Posts Tagged ‘deficit’

How Labour has misread voters on the deficit

09/03/2012, 08:30:21 AM

by Atul Hatwal

On Tuesday, Ed Miliband did what should have been a good thing.

His speech on the need for a more active industrial policy was rooted in common sense. Ideas like a British bank tasked with expanding business lending are widely supported. And it was a neat idea to back an existing campaign by British manufacturers for a “made in Britain” label.

Although sceptics will always roll their eyes at a buy British campaign, the politics were right. Identifying the party with a business led initiative that had lots of businesses ready to talk positively about the proposal is a world away from “predators and producers”.

The government did their bit too, issuing a rebuttal comment that talked about the need for global trade and international business. The dividing line could not have been clearer – Labour backing British business while the government opened the next round of GATT negotiations with the public.

But despite receiving as warm a reception as he has enjoyed for an economic policy speech, what thanks did Ed Miliband get? Minutes after the applause he was fighting off a baying mob on Radio 5 live.

It was impossible not to feel sorry for him. The leader offered the usual platitudes about the scale of the task facing Labour, building up support slowly and getting a warm reception up and down the country. But it was just chaff.

What Ed Miliband reaped was in part the inevitable result of Labour’s economic strategy.

The last election was lost on the deficit. The electoral challenge for this parliament: which party is most trusted to reduce it.

In a way, Labour has understood this and developed a strategy that does indeed address the deficit.

Every press release issued by the economic team is rigorously consistent. The headline is almost always about poor growth with a clear causal link made in the story between growth, unemployment, reduced tax revenues and a worsening deficit.

Great. Job done, right?


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Mould appearing in the rose garden

08/03/2012, 08:00:54 AM

by Peter Watt

When the Tory Lib-Dem Coalition was formed, I remember the then hopeful Labour voices saying that it wouldn’t or couldn’t last. That the internal contradictions would bring it down. But David and Nick were cleverer than that. They agreed a shared programme for government, rules for managing disagreement and a divvying up of jobs.  And not only that, but they also passed the Parliament act 2010, that for all intents and purposes bound them together until the formal start of the next general election, 2015. And the truth was that Labour didn’t have a clue what to do about it or what to say to attack it.

Labour said that it was a Tory lead government propped up by hypocritical Fib Dems. They taunted the government for its disagreements and obvious internal tensions. But the public weren’t bothered by all that. On the contrary, they looked at the “rows” and instead saw two parties coming together in the national interest trying to cooperate. Because the glue that bound the government together was the deficit. The public understood that they didn’t both agree on everything, but despite that they were prepared to put that aside to help dig the country out of a hole; a financial hole that Labour had dug. And that was pretty much how the story has run since the love in the rose garden.

Of course there have been difficulties: the AV referendum, student finance and almost every word uttered by Vince Cable have all put tension on the partner’s relationship. And Nick Clegg must be pretty miffed that he seems to have taken more than his share of the personal popularity pain, while David Cameron remains, well, prime ministerial. But dealing with the deficit and a sense of sink or swim together has kept the show on the road.

Because the deficit and its reduction is a very necessary policy objective, it is not a political cause. In other words, it is not a story that tells of the sort of country that you want to deliver. And perversely this has been useful up until now as the two parties would almost certainly not have been able to agree on what the story would be. And anyway the public have not been worried about any lack of a visionary story. On the contrary, they have just wanted to be reassured that their government was doing all that it could to avoid Britain becoming Greece. Deficit reduction may not have been a compelling story, but who needs a story when you’re worried that the banks will run out of money?

But just recently there have been signs, just signs, of a growing tension at the heart of government. And at its heart, this increase in tension between the partners is caused by this lack of a shared vision. Because deficit fatigue is kicking in for the public. It doesn’t mean that they don’t care about it anymore because they do. It’s just that it has been said so often that it has almost become meaningless.

Saying that you are in favour of reducing the deficit is like saying that you are in favour of motherhood. Who isn’t? Oh there are arguments about how fast and all that.  But no one is seriously saying that we shouldn’t reduce the deficit.  So instead people are focusing on the quality of their lives, the price of goods and the security of their jobs. And the political strategists know that they quickly need to start telling a story that addresses these fears and hopes about the future.

And so that is forcing the arguments out into the open about what sort of country that the coalition wants to see. How big and how active should the state be? Who should pay what and how much into the national coffers? What is the best way to create growth? What is the relationship between the public and private sectors? And inevitably the cracks have begun to open as we have seen this week in the run up the budget. Arguments about a mansion tax, the 50p tax rate and the break-up of RBS.

The tensions inherent in the coalition are there for all to see as outriders from both parties take to the airwaves to promote one view or the other. And more and more often we are seeing MPs from one coalition party condemning the other party. Presumably this will only get worse as we enter the latter half of the parliament. The cooperative strength of the early days of the coalition could quickly become a weakness caused by splits and indecision. There does still seem to be a strong relationship between the big four in the Cabinet (Cameron, Osborne, Clegg and Alexander). And it does seem more likely than not that the Coalition will soldier on. But it also looks like it is quickly going to become an uncomfortable partnership.

So Labour has an opportunity to begin to tell its own story as the tensions within the coalition slowly simmer.  But only if it is able to begin to tell its own credible story about the sort of country that they want to see. And only if they remember that people’s deficit fatigue does not mean that Labour have won the argument and that in fact people still blame Labour for causing it.*

*Even if Labour thinks that that is unfair.

Peter Watt was general secretary of the Labour party.

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The Tories: cuts for you, bonuses for bankers and yachts for royals

17/01/2012, 10:34:51 AM

by John Woodcock

You don’t need to be mystic Meg to predict that the next general election will be fought on the twin pillars of economic credibility and who has the right priorities for Britain.

The great importance of Ed Miliband’s and Ed Balls’ excellent speeches over the past few days is to make crystal clear how serious Labour is about demonstrating the former, and to open up the space for us to take on the Tories over the latter.

The public are understandably deeply anxious about the economic turmoil that is afflicting economies across the world. They are concerned by a deficit made even harder to shift by the Tory failure on jobs and growth, and rightly believe major and sustained belt tightening will be necessary to get back on track. And they will simply not listen to what we have to say if we allow the political debate to be dominated solely by an argument between more versus less, with Labour on the side of spending more. (more…)

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The Feltham Fig Leaf

16/12/2011, 07:47:25 AM

by Atul Hatwal

It looks like 2011 is ending for Labour as it began, with a solid victory in a by-election. At the start of the year it was Oldham East and Saddleworth, and last night it was Feltham and Heston.

But although both Oldham and Feltham were strong performances for Labour, the similarities are superficial. The intervening months have fundamentally changed the context.

At the start of the year, the economic argument remained unresolved. Would the public back the Tories’ cuts when they saw them implemented? Or could Labour provide a more persuasive alternative.

Victory in Oldham in January bought the leadership some time to focus the party’s economic policy and make the case to the public.

Since then, Labour has set out its alternative, developing a distinct critique of the coalition and a very different economic prescription.

Eleven months on from Oldham, the choice has been made.

The graph above based on YouGov poll results shows just how badly Labour has lost the argument on the central economic issue – the deficit.


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When does a social democratic party stop being social democratic?

06/12/2011, 08:22:55 AM

by Kevin Meagher

“There is nothing right-wing about fiscal conservatism”, begins “In the black Labour: why fiscal conservatism and social justice go hand-in-hand“. The policy network’s much talked about pamphlet argues that to rebuild its reputation for economic competence, Labour has to learn to love big brother in the shape of embracing fiscal rectitude.

It is a hard-headed but reductive prognosis for a centre-left party. It seems a bit like having a car without any petrol. You can point it in the direction you want to travel in, but you have no means of ever getting there. So what, ultimately, is the point of the car?

That is, in essence, the dilemma this argument, elegantly and persuasively made by the authors (including our own Anthony Painter), presents Labour with. When does a party – a democratic socialist one (in the words of “new” clause four) – stop being the very thing it professes to be? How elastic are our principles, our thinking, and, most importantly, the trust of the people who vote for us if we embark on a self-denying ordinance on public spending? (more…)

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Whatever happened to the Darling Plan?

25/11/2011, 09:55:28 AM

by Atul Hatwal

Ed Balls is walking into a trap. Unfortunately, it’s one he has set himself.

Next week George Osborne will deliver an autumn financial statement swathed in uncertainty and gloom for the government. So far, the questions from the media have focused on the chancellor’s forecasts and whether he will hit his deficit target, but at some point someone will ask Ed Balls those same questions about Labour’s plans.

Specifically, George Osborne, in the chamber, on Tuesday.

Ed Balls hasn’t mentioned the Darling plan in months, but based on what Labour’s frontbench have been saying and the party’s policy platform, we have a fair view of what Balls will set out.

Labour’s five point plan for growth defines our alternative approach. Out of five pledges, three are straight tax cuts – reversing January’s 2.5% rise in VAT, cutting VAT on home improvements and repairs to 5% and a one year national insurance tax break for small firms hiring new employees.

Given this, at the despatch box, Ed Balls will be promising growth from the tax cuts that will make-up the immediate revenue shortfall and increase economic activity so that unemployment falls, tax receipts go up and the deficit falls.

Quite a complex case with lots of links in the argument, but no numbers on either deficit totals or timelines.


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The political consequences of Mr Osborne’s economics

05/10/2011, 07:00:10 AM

by Jonathan Todd

George Osborne’s exhausted economic strategy will undercut his political strategy. Nothing in his speech on Monday changes this.

He knows that political narratives need pasts, presents and futures. His past is of Labour “overspending” producing economic failure; his present is about tough Tory “medicine”; and in his rosy future “together we will move into the calmer, brighter seas beyond”.

This “medicine” seeks to close the deficit this parliament, which is intended to secure market confidence and create space for “fiscal conservatism” (cuts and tax rises) to be offset by “monetary activism” (rock bottom interest rates and quantitative easing, of which we may see more soon). “In a debt crisis”, these interest rates are, “the most powerful stimulus that exists”.

However, this “stimulus” hasn’t stopped breakdown in Osborne’s economic strategy threatening his political strategy.

First, interest on government debt may be low, but Osborne can’t claim all the credit for this. Expectation of more QE pushes yields downwards, as does the “worldwide bond bubble”.

Second, if low interest on government debt was a sufficient condition for growth, Japan wouldn’t have suffered a lost decade and UK growth wouldn’t have been so anaemic as to see falling tax revenues create fiscal holes for Osborne. He either needs to accept that he’s been too aggressive and the deficit cannot be closed this parliament or be more aggressive still and impose further cuts and tax increases this parliament to fill the fiscal holes.


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As George rises, so do economic questions for Labour

03/10/2011, 12:59:56 PM

by Jonathan Todd

Ed Miliband’s speech leaves him better defined. George Osborne will be hoping the same doesn’t happen to him today. Definition is the last thing he needs at the moment. His strategy is clear: cut long and hard. It is his plan b that is anything but clear. Many of Miliband’s economic themes also remain to be fully unpacked. Perhaps his most consequential line on the state’s size was:

“If this government fails to deal with the deficit in this parliament, we are determined to do so”.

“Deal with” in the next parliament might mean the elimination of the deficit, as this is the government’s objective for this parliament. I’ve mused on the present status of Labour’s commitment to halve the deficit in this parliament, as has Ed Balls. This interpretation potentially enforces more aggressive deficit closure in the next parliament under a Labour government than we are prepared to support in this.
This is one of various potential strategies for addressing Labour’s enduring perception of profligacy:

First, the past: apologise for “over spending” in government. More contrition for particularly egregious spending, such NHS IT procurement, might help. But, if adopted wholesale, this seems likely to play into the hands of George Osborne’s narrative that Labour “over spending” caused the problem that he is now “fixing”.


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Fiddling while Athens, Lisbon and Rome burn

29/09/2011, 08:44:38 AM

by Peter Watt

I am worried, really worried. And not just about where the Labour party goes after this week’s leaders speech. Although I certainly am worried about that.

No, what really worries me is the economy. Although I am no economist I can read the runes. Europe and America’s economies are in trouble, big trouble. Unemployment is rising. And every day seems to bring a new round of the latest economic indicators – and they indicate that something really bad is happening.

Think back to when Gordon Brown was busy saving the world. We were shocked that banks, those rock solid bastions of capitalism, could actually fail. I remember the uncertainty and fear in those months, when it seemed that the economic system, as we knew it, could collapse. Shops started closing on our high streets. Where were you when Woolworths closed?

Interest rates and the stock markets were in free fall. And the numbers being used to describe the scale of bailouts were so big that they seemed meaningless. In fact, what we now know, thanks to the memoirs of Alistair Darling and others, is that in reality the situation was even worse. Some pretty big high street banks were hours away from turning off their ATMs. (more…)

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The deficit: it’s double or quits all round

27/09/2011, 08:42:08 AM

by Jonathan Todd

The politics of the deficit has had two phases. The exposure on the FT’s front page last Monday (19 September) of a £12bn hole in public finances means we are entering a third.

The June 2010 budget divided the first and second stages. Up until then, and throughout the general election, the debate focused on whether to cut in 2010. Labour and the Liberal Democrats warned that Conservative plans to do so were reckless. Then we lost the election and the Liberal Democrats helped the Conservatives implement these cuts.

The debate that was long needed – how to approach the deficit beyond 2010 – didn’t open up until the June 2010 budget. The imprecision of Labour’s plans kept a lid on this debate until then. George Osborne lifted this lid with all the force of a dominatrix once he had the bully pulpit of the treasury. The message that Labour had mismanaged public finances and that Osborne would fix this over this parliament was incessant. It is, however, starting to become clear that Osborne won’t be able to do this.

The third stage of the deficit debate is about acknowledging this failure. The £12bn hole in public finances is a consequence of growth not keeping pace with that anticipated by Osborne. Anaemic growth produces shrivelled tax returns, which are the stuff of public finance holes. There is some debate about whether the holes are really so. But, short of sudden improvement in our growth, there will be inarguable holes before too long.

All parties face choices.


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