The Thick of It


Monday, October 18, 2010

Is it enough to not be the Tories?

This week's spending review is likely to unleash a nasty raft of cuts to government spending. The real effects of this will be felt over the next two to three years as services are gradually withdrawn. The mirror with Geoffrey Howe's deeply unpopular budget of 1981. Despite tax increases and public spending cuts being incredibly unpopular Labour failed to benefit because it wasn't focused on offering a feasible and credible alternative. What makes George Osbourne's spending cuts any different from those of Howe almost 20 years prior? Will an unpopular Tory government automatically propel Labour back into power in five years?

There are many arguments against the Tory plans:

  • Osbourne's plans will hurt and I don't expect the cuts to be "fair". The botched cuts to child benefit recently announced show that many of the plans will be ill thought out. 
  • The cuts are too hard and too fast not just from the Labour Party. This is my view. Taking so much money out of the economy will stall growth. It is also short-sighted to suggest that £1 spent by the government is £1 gone from the coffers. Much of that £1 will come back in VAT, corporation and income taxes. That won't happen now. Instead the economy will shrink, meaning recovery will become recession.
  • The state's finances are not worse than expected. It is disingenuous of ministers like Vince Cable to claim that the current government finances are worse than expected. The state of the public finances are public and widely known. He is simply playing the fall guy for cuts and policies, such as tuition fees, that the Tories wanted to put in place anyway.
  • The political problem for Labour is that the cuts will be blamed on the poor state of the nation's finances, which is Labour's fault, according to the Tories. That narrative will ignore the huge investment made to recapitalise the banks and in public spending to keep the economy going. Labour needs to respond that this was unavoidable. 
Significant though these are, none of these counter claims are sufficient for Labour to benefit from the Tories' unpopularity alone. Current polls show Labour edging into a small lead. To build on and sustain this, Labour needs to present a viable and credible alternative.  With a new leader that may take time, but having a leader at all is progress from the previous five months of an "empty chair." The quicker Ed Miliband can start setting out his alternative plan the better.

What does a credible alternative plan look like? It needs to show that both the deficit and growth are important. Cutting the deficit so fast could be a zero sum game, cancelling out growth that will itself increase tax receipts and reduce the deficit.

Labour's plan has to, and will, accept that the deficit needs to be tackled. It also needs to show that the better off would pay more than those in the middle and at the bottom. It needs to be fair and sensible.

If Labour's response is good enough perhaps David Cameron will start looking for a "popularity" war like the Falklands...oh, we can't afford one.

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