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The Times today leads on the fact that the Civil Service are preparing ‘doomsday cuts’ of up to 20% in public spending in order to get government finances back in order after the next election. Prime Minister’s Questions of course has focussed on little else in recent weeks but the increasingly desperate struggle on both sides to open up clear blue water between investment or cuts on the Labour side, or parsimony versus profligacy on the opposition benches.
Whatever your position on the political spectrum, the size of the budget deficit is truly worrying. This year alone, public spending will constitute 48% of GDP yet only 38% of GDP will be raised in tax receipts. That gap, an eye-watering 10% of GDP, has to be met by borrowing, something that is contingent on people wanting to continue lending money to us. The signs here are looking less than favourable.
In the first instance let me be clear that I think that the counter-cyclical spending is necessary; the aggressive actions of the Government have undoubtedly lessened the impact of the contraction. To paraphrase the Nobel laureate economist Paul Krugman, ‘public debt bad, economic depression worse.’ So, in this instance, the Tories incessant bleating about the size of the national debt misses the point*. However, politics cannot exist independent of economics, nor can economics ignore politics; confidence in the political system reinforces confidence in markets and vice versa. In short, it’s the deficit stupid. In setting up a false argument, and seeking clear ground between ourselves and the Conservatives we are not only abandoning the centre-ground; we risk playing fast and loose with Britain’s solvency.
And I don’t make this claim lightly. The first duty of any government is to be an effective steward of the nation’s finances. Labour must start to face up to the facts now that we are going to have to pare back spending; pet projects will have to be put to sleep, the credits cards will have to put cut up, and we will have to face an era of living within our means.
Whilst all this is happening, let’s not talk about another bankers ramp, or treat commiting ever larger slabs of money to public spending as a test of virility. And let’s not go for easy or politically palatable targets; Trident for example is actually surprisingly good value for money constituting only 3% of the defence procurement budget. Besides, defence spending only makes up 5% of public spending so talk of defence cuts all you like but even spending nothing on defence would still leave a massive hole in public finances.
We need to grit our teeth and look at the three biggest areas of spending; welfare, health and education. These are areas of great achievement for the government but we shouldn’t be blinded into thinking that things couldn’t be run more economically or that every penny spent has achieved value for money. And in the coming age of austerity, value for money is what will count.
In short, the till is nearly empty; let’s face up to cuts now rather than offer a false prospectus of ever-increasing spending. The public don’t buy it and neither should we.
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*Besides, much of the debt was accrued taking stakes in banks that will eventually be resold, hopefully at a net profit to the taxpayer.
So, Maggie is apparently unhappy with how the PM is handling the economy. Strip away the fact that her government legislated to ban Christmas and made it compulsory to jab puppies with knitting needles. Ignore, for a minute, the fact that the big-bang loadsa money ethos of the 80s which created a culture of invincibility in the City and destroyed our manufacturing base got us in the mess we’re in and is hampering our ability to get out of it. No, let’s not dwell on the apartheid-supporting, democracy-emasculating, section-28isms, which, when we look back are kind of endearing. I mean, she never really meant any harm did she?!
Let us instead take a little closer look at one of the underlying arguments that the Lady (and many other Tories) is making. That argument is this: the Tories are the economically competent ones who have always come in to clear up the mess of a Labour government. To see if this is true, or indeed a pile of horse-shit, let’s work through post-war governments of both stripes (with tongue slightly in cheek) and hopefully try and dismantle some of the mythology around Thatcher that she somehow was Britain’s saviour.
OK.
1945-1951: Labour. Despite the fact the country had nearly bankrupted itself defeating the Thousand-Year Reich, the government managed to create the NHS, a universal welfare state, and nationalise pretty much whatever wasn’t bolted down (and a lot of things that were). Yes, there was a devaluation, but this was more than anything brought on by the ridiculously over-ambitious crash rearmament programme that preceded the Korean war. In implementing Beveridge, it aimed for a total employment figure that, whilst well meant, 30 years hence would prove massively inflationary.
1951-1964: Tory. Some good stuff might have happened but I’m not propagandising for the other side. Suez wasn’t so good, causing a run on the pound so epic that Britain was forced into a humiliating climbdown. Later, under Macmillan, the whole Treasury Team (Chancellor and Ministers) resigned because the Tories handling of the economy was, to put in bluntly, piss-poor.
1964-1970: Labour. England win the World Cup, liberalisation of laws concerning homosexuality, divorce and abortion, and the OU is founded/new universities are built offering access to higher education for hundreds of thousands of people. Another devaluation, arguably reflecting the UKs deteriorating industrial performance since the mid-50s onwards (when much of European industry was able to start competing again after being flattened in the war) and the unwillingness of governments of either party to take on vested interests and modernise. In short, not spectacularly competent on the economy, but no worse than the preceding Tory shambles.
1970-1974: Tory (well some of them would like to disown Heath but he was one of yours guys. Sorry!) Anyway, Rolls Royce nationalised, percentage of the economy controlled by the state highest ever recorded. 3 day week. Miners strike. Other bad things.
1974-1979: Labour. Industrial unrest continues. Inflation takes hold (see 1945-1951), unions don’t help. ‘Winter of Discontent.’ BUT by 1976, an ideological shift (if not shared by all Labour members as a whole) had taken place. Callaghan addresses the Labour conference and rejects throwing money at things. Healey goes to IMF and shows signs that he gets it too. In short, much of the heavy lifting for Thatcher is already going on. But boy did she put her own stamp on it…
1979-1997: Tory. That woman (followed by some grey bloke). Rather than saying, yes, Britain suffers from some serious structural problems (outdated industry, over-mighty unions) that with work, patience and courage can be turned around, she unleashes an economic blitzkrieg which, when dealing with the ossified Morrisonian public corporation dinosaurs only means one thing. Unemployment. Massive, intergenerational unemployment. Crime rockets. Homelessness soars. Riots in Toxteth, Notting Hill and Trafalgar Square. Wearing of red braces and stripey shirts made compulsory within the square mile, as are phones the size of hot-hatches. Sunshine privatised and metered back to the poor… Then Major comes along and does something. No-one remembers what exactly it is he does (except for muffing it up royally on Black Wednesday and losing an MP in bizarre circumstances). Also, the Hamiltons. Don’t forget them.
1997-?: Labour. A new Jerusalem. Death and illness are abolished. Poverty and suffering outlawed. Commentators complain when budget surpluses and proceeds from wavelength auctions are used to pay off national debt. “Surely a bit of debt doesn’t matter?” they say…
So, to wind up an overly long piece, what I’m saying is that post-war economic management by governments of both colours was pretty ropey. But, and this is a big but:
1. Labour governments still managed to do some pretty awesome things whilst we were going to hell in a handcart.
2. Callaghan (and Healey) are the ones who deserve the credit for bringing us to our senses. As Oliver Kamm puts it, “[Callaghan's] greatest single achievement was to destroy Socialism as a serious proposition in British politics. The principal turning point… in the past 60 years was not 1979, when Mrs Thatcher took office, but 1976″ (see 1975-1979 for the reason why).
So, unsurprisingly it appears that Lady T is talking rubbish.
In the history of the Labour Party, no one is quite as reviled as the ‘turncoat’ PM Ramsay MacDonald. In the face of the Great Depression, rising unemployment, and a growing budget deficit, MacDonald proposed cutting public spending and raising taxes to defend the currency and balance the budget: this saw the collapse of a Labour government (and near destruction of the Parliamentary Labour Party) and in so doing furnished the left with one of it’s most treasured legacies: that it is only through betrayal that socialism has never been realised. Moreover, it explains the psychology of how Labour is responding to the current crisis.
Keynesian economics gained much credence in the wake of what was seen as MacDonald’s austere deflationary programme: thus the idea that ‘something must be done’ in the current crisis is perpetuated. That Keynesian economics (at least as practised) was ultimately proved wrong, that purchasing a little economic stability now stores up huge dislocations later, and that in trying to pump-prime a retail sector bloated will only perpetuate the causes of instability seems beyond the point: the most corrosive element of Keynesian thought to make a comeback is the obsession with the short-term. Rather than focussing on how to keep unemployment low today, the focus should be on what will create the new jobs of tomorrow. UK R&D spending, along with productivity, lags behind other developed countries and it is these that will impede a recovery when it comes.
The most apposite comparison is Germany (which recently dismissed the pre-budget report as irresponsible). In the post-war period Germany focussed on having a stable currency and low inflation. Britain focussed on Keynes instead, and set eye-wateringly low level of unemployment as the primary macroeconomic target. This came at a huge cost in terms of productivity which ultimately led to the collapse of much of UK manufacturing. We are in danger of making the same mistakes now in response to the credit crisis, and though it is painful for a Labour supporter to admit, we may see the destruction of a reputation for economic competence that New Labour worked hard to achieve as a Labour government once again approaches the exit door with high unemployment, a devalued pound, and a budget deficit running out of control.
So, what is to be done? I cannot claim to have any easy answers, but given a historical trade deficit something must be done to return the UK to a position of being a net exporter. We can only finance more debt if there is a prospect that we will, as a nation, have the means to service it. This means supporting innovation, cutting regulation and taxes where necessary, and promoting research and development. It also means updating Britain’s dilapidated transport infrastructure. This however, may all prove to be academic.
The continuing collapse in the value of the pound predates the news that a second bailout may be required for the banking sector. How this bailout is financed is important. It has been calculated that the UK’s external debt is now 400% of GDP so extra borrowing is going to be extremely difficult to finance unless you consider the politically toxic option (for Labour) of going cap-in-hand to the IMF (there is the other option of ‘quantitative easing’: printing new money like wallpaper in laymen’s terms but how this prevents a further slide in the value of the pound is beyond me). So, if the economic situation worsens and more specifically liquidity in the banking system dries up, Labour will be faced with the option of cutting public spending dramatically or bankrupting the country. Faced with that alternative, it might seem that Ramsay MacDonald wasn’t so wrong after all. Would the left admit as much? Of course not. However, it would be a pyrrhic victory for orthodox economics if this came to pass.
A great piece in Tuesday’s FT by Vernon Bogdanor, Professor of Government at Oxford. I would hope, what with Miliband’s intervention yesterday as well, that there is still not only time, but also more importantly the desire (too many people are indulging in fatalism) for Labour to re-find a sense of purpose whilst still in office and renew itself for another term.
There’s lots of talk about the next election, some insightful, some less so: I’m reluctant to add more than I’ve said thus far, but I hope that we fight the next election on more than how awful the Tories were last time around. Undoubtedly they were awful but people have short memories of old people dying on trolleys in hospital corridors, negative equity, repossessions, and the rest of it- we desperately need to outline a vision for where we want Britain to be in 10-20 years time. In 1997, the message was simple: we’ll look after the economy, not raise income tax, put the public services on a stable footing, and face the future as a modern, tolerant country. The question is that now we’ve demonstrated we’re not a party of swivel-eyed ideologues where do we go next?
Really good piece over at Progress on the lessons from Crewe and Nantwich. Essentially, the argument is that by going on class we appear anti-aspirational and this is what is turning both working and middle class voters off from us. I think there’s a lot to this. Having recently re-read Philip Gould’s Unfinished Revolution, I think it’s an important point to remember in that attacking modest wealth and middle class lifestyles we don’t just turn off the middle classes: we also turn off all of those Labour voting working class people who aspire to having a bit more material comfort.
Even in 1997, people had a fear- they were genuinely afraid- of what a Labour government would do to their standard of living. The New Labour coalition worked because it binned the politics of envy. We threw away the stale politics of trying to overthrow a system that people could live with (and worked) and replace it with one that didn’t. We became comfortable with people wanting to better themselves: we forget that at our peril.
For what it’s worth, my suspicion is that at the next General Election the Tories will have a slick campaign but will fundamentally have not changed in terms of policy (rather like Labour in 1987). This will be because the parliamentary party and the wider party are essentially reactionary and not signed up to Cameron’s ‘progressive’ agenda. It’s incumbent on us therefore to get a positive message out there (rather than this ridiculous toff nonsense), focus on getting the economy back on track, and start highlighting the gulf between a Labour Britain and a Tory one.
Amongst all the talk of overthrowing Gordon Brown the Tories have said that if Labour ‘forces another unelected Prime Minister’ on the country they’ll try and force an election. I’m not a constitutional expert, but two points stand out here:
1. Prime Ministers don’t have to be elected- they only need to be able to command a majority in the House of Commons
2. Related to 1, as long as any Labour Leader commands a majority in the Commons, how can the Tories win a vote of no confidence?
Now whilst it can be argued that the person of Prime Minister is integral to the identity of government (therefore favouring a poll every time that a new Prime Minister kisses hands) this argument is often made by the same people who decry the presidential nature of the premiership. In short, the critics can’t have it both ways.
Whether the public would wear another change of leader without a poll entirely depends on the circumstances: indeed, there were (Tory) people who said Gordon Brown shouldn’t hold a poll last autumn precisely because he would have won and this would have been a manipulation of the public sentiment. To sum up, there is no constitutional reason why there should be an election if the leadership changes: indeed, the only people who’ll be calling for one will be those who think they can win…
I’ve never been a fan of George Monbiot. I remember watching a programme he made on climate change and thinking it was the most intellectually incoherent argument that I’d ever seen. Ever keen to propound what I’m increasingly led to call ‘trendy leftism’, George has gone one further. Apparently, “This government has been the most right-wing since the second world war.” Of course it has George. Now trot along, eat some muesli, and leave serious comment to people who are able to construct an argument.
Even better though is this. “One fact alone should disqualify this government from office: we have a cabinet of war criminals.” Now I don’t want to dredge up Iraq: that said, I think that this kind of line, which is used to compare the government to the Nazis, is pretty disgraceful. Like a lot of people who like to adopt fashionable causes (more, I suspect, out of wanting to look with-it than from any deep-held principle), Monbiot is more interested in posturing than achieving. Like parts of the party in the past, he seems to believe that campaigning involves finding a cause, writing polemics about said cause, and then getting bitter after the inevitable defeat.
But it doesn’t have to be like that. As Polly Toynbee identifies (also in today’s Grauniad), this government has done more for poor pensioners and young people than any other since Lloyd George. Yes there’s more to do. Yes we have to reconnect with people’s concerns. But these concerns are primarily economic in nature: inflation, mortgage rates and tax. As such, they can be addressed by sensible measures and a firm hand. Whilst the global situation reduces our room to act, we can still make a difference for ordinary people struggling with the increasing cost of living. Surely, that is more important than brandishing the spectre of Nuremburg?
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