Labour are reformers not just spenders
Rachel Reeves did not mince her words at the IPPR today, where she gave her first major speech as shadow chief secretary to the Treasury. “It’s precisely because we on the centre left believe that active government along with good schools, hospitals and other public services can transform lives…that we must ensure we pass the test of fiscal credibility” she said. “If we don’t get this right, it doesn’t matter what we say about anything else.
Earning people’s trust that we will be responsible custodians of public money is the precondition for gaining the right to be heard on any other issue”.
Reeves said the public should judge George Osborne by the tests he set himself in May 2010, to ‘significantly accelerate the reduction of the deficit’. Even on this measure, she argued, the government was failing: with the Treasury set to borrow £158bn more than they had originally planned because of lower growth and higher unemployment. In one of the most effective parts of the speech, the shadow chief secretary spelt out some of the causes of that higher borrowing: £18bn in lower VAT revenues, £51bn in less tax revenues, £31bn off corporation tax revenues and an extra £35bn in extra social security spending (the latter almost double the amount the government is saving from cuts to the benefits bill).
The speech also set out the pillars of Labour’s alternative. That started with the ubiquitous ‘five point plan for jobs and growth’. Reeves then confirmed Labour’s commitment to new fiscal rules, alongside an effective passage mocking the illogical nature and perverse incentives of the government’s current ones. The Opposition would do well now to kick off a process for exploring what those new rules might be, learning from how other countries have locked in fiscal sustainability. Australia, for example, has a Charter for Budget Honesty including a range of mechanisms which hold government’s to account on their handling of the public finances and introduce more transparency into the budgeting process.
The third pillar of the approach, outlined by Reeves, was to show that Labour are reformers not just spenders – especially in the realm of economic policy. While the speech was relatively light on policy specifics (that’s her shadow cabinet colleague’s job), she did talk about the need to put our tax base on a more resilient footing and consider steps which might reduce the demands on the welfare bill, where many of the costs of social and economic failure end up falling. If we got a better deal from private landlords, we could get the housing benefit bill down. If we got a better deal from wages, we could get the tax credit bill down. If we got a better deal from the energy companies, we could get winter fuel allowance down. This is a potentially rich vein of policy thinking for the centre-left.
This speech was a strong critique of the government’s failure to meet its promise to reduce borrowing. And in response to encouraging data from the ONS on January’s public finance numbers, Reeves pointed out that George Osborne is only now on track to meet his target for this year because he has moved it four times already. But the tricky issue for Labour is the extent to which it’s political fortunes are tied to the performance of the economy. There are major dangers in relying on bad economic news, not least that it might not happen.
The government’s economic policy has significantly under delivered on its own terms. Most worrying is the permanent damage being done to the productive capacity of the economy, given a human face by rising unemployment that is becoming structural in nature. But the next election will be a choice not a referendum. If the Coalition fails on the economy, voters will automatically consider an alternative. That’s why it would be sensible for Labour’s central political scenario to be that it doesn’t.