Tuesday, 24 May 2011

Looking to 2014, not 1974: the case for spending limits

During the last two weeks, pieces by Uncut regulars Atul Hatwal and Peter Watt seem to have caused something of a controversy in Labour circles by suggesting that Labour keep to Tory spending limits. Peter’s piece was followed by a passionate defence of the current position by LabourList’s Mark Ferguson; not to mention a more wild-eyed, man-the-barricades-the-Tories-are-coming, ad hominem attack from Owen Jones.

So before making our minds up, perhaps we might take a cool, detached look at the case for change. The question of tax and spending limits is not new: indeed, it was raised on these pages back in March. However, given that spending is arguably the most critical question to answer before the next election and will quite possibly decide its outcome, it is important to construct the case clearly and calmly, brick by brick.

One. Historical evidence on beating incumbent governments. Since 1974, from the table below, no party has challenged an incumbent on a tax-raising platform, and won. In contrast, we challenged three times 1983-1992 on such a platform and lost each time.

Winning Challenger
Manifesto pledge
Pledged to cut taxes, although raised VAT and arguably did not carry out the pledge. Cut spending.
Pledged to keep to Tory spending limits for two years, and did. Pledged balanced budgets and no increase in income tax for 5 years, and kept them.
Tory (in coalition)
UK changes of government after 1974

The tough questions: a. by 2014, why do we think that a political approach which hasn’t worked electorally in 40 years will work for us then? Especially when, in the political climate of the 1970s, people were demonstrably warmer to the idea of higher taxes in return for a larger public sector? And b., if it was felt necessary to do this in 1997 (growing economy) to get elected, why do we think raising taxes in 2011 (stagnating economy) a good idea?

Two. Accepting Tory spending limits does not mean accepting we got it wrong on the economy. Some argue that we did, and that we should do a mea culpa on the Brown years, and particularly on debt. But it is not a sine qua non: you can perfectly well have one without the other, as was argued here.

Three. Accepting spending limits does not mean accepting everything the Tories propose. A “thin end of the wedge” argument does not pass muster. What we need to argue about is the spending priorities the Tories are choosing, not the total cost of them. As have many oppositions before us, including ourselves in the run-up to 1997.

Four. Our current position is difficult to understand. Our current debate with the Tories of Cuts-Yes versus Cuts-Yes-But-Not-This-Far-This-Fast is, for onlookers, the difference between two subtly different shades of the same thing: think angels, head, pin. Or worse: they think we are against all cuts, as pollster Deborah Mattinson confirmed last weekend.

Five. Accepting spending limits does not mean loss of economic credibility. In fact, many commentators think that an even harder position (the aforementioned mea culpa) is required to regain credibility. Irrespective of this, it seems odd to argue that, while we are being – successfully – labelled as spendthrift, we should respond by raising taxes.

Six. The argument on overall cuts – not how we apportion them – is lost. Yes, it is. Ask anyone outside the Labour Party. We are alone in holding that view: 28% more people think the goverment cuts are necessary than unnecessary. And the gap is increasing.

Seven. We’ll end up doing it anyway, so why not now? Furthermore, if we do it at the last minute, it’ll be perceived as desperate – as Gordon Brown found out to his cost proposing belt-tightening before the 2010 election – whereas, done now, it can be perceived as wise and perhaps even brave.

Eight. It is not fighting the Tories on their ground and accepting their terms of debate: a movement Ed Miliband rightly warns against in his Friday Guardian piece. He is right that we cannot let them define the battleground: that is good strategic thinking. Not good strategic thinking would be suggesting that acceptance of realities, such as the constraints of the Tory tax position, is the same as letting them set the terms of the debate. Hatwal quotes Tory pollster Andrew Cooper: concede and move on. Or, as someone else said: grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.

All that said, there could be one reasonable justification for our position: timing. That is, if we are intending to stick to these limits but don’t want to announce it as yet, for some strategic reasons not yet disclosed. Although it’s unclear what those reasons might be, and there are obvious benefits to announcing it sooner rather than later, this is at least an understandable and respectable position. It may even be Ed Miliband’s precise position.

Whatever the truth on this, a convincing counterargument to the above eight points – that is, a case for raising taxes going into the next election – is yet to be put forward. The case against is here, if we choose to listen to it with an open mind.

The people proposing these things are decent people who care about their party, too. They just want a debate.

Let’s have it.

This post first published at Labour Uncut and listed in The Week Uncut, the week's most popular posts. A response article by Liberal Conspiracy's deputy editor, Don Paskini, was published here.


  1. You may be into a full blooded hard left uprising by 2014. Conditions have not be a auspicious since 1984.

  2. Ciaran, it's funny you should say that. I have been discounting the possibility as paranoia, but now I'm not so sure. Nick Cohen said the same a few weeks ago, and he's usually pretty astute.

    God, I hope not. We'd be out of power for another 18 years.

  3. Labour is seen in white working class areas as having sold out, more interested in the OK Yah class vote.

  4. It's perhaps unfortunate that Peter's post got the most attention before you had the chance to write this one. It has to be said, yours and Atul's work better, perhaps because Peter's focuses a bit too much on party members at the expense of party strategy.

    Some clarity is needed - I sense the argument is this: we accept that the Tories are going to be able to implement their cuts to spending in the current parliament and instead of using the c word, focus on current priorities and those of the next parliament.

    But I suspect some have taken it to mean this: accept Tory spending plans up to (and possibly beyond 2015) as though this constitutes a deficit reduction plan (which, since growth has been lowered, it currently does not - what they have is a spending reduction plan).

    It's not that surprising that the paradox of thrift isn't readily understood given the weight of emphasis given by the political, economic, and media establishments on the question of spending cuts (to the detriment of a needed debate on economic development).

    So there's a danger that if at the same time as accepting the political reality of the Tories being able to implement their plans, we accept these are actual deficit reduction plans - we will be in no better position by 2015.

  5. @James, well yes, your second para is about right, except I am adding to that projected spending for the first couple of years after 2014 - that is, after all, what will count electorally. The spending plans for this parliament are a done deal anyway, apart from some small changes which the govt will negotiate if there is an outcry in a specific area (e.g. forestry, NHS).

    Re speed of deficit reduction, it will of course depend on growth, as you say. That is not to say you can't reduce it without growth in principle, but for that you'd need to look very closely at the figures.

    I suspect the Tories will end up in the end not having such harsh cuts and not cutting the debt as much as they said they would.

    It's an interesting point, how much of the debt-cutting will be down to reduced spending, how much to growth and how much to increased taxes.

    I suspect they are downplaying the growth part in their projections anyway. I don't think we will be in "no better position". I think we'll just be in "not as good a position as we could have been". Largely because of the lost opportunity for growth.

    Trouble is, the growth argument is right, but also a bit of a trap for us. It looks like we're trying to grow our way out of the trouble "we caused", as if we are denying cuts need to be made in exchange for a growth that "may never materialise". All very tricky politics.

  6. But the "we caused" thing isn't uniform. In other words, some voters think because the GFC happened under a Labour govt, the party is responsible in terms of incompetence - the association with the crisis and the deficit is here stronger. In your latest LabourList article on our poll lead, you seem to be suggesting the blame can be eroded by matching up to the Tories on cuts.

    The danger of the spending limits approach is that it could defer to the existing narrative - thus perpetuating it - at the expense of contesting the need for broader financial reform.

    The question of spending needs to be examined carefully, since in our economy the credit creation is seen as sole preserve of private banks. Institutions which, because of the need to provide financial returns to their owners, developed and traded products with risks beyond the comprehension of bank bosses - with the effect being that the state is now propping up the private banking sector.

    So, I think matching coalition spending in the years after 2014 will only be credible electorally if it's accompanied by a commitment to radical financial reform - otherwise, we're just conceding competence on public finances to the Tories.

  7. Well, actually that's not what I said in yesterday's piece: I said we have lost the overall-level-of-the-cuts argument and that a worsening economic situation will not vindicate us. So, in fact, I believe the opposite of what you're saying - we cannot erode the blame. What we can do is draw a line under it and move on. There is no need to "defer to the existing narrative".

    Proper regulation of banks, by the way, is one part of where we can add value (because the Tories are clearly bound to soft-pedal it). But it's only one part of the solution. So I think we agree that matching coalition spending post-2014 plus proper financial sector reform could be a winning package.

    Now we just need to define what "radical" means...;)

  8. Sorry, must have misread that part. Or misinterpreted. I think the blame can be eroded - if we're making the case for financial reform, we're contesting the cause of current economic woes. Drawing a line under it and moving on isn't possible because the Tories will keep harking back to it.

    Radical means going to the root, that's the etymology of the word. On policy, I think Michael Stephenson and Chuka Ummuna's recent Progress Online articles have the right approach. As opposition, and also in opposition to our reputation as spendthrifts, Labour has to be very vocal on the Vickers Report when it comes to moral hazard. Put crudely for the benefit of getting the point across, the banks spent too much and had us pay the bill - we can't let it happen again.

  9. Yes on the Vickers Report. Yes to Michael Stephenson, whom I know to be a great guy. Yet to be impressed by Chuka Ummuna.

  10. I thought this was impressive: http://www.progressonline.org.uk/articles/article.asp?a=8205

  11. Good idea. But it was Mike's idea, not Chuka's.

  12. I realise that, what's impressed me is that he's still speaking and writing about mutual and cooperative models of enterprise - no doubt a tribute to Michael Stephenson's work as general secretary of the Cooperative Party.


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