhere from financial regulation to the green economy. We wouldn’t have sold Northern Rock at a loss to the taxpayer and not recast the financial sector as a more mutualised one, less like the one that so let us down.
Osborne has given us shrivelled government, not smart government, in such a doom-laden tone that households have been frightened out of spending and businesses out of investing, making the doom a self-fulfilling prophecy. Now the goalposts shift. One Downing Street strategist told The Times last week:
“Plan A means dealing with the debt crisis, not dealing with the debt crisis to a specific timetable. The eurozone crisis has changed the context”.
Three things to note here:
First, everything used to be Labour’s fault. Now everything is the euro’s fault. Nothing is the government’s fault. This offends economic sense and, as Alastair Campbell notes, “with every day that passes, excuses become more irritating, the lack of clear strategy becomes more exposed, and the gap between the lives and mindsets of Cameron, Clegg and Osborne, and the rest of the population, becomes more politically dangerous”.
Second, while the timetable slips, the focus on debt remains. This objective will continue to prove elusive unless growth is secured. Osborne is in a hole, and is still digging.
Third, it is odd that a party who, insofar as they have an economic strategy derive it from Milton Friedman type economics, claim the eurozone crisis is a calamity that couldn’t have been anticipated. It was Friedman who famously said that the euro wouldn’t survive its first major recession. It’s a predictable part of the hurricane that Balls feared.
Given these weaknesses, Osborne will try to change tack in his statement; probably somewhat by stealth. No matter how deep a hole Osborne digs, we must avoid digging our own. We cannot appear to be asking the country to reconsider the verdict made at the last election; only to be acting upon its lessons.
We lost the election, in part, because we lost fiscal credibility. The most popular explanation for the latest economic slowdown remains the debts of last government. This means that, irrespective of how bad things get for Osborne, fiscal credibility for Labour will remain a precondition of Labour being heard on the economy.
It is important, for example, that our proposed bankers’ bonus tax is clearly, consistently and exclusively earmarked for measures to tackle youth unemployment. If the Tories are able to claim that we have an incredibly large number of purposes for this tax revenue, then we are not convincing.
After defeat in 1979, Labour didn’t return to government until we won the economic argument. Under the long shadow of the winter of discontent, it wasn’t until Gordon Brown built a reputation as a shadow chancellor ever faithful to prudence that we did so. This required complete discipline from Brown. Well beyond the sound and fury of the annual statement, the same, in a different context, will continue to be required from Balls.
We didn’t win in 1997 because of Black Wednesday. We won’t win the next election by default either. We will win it by proving we’ve changed and acted upon the hard lessons of the last one.
Jonathan Todd is Labour Uncut’s economic columnist