Both the British economy and British politics are three years behind where they should be. This will define the next election.
Labour has two messages for the media today. The first, from Ed Miliband, is that we should focus on substance, not style. He’s right. So let us move swiftly on to the second message, from Ed Balls, that the GDP figures announced today represent a recovery three years delayed. This is also right.
In early 2010, the British economy was showing tentative signs of emerging from two miserable years. Instead, we had the Osborne pause. Nearly two years of insignificant growth which with growth returning towards at the start of last year. Calling it the Osborne pause is a cheap shot, but it’ll do me. You could equally call it the Euro-pause, I suppose.
This simple fact, that the recovery is late. It’s later than forecasted, later than politicians expected, later than families and businesses hoped.
At the same time, even though the employment figures are strong, personal incomes are rising only slowly. The hangover of recession is still affecting us. This delay has had many consequences.
One is that the hard, long struggle of rebalancing the economy became less essential to the government than achieving growth any way they could. If it took a London housing boomlet to get the animal spirits going, that was not a problem. Another is that austerity abated and deficit reduction was shunted to the next parliament.
If the Government strategy was austerity to drive national reconstruction, Over the last three years they achieved neither, in large part because they cut ‘too far, too fast’. ((And before anyone says ‘But you’re a fiscal conservative: you wanted faster cuts. No, we didn’t. We wanted the acceptance of the need for cuts, not their overhasty introduction when the recovery was not fully established. Now they will have to do it all again.
So if the recovery is three years late, and the strategy that the government strategy of austere reconstruction was abandoned as a result, that has to be bad news for the Government, and good news for Labour, right?
Unfortunately not. While Labour has place itself at a smart juncture in British politics, it too, is three years late. I am biassed on this. Three years ago, I and others wrote a paper calling on Labour to adopt a Fiscally Conservative approach to social justice. After many fits and starts, that battle has slowly, gradually, quietly been won.
It has been won, not because of my paltry efforts, but because the leadership of the party saw that ‘Fiscal caution’ (They wouldn’t accept conservatism, naturally enough!) was needed, and their left-wing critics gradually lost the political will to fight them, realising that a loud left call for higher taxes or more borrowing would be electorally self-defeating.
This journey had several stages: there was the Zero based spending review, embracing the OBR, calling for the OBR to review party spending plans before the election (as happens in Australia), pay commitments, the pledge to clear the current deficit. These finally came together in the National Policy Forum this week, when the wider Labour movement signed up to this agenda – an impressive feat of party management that has gone too little unremarked in the consideration of Ed Miliband’s leadership style.
Labour has reached a very coherent political and economic strategy. This combines an emphasis on fiscal conservatism (in the best, cautious sense of the word) with economic activism to deliver social justice. This involves long-term state action to support skills, infrastructure, business investment, wages, and so on, along with a series of measures to help family finances in the short-term. (If I can blow my own trumpet, may I point out that from a Zero based review to new Fiscal rules, to an enhanced OBR, to an emphasis on infrastructure, procurement, regional growth and innovation, is precisely what we were talking about back then?)
Unfortunately, Labour has reached this position three years late, and the years of diffuse complaining about government mis-steps and miscalculations has meant a false image has been affixed to Labour – that we are inveterate, unrepentant spenders, that we will increase debt, or taxes, or both.
As Anthony and I argued back then Labour “must also resist the temptation of short-term political benefit from opposing cuts while knowing it must make more after 2015. People will see through that. We are in a time of tough choices. If Labour faces up to the challenge of advancing social justice in an era of limited public expenditure it will present a credible governing alternative. If not, the Conservatives may get an undeserved benefit of the doubt“.
We’re there now, but it took a three-year journey. Thankfully, it is not too late, because of the government’s own three-year delay.
What’s more, that delayed recovery means the deficit looms large over every policy choice.
As we argued ” The more Osborne’s plan fails, the more the next election becomes dominated by the deficit“. Look at the IFS projections for the huge fiscal challenges awaiting the next government, and that point is truer now than ever before.
As the economy finally grows, the immediate political salience of the deficit will fall, but its practical and political consequences will be overwhelming. No party can comfortably promise to borrow more, while helping working families with the cost of living is incompatible with the scale of tax increases needed to fix the deficit without deep, sustained cuts.
This is uncomfortable, unspeakable territory for both parties.
For the Government, it exposes the hollowness of their talk of recovery. The challenges on family finances, of manufacturing, of rebalancing, of exports and, yes, even of the deficit, remain as stubbornly real as they were three years ago.
For Labour, the discomfort of setting out how we would meet the spending pledges we have tied ourselves to without unacceptable cuts or tax increases remains, as does the challenge of showing that our commitments on fiscal prudence are real, not rhetorical.
All of this was true three years ago, and is true now. There are solutions, but they seem dangerous to self-image and misplaced electoral confidence.
The Tories could return to a progressive conservatism, emphasising growth throughout the nation, being passionate about improving incomes, urgent in securing growth precisely so they can defend services as best they can.
Labour can show their willingness to think for the long-term, use the state to drive growth, not merely subsidise existing practice, but support business expansion and science and skills. Both can (in different ways) emphasise housing, and infrastructure and innovation. Both can face up to the consequences of these decisions. Both will need to set out what would not be a tax and spending priority, as well as what will.
The British Recovery is three years late. So too is our politics.
The first party to find a confident, coherent approach to the first battle will surely win the second.
After all, substance wins over style.