by Kevin Meagher
Confirmation from the Office of National Statistics that growth was indeed 0.3% in the first three months of this year – avoiding a triple dip recession – is good news for the economy – and potentially for Labour too.
Conventional wisdom has it that a return to growth is politically damaging for the opposition. At a stroke attacks on the government’s economic ineptitude lose their purchase. The gloom lifts. The Chancellor can puff out his chest and tell us the pain was worth it, the worst is past. Let, if not quite the good times, then certainly the better times roll.
But what if the opposite is true? What if rather than restoring the government’s fortunes the economy returning to growth is actually helpful for Labour?
After all we saw exactly this pattern through the mid-1990s when a reviving economy did little to refloat John Major’s political fortunes. In fact a return to growth may help Labour deal with its three big problems on the economy.
The first two are related to spending. Labour is committed to a temporary fiscal boost to kickstart the economy and knows it has little spare cash to meet its wider social democratic priorities. It remains elliptical about what it will do on either score and polls consistently shows the party simply isn’t trusted yet to run the economy, its third big problem.
Indeed, Ed Miliband’s reluctance to spell out how that stimulus would be paid for came glaringly unstuck during his interview with Martha Kearney on Radio Four’s World at One programme a few weeks ago.
Asked repeatedly if Labour’s approach would require an increase in short-term borrowing, he employed that classic Tony Benn tactic of answering a different question, maintaining debt would be lower in the long-term with Labour’s approach.
A spin of the news cycle later, Miliband was in safer environs on the Daybreak breakfast sofa conceding that, yes, short-term borrowing would increase as a necessary means of driving growth with in turn reduces longer term debt.
However his reticence was understandable. The economics of a stimulus, even coming at the price of higher short-term borrowing, may make sense, the politics, however, do not. Not when voters still hold Labour responsible for the current state of the public finances.
In any event, frankness is not in Labour’s gameplan at the moment. The party has been wounded by its precipitousness in the past.
John Smith’s shadow budget ahead of the 1992 election frightened the horses by spilling forth too much detail about Labour’s taxation plans. Likewise the party’s enthusiasm for the exchange rate mechanism in the early 1990s blunted Labour’s attack when sterling crashed out of it. (Fortunately Norman Lamont was in situ as Chancellor and could be relied on to look suitably hapless).
Ed Balls is said to want to maintain a holding pattern, circling key decisions on spending and taxation until closer to the election. With Mervyn King using his valedictory press conference at the Bank of England last week to predict the economy will pick up towards the end of the year, the shadow chancellor’s caution may be justified. It’s hard enough for an opposition to establish its message, never mind having to change it.
If things pick up this year, ergo, there is little need for a VAT cut to stimulate an economic revival. There is no need for Labour to contort itself; the party can concentrate on talking about issues like youth unemployment and declining living standards where it has some traction.
Labour’s second problem is developing a coherent approach to future public spending and paring down the deficit.
Establishing the party’s key priorities when it comes to public spending becomes easier if there is more money to go around, or, more precisely, less debt to pay off thanks to stronger growth. Then, as long as its deficit reduction plans are credible, Labour is entitled to “share the proceeds of growth” between spending and reducing debt, as David Cameron himself used to promise.
This may also mean the Labour leadership can split the difference between the hair-shirt zero budgeting of the party’s fiscal hawks with the left’s complete disavowal of austerity measures.
But hesitation in spelling out its plans on spending and borrowing seems to aggravate the party’s third difficulty: establishing that Labour can be trusted with running the economy. The polling here remains poor and a lack of detail seems to compound the problem. Until Labour has substantive things to say on its economic approach, these figures will not shift much.
Nevertheless a return to growth helps Labour square the circle of how it approaches the stimulus and future spending priorities, giving Ed Miliband valuable room for manoeuvre. With a fresh gust of wind in the economy’s sails, something resembling political normality may resume, with Labour eager to find money for its cherished priorities and the Tories looking for tax cuts.
Who knows, there may even be life in that famous dividing line between Labour investment versus Tory cuts.
Kevin Meagher is associate editor of Labour Uncut