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Ed, show us the alternative

In BBC Question Time, Government Spotlight, Home Affairs, Ideology, Party politics on April 6, 2011 at 7:21 pm

By James Bartholomeusz

Audience responses on the BBC’s Question Time usually range from the mildly interesting to the banal, providing little more than an identification of which panel member the viewer most aligns with. However, once in a while, someone says something so original and yet so obvious that it merits serious consideration. Such a thing was said on last Thursday’s episode: a woman, chosen by David Dimbleby to speak, asked why Labour, if it’s so committed to the alternative, doesn’t pen a Shadow Budget to lay out their alternative deficit reduction plan.

The panelists response to this was painfully predictable. Diane Abbott, as the Labour representative, spluttered something about it being nonsensical four years before an election, whilst Mark Serwotka, the head of the PCS union, repeated his tenuous claim that there is no necessity for any spending cuts whatsoever. And yet this idea of a Shadow Budget, levelled by someone so lowly as to not be a professional economist or politician, is one that, I think, should be adopted by the Labour Party without hesitation.

The current debate on the economy, both national and global, has lined up between the two foremost schools of economic thought: neo-classicalism and Keynesianism. The neo-classicalists, inspired primarily by the 19th Century economist David Ricardo, see budget deficits as dangerous and immoral: according the Ricardian equivalency, any national deficit between income and spending (the UK’s being approximately 10% of GDP) is just taxation deferred for future generations. By radically cutting public spending to balance the deficit (‘expansionary fiscal contraction’, or, in Cameron’s terminology, ”rolling back the boundaries of the state”) neo-classicalists believe that the private sector will be freed from taxation and competition with the public sector to drive the economy back to prosperity. Keynesian thought, meanwhile, led the original response to the financial crisis, bailing out the banks and implementing fiscal stimuli to drive the economy quickly out of the recession. Now out of the immediate danger zone, Keynesians, such as Robert Skidelsky and Joseph Stiglitz, do not dispute the need for eventual deficit reduction, but are concerned that a premature fiscal contraction underestimates how much the private sector relies on the public sector, and so will drop the UK economy back into recession. Instead, Keynesians argue for fiscal policy based on growth and investment to stably harbour the economy, whilst slowly but steadily cutting the deficit.

This is the debate which, since the initial crisis response, has been mapped on to British party politics. Last May, both the Labour manifesto was based on the Keynesian response, whilst the Conservative one was neo-classicalist, and the Lib Dems in between but Keynesian-leaning. At least partially on these grounds, the majority of commentators predicted, before the election, a Lib-Lab coalition in the event of a hung parliament. And a hung parliament we had, except that the Lib Dem high command, vested with the choice of how to form the next British government, elevated David Cameron’s Tories over Gordon Brown’s Labour. Now in government, Clegg and his allies have apparently been won over to the neo-classicalist, and by extension George Osborne’s, fiscal plan: to entirely eliminate the deficit by the end of the parliament through a 73:27 ratio of spending cuts to tax rises.

All the evidence suggests that Osborne’s economic management so far has ranged from lacklustre to abysmal. The Office of Budget Responsibility, set up by the current government, has downgraded its growth forecasts from 3-3.5% to 2.6%. Unemployment is still rising, now at a 17-year high, with one-fifth of all young people unable to find a job. Inflation is at 4%, the highest in 20 years. The Consumer Confidence Index was last measured at -29, the biggest drop since 1994. Even the mainstream centre-Right newspapers, which had previously praised the Chancellor’s conviction, have now turned their attention more to the human costs of deficit reduction than the stability it will ostensibly bring. Osborne’s attempt to blame poor economic performance on heavy snowfall over December fooled no one: the US, German, French and even Spanish economies grew by over 0.5% in the last quarter of 2010, whilst ours shrunk by more than 0.5%. The problem is, what is the alternative?

Ed Miliband’s Labour, having dithered in the autumn months, has now settled on maintaining Alastair Darling’s plan of halving the deficit in a single parliament. With Ed Balls as Shadow Chancellor, this position has now been confirmed. Labour has since busied itself with rebuking the Tory-led government on its choices for deficit reduction: the VAT rise to 20% (predicted to cost families with children £450 extra in 2011), the rise in higher education fees, and front-line cuts to public services have been particular targets of the Shadow Cabinet. But Labour has yet to commit to what it would cut, or which taxes it would rise, were it currently in government. Although exactly how much would have to be cut under Labour’s plan is unclear, Miliband and his colleagues have so far sidestepped the sticky issue of what their ‘alternative’ would actually entail. It is this, more than any other factor, which will cost them electoral support.

I marched, carrying a Labour Party banner, alongside up to half-a-million others in London two weeks ago. And yet, will Labour’s reticence to commit to a specific deficit reduction plan, I am losing faith that there is a credible alternative to the government’s plan, however badly executed. A YouGov poll conducted on the same day found that the majority of the population, 52%, now supports the campaign against public sector spending cuts. But Labour should not fool itself that, just because it happens to be in opposition to an unpopular government, it will automatically gain the support of the electorate. This was the mistake made, in the last two decades, by both Kinnock and Cameron; 1992 resulting in a narrow Tory victory, and 2010 in a hung parliament. Labour should pen a Shadow Budget, laying out exactly which cuts and tax rises it would make. Ed Miliband has rightly sounded the death knell of New Labour and embarked on a holistic policy review, refusing to make manifesto commitments before the cuts have really started to affect the nation. But reconstructing its economic credibility needs to be the party’s top priority, and Miliband cannot afford to be haunted by the ghost of Gordon Brown any longer.

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  1. Interesting post – of course, Ed Miliband was opposed to Darling’s plan at the leadership campaign, and opposition to it was Balls signature piece. However, the IFS (on record) reported that Darling’s plan failed to close the structural deficit by 2016 by 0.4%, when he thought he was over-shooting by 0.1%. They also give cut:tax for Osborne as a whole at 73:27. Incidentally, I don’t think the Liberals did have much choice, seeing as the Conservatives had a clear democratic mandate in terms of votes and seats to negotiate first. And as for New Labour, Miliband is keeping their economic policy. But here’s the rub: New Labour was very much about chasing headlines, and filling in the policy later. What’s changed at Labour HQ?

  2. Thanks – the cuts:tax ratio has been corrected.

    I’m not sure how far Miliband (insofar as he’s committed to any policy) is sticking to New Labour’s economic policy. He’s pledged to be much tougher on financial sector regulation and implement a more rigorous progressive tax system – breaking the two pillars of Brown’s pre-crisis fiscal policy. In terms of economic policy, I think New Labour will only be favourably remembered for moving monetary policy responsibility to the Bank of England.

    The Tory-Liberal coalition deal is an event in British political history which will be scrutinised for a long time yet. You may be right in the Lib Dem’s lack of choice, but there’s also the fact that they and Labour shared a more moderate fiscal retrenchment programme to the Tories. It would have been hard for Cameron to form a minority government and push through these spending cuts with the majority of MPs opposed to it. I’m inclined to think that Clegg was willing to sacrifice everything to get a referendum on AV – if it passes, the Lib Dems are much more likely to be in a similar position of control after future elections.

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