We must be honest so that we can be distinctive on the deficit, says Jonathan Todd

SOCIAL and economic debates on tax and spend run through the messages George Osborne will project tomorrow: his actions are fair (the social debate), best for the economy (the economic debate), and necessary, which intersects both debates. Clarity, and Labour’s cause, is aided by disentangling these strands.

Deficit reduction strategies need not only beginnings (start this year, next or when?), endings (completed in this parliament or next?), and content (tax and cuts mix?), but, crucially, they must also say what this content means for tax and spend in each year of this parliament. Political debate has so far failed carefully to pick over budgetary consequences from year to year.

There are opportunities for Labour in this examination. The government plans that cuts will account for three-quarters of the deficit reduction by 2014. However, next year, half the fiscal consolidation comes from tax rises. That spending cuts are intended to take greater strain over the longer-run has obscured the fact that 2011 sees ominous tax rises: increases in VAT and national-insurance.

We rejected spending cuts this year (and we should reap credit for this if the double dip about which Ken Clarke worries materialises). We might now align ourselves with the Economist and Samuel Brittan and oppose the tax rises planned for next year. Keynesian and monetarist economists, much like Labour and Tory politicians, take different views on the effectiveness of public spending as a stimulus. It is hard, however, to argue that dampening consumer spending will not harm a faltering recovery.

Yet, the government claims, in spite of this additional taxation of the already squeezed, that economic growth will accelerate next year to 2.3 percent. This stretches credulity. And if growth doesn’t stay on target it’s hard to see the biggest fiscal consolidation in post-war Britain being executed on the trajectory Osborne envisages.

His growth plan rests on the private sector enterprise currently “crowded out” by the state. While it’s easy (and justified) to be cynical about this, his plan b – to look for more quantitative easing – both threatens inflation and doesn’t convince either. Ultimately, Osborne may be forced, over time, to adopt a third way and slacken his punishing deficit reduction strategy, conceding that we were right and he was wrong.

However, if we are to argue that he is also wrong on tax increases for next year, we have to do so in straightforward acknowledgement of the full implications for our deficit reduction package. Otherwise, we risk a precious commodity: credibility on the deficit.

If we wish to oppose tax rises next year (and, while the Economist and Brittan make this economic case, the political case is that it undermines the perception that we are a party of high tax), and develop our stock in this commodity, we need to flip the coalition’s projected mix of tax and cuts. Where they front load tax increases, we’d focus on cuts. When their cuts really bite, we would be putting more emphasis on the tax component of our package (assuming that the game hasn’t changed entirely due to the collapse of Osborne’s deficit plan).

However, this wouldn’t mean that the cuts we advocate would exceed or even equal the government’s actual cuts. This is because we are not proposing to do as much work in this parliament. Our plan only halves the deficit in this parliament; whereas they intend to eliminate it. They have £40bn of extra fiscal tightening to explain.

Once we have told our truth – identified precisely what we’d cut and tax – we’ll be better able to expose the dangers of this £40bn. Being upfront about addressing the deficit undermines the habitual (and disingenuous) Tory-Liberal comeback that we have no deficit reduction strategy. Once we have clearly laid our cards on the table, the government’s taxes and cuts that would be unnecessary under our plan are more easily exposed.

Our cards need to signpost the way to an economy which can prosper in a world tilting – with Chinese and Indian growth rates racing ahead – ever eastwards. Such an economy needs science funding, green investment and a reformed financial sector. The spending debate shouldn’t just be about how much the state spends, but what it invests in and the coalition is cutting deeply into economically vital spending. Cuts which are deepened by the illogical NHS ring-fence and reconfiguration.

Labour tax proposals should also contain these signposts. We should shift the tax burden onto (unearned) wealth and away from (earned) income. We should also adapt it – absorbing an important lesson on the growth of the deficit – to make receipts less vulnerable to sectoral downturns; especially in finance and housing. A land tax would help on both fronts. This recasting of our tax system should be key to the tax that we argue should increasingly take the strain over the course of our deficit reduction plan.

Winning the economic debate greatly assists in winning the social. The government soils the social debate by conflating it with the economic. As Armando Iannucci tweeted: “I know I promised never ever to piss on tramps but sadly today’s climate means regrettably I may have to do so.”

We need to be able to say that pissing on tramps – or cutting child benefit or pricing kids out of university – is wrong and unnecessary. Because we have an itemised plan for tackling the deficit that doesn’t involve pissing on tramps. We win the social debate when we get to this point. But getting there requires a sufficiently fleshed out economic plan to win that debate.

Jonathan Todd is Uncut’s economic columnist and a consultant at Europe Economics.

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3 Responses to “We must be honest so that we can be distinctive on the deficit, says Jonathan Todd”

  1. Polleetickle says:

    Someday; card carrying Labour members will acknowledge;

    Brown selling Gold cheap.

    Blairs Dodgy Dossier

    Chinook delays were unforgiveable

    45min WMD threat unjustified

    Under-funded MOD taken to war

    Immigration doors left wide open

    Diabolical treatment of David Kelly

    Failure to reform Parliament with a huge GOV majority

    Brown failure to reform Banking & letting them write their own rules

    Prescott advising councils to shelter funds in Iceland

    Thousands of new laws that failed to address public safety on the streets

    The Twice resigned RH Lord Baron Mandelson drawing salary from the public purse

    Unfathomable NHS statisticians to produce data

    Failed transport policies

    Rail company and Track failures leqading to deaths

    Unrestrained growth in benefits

    2nd tier Policing

    3rd class offender Rehabilitation

    Brown stating “an end to boom and bust”

    2010 Brown admitting to Paxman that he saw Bank crisis coming

    Liam Byrne display of a lack of humanity by notating ‘no money left’

    .. after all, they’re the only ones left that haven’t. the sum of all topics above may mean Labour not challenging UK governance for more than a decade.

  2. john says:

    Someday; card carrying tory members will acknowledge;
    They got the spending review very wrong,and they,ll have to print a lot more money

  3. Robert says:

    Labour Tory Tory labour you takes your pick, but in the end the difference is well paper thin

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