Solving Labour’s deficit dilemma?

Solving Labour’s deficit dilemma?

The new leader must win back trust on the economy

If there was one moment where Labour’s fate was sealed during April’s election campaign, it was not the unveiling of the Edstone; it was Ed Miliband’s answer to whether he thought Labour had been spending too much prior to the Crash in 2008. He started by simply saying “no, I don’t”.

It may well have been that Labour was already heading for defeat at that point – given how badly wrong many polls were, we’ll never know – but that one answer reinforced a view that Labour couldn’t be trusted with the economy that already had significant traction.

Part of that problem was that Labour’s own line on the deficit contradictory. On the one hand, the coalition was blamed for cutting too far and too fast; on the other, it was criticised for not hitting its deficit reduction targets. Labour accepted the theory of needing to bring the deficit down but in practice opposed just about every cut or tax rise without offering meaningful alternatives.

But the biggest part of the problem was failing to acknowledge responsibility in the first place. After Miliband’s poor start to his answer, he went on to restate the familiar Labour theme that it was the recession that caused the deficit, which only makes sense as contingency planning if you believe Gordon Brown’s claim to have abolished boom and bust. Which was rather like claiming to have abolished day and night.

That failure to differentiate between the structural and cyclical deficits is not some abstruse academic point, except when made in such terms. People instinctively know that if you’re borrowing heavily when times are good then it’s all going to go horribly wrong when times are bad – and at some point, times will be bad. That’s why so many still blamed Labour for the cuts even at the end of the last parliament.

Yet as the excellent Patrick Wintour article in the Guardian this week details, Labour’s collective denial about their failure in office continues. One Miliband advisor is quoted as saying “the question was whether you confront the Tory spin that Labour had overspent, causing the crash …”. Alastair Campbell refers to “the Tory lie on the deficit.” Both miss the point. The Conservatives (and Lib Dems) didn’t claim that Labour’s overspending caused the crash; they claimed that overspending caused the deficit to balloon out of control once the crash did happen. Conflating the issues might have been an attempt to avoid blame but it wasn’t a credible one. What was worse was that in those protests and denials lay the impression that they’d do it all again, given the chance.

Which is where we can move to the future. The question now is how do Labour’s leadership candidates handle the deficit question. That falls into two parts: do they think it needs addressing at all, and if they do, how do they play it firstly to the Labour electorate and secondly to the wider public?

It may be tempting to simply ignore Labour’s time in office, on a desire to ‘move on’. However, as long as the issue’s relevant that won’t be possible, and it is relevant: the deficit remains far too high, cutting it is at the heart of the new government’s economic plan and the risks to the health of the global economy are many and varied. Who knows when the next recession will hit?

But if the question has to be confronted, the first set of people they need to convince are those who can vote them into the leadership. Here, Cooper, Burnham and Kendall will have to be careful in the choices (or concessions) they make because what they say now will frame their leadership through to 2020.

The contrast with the years leading up 1997 is obvious. Gordon Brown’s courtship of the City was a calculated effort to both expand Labour’s appeal and to demonstrate a comfort and competence with economic matters. Combined with the Tories’ ERM shambles, that was one of the critical factors that produced Labour’s landslide (the Conservatives were actually still ahead on economic approval come election day but what mattered was that it was no longer a trump card).

For as long as Labour remains in denial about the cause of the scale of the deficit, that issue will remain a serious drag on their election-winning chances in English marginals. But can any candidate win the leadership while confronting that denial? Of such things are prime ministers made.

David Herdson

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