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Lines of attack and best defence

Labour must be sure it is fighting on the right financial ground

Winston Churchill emphasised that a powerful invading army always has the momentum with it. The best that defenders can hope to do is slow the advance. Eventually the invasion will pause after the initial strategy is implemented and supply lines are strained. At that point, a counter attack should be launched.

Labour may feel that it is facing an invader occupying the political landscape. The pace of the coalition’s attack since the general election did not reduce with last week’s Comprehensive Spending Review, which heralded the “tightest squeeze on total spending since the end of the Second World War”, according to the Institute for Fiscal Studies.

Labour responded well. However, there is still a pressing need to rebuild the party’s economic policy so we can counter the Government’s plans with an attractive alternative vision.

The Comprehensive Spending Review put some detail on the spending cuts signalled after the election. June’s emergency Budget contained £83 billion in spending cuts to 2014-15, with a £30 billion increase in tax revenue. The CSR painted almost the same picture as far as the big figures were concerned, with spending cut by £81 billion after the cut in investment was reduced slightly. The total tightening planned is £38 billion more in 2014-15 than Labour planned in Alistair Darling’s March Budget.

Some of the detail was different. Cuts to planned spending by government departments were reduced, compared to summer’s plans. That’s because the Chancellor decided to cut a further £7 billion from the welfare bill, in addition to £11 billion already factored in. The £18 billion cut to benefits contrasts with Labour’s plans for hardly any change.

The other spending cuts are still large. While health sees a slight increase in spending and international aid is to be increased, some other areas face significant reductions. The Home Office and Justice Department will see 25 per cent real terms cuts, for example. Transport spending will be down by 15 per cent and education spending cut by 11 per cent.

In most cases, we have to wait for ministers to announce reform plans for their departments. Some welfare cuts have been outlined, with various reductions in benefits. Much is at stake, because major reform is planned, with a universal benefit payment.

Despite George Osborne’s claims and Liberal Democrat self-righteousness, the overall package hurts the poorest most, as the analysis from the IFS confirms. Coalition claims to progressive deficit reduction rest on Labour’s original tax plans, now being implemented.

Cuts to public spending also mean serious job cuts. A much-quoted figure is a loss of 490,000 jobs in the public sector. However, this is merely a projection by the Office for Budget Responsibility – albeit one accepted by the Chancellor. It is not based on departmental plans. At this stage, we have little idea how many jobs will be lost. There may be indirect job losses, too, of at least as much again.

Moreover, the OBR assumes a rise in exports and private sector investment will generate enough private sector jobs to offset public sector unemployment. This is a big assumption and goes to the heart of the massive economic gamble that is the Comprehensive Spending Review.

The City reaction was muted and the CSR was regarded as something of a damp squib. The June Budget did not do enough to convince some bond investors that Britain was sufficiently serious about cutting the deficit. They were looking to the CSR for evidence that the Government would actually do what it planned. Some will have been convinced by last week’s statement from the Chancellor, although the market is now focusing on hopes for more quantitative easing. Others do not believe this scale of cuts will be achieved.

Alan Johnson, Labour’s new Shadow Chancellor, countered the CSR with new plans to tackle the deficit. Labour continues to believe that the deficit should be halved by 2013-14, but with a different mix of tax and spending than that planned in March. It would retain the bank bonus tax alongside a bank levy, raising a total of £7.5 billion, some of which would fund capital spending. Departmental spending cuts would be only 8 per cent on average.

uch proposals demonstrate that Labour has alternative priorities based on its core values. They highlight, too, the extent to which the coalition’s cuts are being driven by ideology and a particular economic theory, rather than by necessity. Yet, so far, Labour is fighting a defensive battle on Tory ground. We are saying spending must be cut, but not quite so much as the Government plans. In fact, the main battle lies elsewhere.

Labour has to reframe the debate. There is much work to be done to prepare for the counter attack once the cuts begin to bite. We will soon realise that economic policy must be consistent with our vision for the sort of society we want to encourage. Various ideas have been suggested, such as a more proactive industrial policy, stronger trade unions, greater industrial democracy and nationalised or mutualised banks.

Those who subscribe to Tribune may welcome such plans. However, in the minds of those people we wish to encourage to vote Labour, they probably have the ring of the 1970s about them. They miss the main point. A Labour economic policy must focus on restoring fiscal credibility, promoting investment (even at the expense of some short-term spending), job creation and guarantees, along with reasonable financial reform. These must all be interwoven with our vision for a good society with the principle of equality at its heart.

This article was first published in Tribune on 29 October 2010.
Tribune, 29 October 2010, 10/11/2010

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