Cuts and the Credibility Gap

It has become fashionable in the Labour Party to take a conservative view of austerity. There have always been voices on the right of the party calling for Labour to match the Tories on deficit reduction in general and spending cuts in particular. These voices seem to echo much louder now as polls continue to show Cameron and Osborne have greater public trust on the economy than Balls and Miliband.

The solution to this crisis of confidence, according to the right, is to ape the coalition on cuts. If they’re seen as more competent than us, goes the exceptionally lightweight thinking, we just need to copy them and people will flock back!

The catastrophic nature of this mistake will haunt the party through this Parliament and beyond. First, we need to clarify cause and effect. While the Tories poll much better on the economy, they don’t poll very well on the specifics of their approach. Sixty percent of people believe the cuts programme should be scaled back if growth continues to stall. This suggests that while voters accept the need for responsibility, they don’t agree that cuts alone will provide it.

There is also a collective failure of memory in the Labour Party. We had thirteen years in power, the end of which coincided with the worst global economic crisis since the 1930s. Why would we expect people to run back to us so soon after a crushing electoral defeat? To be polling in the forties now seems incredible. Compare this to the Tories in 1998 where they struggled to break 31%. Of course our economic competence is being questioned, but this has less to do with our current approach and much more to do with historical blame.

Our response will define Ed Miliband’s leadership and the short-term future of the party. Recent pronouncements from figures like Liam Byrne and Jim Murphy suggest we have opted for a Tory-lite approach to the deficit. Byrne bemoans the high cost of Housing Benefit. He fails utterly to provide a distinctive alternative to cutting it. Housing Benefit goes to private landlords who can charge inflated rents due to a lack of rent control and a devastating lack of supply.

Here’s an issue where Labour can seize the initiative. A massive programme of social housing building would help stimulate a depressed construction market, create private sector jobs, put downward pressure on rents and rein in greedy landlords. As a result, government investment would drive growth, cut welfare spending and improve the lives of people trapped in unaffordable housing with all the social and economic benefits that would bring. It’s a clear message – bold, positive and financially prudent.

Instead, Byrne echoes the Tories and completely ignores the root cause of the cost of Housing Benefit. If voters like the Tory approach they will vote Tory. Labour cannot and must not compete on the same territory, because we will lose.

And here’s the essence of the issue. By fighting the Tories on their territory we are accepting the crux of their argument – Labour is either profligate or it’s useless: the party can only operate in an environment of over-spending. If our response to this is just: ‘No! We can cut too!’ then we are doomed. It’s such an obvious bear trap that Cameron hasn’t even bothered covering it with leaves.

The authors of the Policy Exchange pamphlet “In the Black Labour” make a valuable point. Labour must operate within the parameters of the country’s means. I accept and welcome this. But trust and responsibility will not be delivered by accepting a false Tory premise. Cuts of this scale in this utterly arbitrary, political timeframe (Osborne hoped for giveaways pre-election, remember) are not working. Even the ratings agencies and the IMF are getting twitchy. The US employment position is improving while austerity poster boy Ireland falls back into recession and has an unemployment rate over 14%. And yet we are being told to buy this as a party. Now, of all times.

For Labour to switch noticeably towards the Tory austerity agenda will simply make us look weak and indecisive. If we agree with austerity as “the only way”, then why are we only accepting it now? Why, when austerity is failing around the world, do we choose this moment to change tack? The consequences of this switch go beyond the (perhaps terminal) erosion of our own credibility; they open the door for the Tories to look like the more flexible, responsive party. If we are calling for Plan A, then not only do we look wrong-headed, but we are likely to be wrong-footed when Osborne inevitably softens his approach this year.

None of this is to say we don’t need a credible approach to the economy. Cuts do not need to be the sole defining feature of the strategy. Fiscal responsibility doesn’t come from attacking the £1.6bn of benefit fraud in a cheap tabloid gimmick. In a deficit of over £100bn, this is a drop in the ocean. It’s patronising to suggest that people can only see deficit reduction in terms of cutting. They realise that if you bring in more money, that does the job equally well, if not better.

So Labour needs a big, bold and clear strategy, supported by serious and impactful tactics. The strategy must be to build the economy, create jobs and reequip the nation for the 21st Century. At the same time, we need to re-evaluate our role in the world and also paint a picture of the society we aim to build. Paying unemployment benefit is a waste of money, so get people into jobs. Paying Housing Benefit is a waste of money, so build more houses and cap rents. Housebuilding and job creation go hand in hand.

Our infrastructure is rapidly become unfit for purpose and is making us uncompetitive, so invest (with private partners) in broadband, WiFi and rail. Energy costs are crippling household spending, reducing demand and costing jobs and growth, so invest in renewables, using UK technology and UK companies to overhaul our energy infrastructure, while getting serious about regulating profits in the existing energy companies. This can be driven through a meaningful, well-capitalised green investment bank.

There is a clear case to be made for government spending that delivers measurable returns. The coalition’s policy is tipping money and lives down the drain. It’s bad for the deficit and a disaster for future growth and prosperity. Labour can demonstrate how, far from cutting waste, the Tory approach is increasing it. Increasing benefit claimants, increasing pressures on housing, storing up huge future costs as a generation of young people are cast adrift. Far from being a responsible government, the coalition is wasting billions on pet projects like the NHS reorganisation and the free schools initiative. They are the profligate party, in hoc to the markets and blinkered by bankers.

So Labour must accept fiscally prudent government, but reframe the argument about what constitutes good spending. There’s no need to apologise for spending to improve schools, hospitals and the police. There needs to be recognition that we must be rigorous in its analysis of how money is spent, but a clear case made for spending for growth. It’s dangerous and expensive for a government to retrench now. Billions are being spent every week, but badly, harmfully and wastefully by a government that has lost sight of its purpose – to support and grow the country.

So Labour must not be the party of “soft” cuts with no vision. Governments will always spend. Some of this spending can bring exponential returns. Paying for the social consequences of unemployment, social breakdown and despair is a dreadfully expensive use of people’s money. Labour won’t do this, we will spend to invest, nurture and grow a fairer, better equipped and ultimately more financially stable country. Or so we should be saying.

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2 responses to “Cuts and the Credibility Gap

  1. Sean O'Hare

    A very well written article Greg; and obviously heartfelt! Not that I agree with much of it of course. A few points/questions if you don’t mind?

    Why do you think Liam Byrne and Jim Murphy are in favour of the cuts? It can’t be because Labour are way behind in the polls, because they aren’t. Do you think it could possibly be because, being on the right of the party, they tend to favour the idea of sound money or are they trying to undermine the leadership? Do you remember the phrase “sound money”, because I haven’t heard it mentioned since around 1997?

    I do remember periods of devaluation and high inflation in the 1960s and 1970s caused exclusively by governments spending money they didn’t have. Yes the Tories overspent as well, but not to the extent that Labour did. Did all that overspending help the economy pick up? I don’t think so! All we got was a wretched period of “stagflation” and I fear we are heading that way again.

    Why do you think the taxpayer should be forced to “invest” in a social house building programme when there is little or no return on that investment? Most council tenants do not pay a realistic rent, or if they do it is paid for with housing benefit, also at taxpayers expense. Is it really my greed that makes me resent paying for someone else’s housing when I have no means of judging whether or not they are deserved of my enforced charity?

    Housing Benefit goes to private landlords who can charge inflated rents due to a lack of rent control and a devastating lack of supply

    If there really were a dearth of empty properties for sale then I could understand why there might be a shortage of properties to rent. There isn’t, so the reason there aren’t that many properties to rent suggests that “buy-to-let” is not as lucrative for landlords as you suggest. If landlords are getting away with charging inflated rents then that is probably because there is little if any ceiling on housing benefit payments. Also correct me if I’m wrong, but I believe that sub-standard properties and all tenancies starting prior to 2007 are subject to rent control.

    ..the party can only operate in an environment of over-spending.

    Such a charge has not simply come out of thin air. Labour have provided proof positive during every period in government.

    Cuts of this scale in this utterly arbitrary, political timeframe

    But there aren’t any cuts! Since this coalition came to power they have increased spending in almost every area, and plan to go on doing so. If for a moment, I accept your argument that the state needs to be involved in almost every aspect of our lives (which I don’t of course) why do you think that it is better for them to directly employ all those civil servants, doctors, nurses etc., when they could more easily and more effectively use our money to buy those services on the open market? The rating agencies may be getting twitchy, but that is because it is becoming apparent that the cuts are fictitious, rather than because government action or inaction will lead us into a recession.

    Why, when austerity is failing around the world, do we choose this moment to change tack?

    Give austerity a chance Greg! We’ve had 13 years of labour profligacy and the PIIGS have had 10 years of ridiculously inappropriate low-interest rates leading to a property boom. Austerity measures in Greece are harsh and likely to lead to civil unrest, whereas so-called austerity measures in this country are a farce. High Street stores have all reported a significant increase in sales over the Christmas period and the January sales are also doing well.

    we are likely to be wrong-footed when Osborne inevitably softens his approach this year.

    If he does that then any credibility he does have with the rating agencies will disappear, so I do hope you are wrong.

    Fiscal responsibility doesn’t come from attacking the £1.6bn of benefit fraud in a cheap tabloid gimmick

    Even if your figure of £1.6bn is correct, and I suspect it is far higher, I would not call that “cheap” Assuming that there are 20 million taxpayers in the country I work that out at around £80 stolen out of each of their pockets.

    They realise that if you bring in more money, that does the job equally well, if not better

    The old argument! Where do you “bring in” this money from. Other than borrowing or asset sales there are only two sources of government money, personal taxes and corporate taxes. Increasing either, especially during a recessionary period is counter-productive. At the personal level high-taxation stifles ambition and will generally demotivate workers. At the corporate level it results in mainly legal offshore dealings and/or exodus to a country with a more attractive financial climate. Government’s has very little ability to stimulate commercial activity other than by cutting taxes. Sure it can spend money on vanity projects such as the Olympics and the EU (TEN-T) inspired HS2. They will provide short to medium term employment for a few thousand people at a mind bogglingly vast cost and neither will ever turn a profit. To devastate what remains of the beautiful Chilterns for a few thousand jobs just because the EU dreamt up the unnecessary TEN-T project particularly grates with me.

    so invest (with private partners) in broadband, WiFi and rail

    If improvements are required sufficiently urgently then private enterprise will fund and supply them at an eventual cost to the consumer rather than the taxpayer. I do not travel by rail and do not see why I should subsidise those who do. It that selfish of me?

    Far from being a responsible government, the coalition is wasting billions on pet projects like the NHS reorganisation and the free schools initiative

    I agree with you that the NHS reorganisation is a waste of money. It is about as reformable as the EU! A government regulated private insurance scheme (not like the NI ponzi scheme) could ensure that everyone has adequate cover and be far more cost effective. The free-schools initiative seems to be gathering momentum and to be enormously popular. If Labour continue to denigrate free-schools I think they may be on a losing wicket. Who knows? If it is as successful as it presently appears we may get free-hospitals next.

    There’s no need to apologise for spending to improve schools, hospitals and the police

    I’m not radical enough to suggest a free-police force, but I think you will find that free-schools and free-hospitals (if we ever get any) will be vast improvements on what we have at present.

    Governments will always spend. Some of this spending can bring exponential returns

    Sigh! That’ll be the day!

  2. Well said, Greg. Hard to disagree with any of that. Hope those of you in the party who take this view can win the internal struggle.

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