Jonathan Todd

I had the piece below published on Labour Uncut on 16 June 2010:

The Daily Telegraph isn’t normally essential reading for Labourites. But yesterday it should have been, especially for Harriet Harman. Fraser Nelson set the backdrop to the politics of the deficit and the “emergency” Budget, to which she, as acting leader, will respond. This week’s report from the new Office of Budget Responsibility (OBR) dramatically changes this political context. Nelson has been quick to realise this and, while our instincts differ markedly from his, we need to be equally fleet-footed.

The limited discussion on the deficit in the leadership election has denied our candidates the opportunity to demonstrate this quality. Though, of course, they could engineer such an opportunity for themselves. I’d be impressed if any of them do flesh out a more substantial economic platform, not least as The Economist is right to note that, “nothing will make or break the next leader of the opposition like his response to the government’s austerity programme”.

The coalition, preparing the ground for the scorched earth to come, has grasped any and every opportunity to exclaim their horror that “it is even worse than we thought”. Labour, apparently, have not just cooked the national books, but eaten and spat them out again. It’s what we always do. We can’t help ourselves. It is the coalition’s duty to pick up the pieces; in the national interest, of course.

The coalition has pushed this story since its creation. It matters whether it is believed. It wasn’t until after black Wednesday that the spectre of the winter of discontent stopped being a drag on Labour’s support. If the deficit is perceived as Labour’s deficit, then the pain of reducing it will be a similar drag. However, a major spanner has been thrown in the coalition’s attempts to embed this perception. As Nelson observes, “something is going badly right” for the British economy.

The OBR reported earlier in the week, as Nelson noted, that unemployment “will be almost 200,000 lower than had been feared. Economic growth will not be quite as strong but the tax revenues – which are far more important – will come in much more strongly than Mr Darling gloomily forecast.” So, the reality is that public finances are in better shape than the Treasury forecasts bequeathed to the coalition gave them to expect.

How troubled George Osborne must be that this reality, so out of kilter with his desired spin, has been presented by the OBR. After all, he established this body, as Nelson puts it, with the intention to “demolish the economic Potemkin Village that Gordon Brown built during his time in Downing Street and reveal the full extent of his fiscal vandalism”. Yet, rather than exposing Labour irresponsibility, the OBR has shown “Mr Osborne’s election goal – to abolish “the bulk” of the structural deficit by 2014 – would have been easily achieved had Mr Darling remained in place. No more taxes need to be raised, or budgets cut, to honour this Tory manifesto pledge.”

This is a tremendous vindication for Darling and inconvenience for Osborne. If Osborne now persists with plans to cut further and faster than intended by Darling, he will be doing so for reasons of political belief, not economic pragmatism. Nelson understands this and urges him to press on “because he wishes to restore the power balance between state and society. A true liberal believes that people spend their own money more wisely and effectively than government can do on their behalf.”

While Rachel Reeves has expertly explained why comparisons – encouraged by the scaremongering spin of the coalition – between the UK and Greece are spurious, our deficit does require careful management. However, there is a world of difference between the careful prudence of Darling’s plan and the ideological, small-state zeal that would carry Osborne beyond it. Nelson encourages Osborne in this direction because “with Labour embroiled in a five-way leadership contest, he will never face weaker opposition”. Precisely why we must be vigilant against him.

What the formation of the coalition told Philip Stephens about David Cameron was that “he is a Conservative in the centrist tradition of Harold Macmillan rather than a radical such as Margaret Thatcher”. However, we need to be ready for his Chancellor leading the coalition on a distinctly Thatcherite course in his first Budget. Having scrapped the Child Trust Fund and the Future Jobs Fund this might be no surprise, particularly after the coalition agreement made, as James Purnell noted, “no mention of abolishing child poverty. Of reducing inequality. Of protecting education funding. Of guaranteeing jobs for the long-term unemployed.”

In responding to Osborne’s Budget, the key distinction is between actions that can be justified as decisions of economic necessity and those that are driven by political belief. We strip ourselves of credibility if we do not acknowledge the necessity of some pain. We can absorb more of this pain in the form of taxes than Osborne will propose, but we can’t hide from the need for some spending cuts. To remain credible we need openly to concede this, but we also need clearly to identify the areas in which Osborne is acting as the ideological vanguardist that Fraser Nelson wants him to be, losing sight of the sober economic reality presented by the OBR.

That this reality is much brighter than the coalition’s spin is a credit to the decisions we made in office. We need to be equally strategic and forensic in our economic decision making in opposition.

Good analysis of the economy and public finances from Larry Elliott. He’s right to identify the struggles which some companies are still having in accessing finance as a key challenge as the pre-budget report draws nearer.  It must be a major worry that lending to businesses fell by £4.6bn in September – the eighth successive decline. What can Alistair Darling do about this?

Almost certainly less than the Bank of England may potentially be able to. “Inexplicably”, Willem Buiter convincingly argues, ”the Bank of England has not made full use yet of the instruments it has at its disposal.” Interest rates may go lower still (to zero or even beyond) and quantitative easing, which has taken a markedly different form in the UK from the US, might be revised in the UK. The UK’s programme has produced, in round terms, £2bn of outright purchases of private securities and £169bn of Treasury securities. There is a strong argument that shifting the balance between these purchases would do more to get credit flowing to businesses.

This isn’t a shift which it is within Darling’s gift to make, however, and Buiter does not anticipate “much joy … from fiscal policy as a means for boosting aggregate demand in the UK in the short run”. So, Darling’s ability to get credit flowing is constrained. Nonetheless, he’ll come under some pressure to provide greater fiscal stimulus in the pre-budget report. This might be a last gasp of Keynesianism. For this gasp to achieve anything, though, it needs to be the kind of smart Keynesianism that I have previously praised. This is a Keynesianism that recognises that what the government spends its money on matters as much as how much it spends.

The next round of monetary and fiscal stimulus must both put an emphasis on quality, not quantity. Well targeted government spending can make a difference, even on a limited scale, and the form which quantitative easing takes is as important as its scale. If these revisions can be made on both the fiscal and the monetary fronts, businesses may be able to access credit on more favourable terms than they can at present and, if this were to be the case, the green shoots really would be coming into view.

I know that the other day I again proclaimed the futility of negative politics, at least as far as the Labour Party at the moment are concerned. However, I was asked to comment on this letter from the Tory PPC for Copeland and couldn’t resist picking apart his arguments. I’d be amused at how weak they are, if the prospect of him being the MP for the seat where I grew up and where most of my family still live were not so appalling. This is what I had to say:

If David Cameron is so pro-nuclear, how is his close relationship with the avowed anti-nuclear campaigner and Tory PPC for Richmond Park Zac Goldsmith to be explained? Could it be that the Tories want to say one thing in Richmond Park and another in Copeland?

Irrespective of what they say in different parts of the UK, a Conservative government would not be heard in Brussels, as David Cameron has already made decisions which have, according to France’s European Minister, castrated British influence in Brussels. This materially impacts upon economic wellbeing in Copeland. Chris Whiteside speaks of removing barriers to new nuclear investment, but securing a higher and more stable carbon price would remove a key barrier to this investment. Lowering the cap in the EU-ETS is the best available policy lever for achieving such a carbon price, but this lever will only be pulled by a British government capable of commanding influence in Brussels and across the EU. The castration of British Conservatives in Brussels threatens the nuclear future of west Cumbria should we ever have a Conservative government.

It is odd that Chris Whiteside bemoans, rightly, attempts to misrepresent the policies of other parties and then proceeds not only to misrepresent Labour policy but also his own party’s history.  

As far as his own party’s history is concerned, it is one thing to attempt, as Cameron and Andrew Lansley, the Conservative health spokesman, are doing, to re-brand the Conservatives as champions of the NHS. Great is the joy for the sinner who repenteth. But it is quite another to ask us to forget the sin, as Chris Whiteside’s perplexing praise of the record of past Conservative governments on the NHS asks us to do. The NHS was on its knees when Labour came to government in 1997. We turned it around because we have always believed in the NHS and not seen it “as a 60 year mistake”, as a Conservative MEP recently described it; comments which cause one to doubt the sincerity of the repenting we are being asked to embrace.

As for misrepresenting Labour policy, since when has Budget 2009 been a leaked document? This very public document set out plans for a cumulative 6.7 percent reduction in public spending over the three years from April 2011. I can only presume that the 10 percent figure that Chris Whiteside refers to is the reduction which is implied across most of the public sector by the Conservative commitment to both match Labour’s spending restraint and ring fence increases in health spending. This ring fencing is intended to convince us of the sincerity of Tory repenting on the NHS, but one’s confidence in this sincerity is further shaken by Chris Whiteside’s capacity not only to confuse a leaked document with Budget 2009 but Labour Party policy (which is for a 6.7 percent reduction) with Conservative policy (which is for the 10 percent reduction he refers to).

Nonetheless, Whiteside is correct to be concerned about public debt and we look forward to the Chancellor, Alistair Darling, setting out full plans for the management of public debt in the Pre-Budget Report later this month. He will do so on a basis that both preserves confidence in the public finances and maintains the public services that Labour has turned around since 1997. To re-coin a phrase, this will be prudence with a purpose. Chris Whiteside’s obvious lack of either prudence or sincere purpose is a danger to Copeland.

Recently Hector Sants, head of the Financial Services Authority (FSA), said:

“The question of the size of individual payments is not one for financial regulators. That is one for politicians and society as a whole. If politicians wish to take a view on that, then they should say so, but they should not be asking the regulator to carry out a pay policy”.

Politicians should step up to this plate. So, it is welcome to read reports that Alistair Darling, the Chancellor, is considering means of doing so.

Any nervousness that might be felt in relation to this should be quelled by reflection that Martin Wolf, Raghuram Rajan and Paul Krugman were arguing for this long ago. Of course, we should, as ever and as the Times argues, be wary about unintended consequences. But the Times – hardly a bastion of red blooded socialism! – proposes a sensible way ahead:

“Only a small fraction of a bonus should be paid at once. The rest of the payment would follow only if subsequent years of good performance confirmed that the profitability was sustainable. In this way, the incentive to make short-term profits with very risky transactions might be avoided. It would be reasonable to penalise banks that did not comply by requiring they offset the risk by holding more capital”.

Deferred compensation schemes seem the way forward.

The Sunday Mail reports that support for Labour has fallen to 23 percent – the lowest since opinion polls began in 1943. If Labour polled this badly at a general election, the party would lose 200 seats to the Conservatives, who would hold a massive, carte blanche majority of 220. The survey was also the first to record that the majority of voters want Gordon Brown to stand down now as PM.

These are desperate times, indeed, for Labour and while the expenses revelations “will hurt the reputation of all politicians”, argues Andrew Rawnsley, ”the damage is likeliest to be greatest to Labour at the next election”. Another poll supports Rawnsley’s view. There have been many highs and lows under PM Brown. But each low seems lower and more desperate than the last one. I didn’t think it was possible to go any lower than the McBride affair but recent days have probably managed it.

It may be that everything that has been revealed in recent days was “within the rules”. What McBride was up to certainly was not. Nonetheless, Brown’s response in both cases was to blame the rules and insist upon their reform. But people, especially public figures, have to take responsibility for their actions, irrespective of what the rules may or may not say. While the McBride affair was undoubtedly depressing in the extreme, there is something even more depressing about the expenses revelations because the people concerned are people who are widely respected and admired within the Labour Party, in contrast to McBride.

Of course, as I have heard Tessa Jowell and Ed Miliband say on TV, we should avoid making judgements on the basis of partial information and Ben Bradshaw and Phil Woolas also challenge the versions of events that have been reported about them. I am afraid, however, that, whatever the reality of the situation may prove to be, the damage has already been done and the dye has been cast for Labour. The party can now only, to mix metaphors, walk into the hurricane of public anger.    

What a prospect. It must make the most battle hardened Labour campaigner nervous about door knocking. Those lions have been lead to this by the expenses claims of the donkeys that lead them. Alan Johnson, however, doesn’t appear quite so donkey like. According to Rawnsley, he, along with Hilary Benn and Ed Miliband emerges ”as acmes of frugality who make modest and entirely reasonable claims for performing their duties”.

James Forsyth argues that this increases the likeihood of Miliband “winning the leadership after the next election”. But the question will increasingly be asked whether, if this were to happen, this would make him the next leader of the Labour Party. Even before the expenses story broke The Mirror did not seem disinclined to the prospect of the frugal Johnson, who has recently appeared to indicate more of willingness to take on the top job than previously, replacing Brown before the election. That frugality must have been good for his conscience at the time and now also appears a smart career move.

 Matthew D’Ancona speculates that he ”may yet be the first person to become Labour leader by going on television and radio repeatedly to deny that he is either capable of the job or interested in it”. These denials mean that Johnson is considered to lack a steely, Michael Heseltine or Brown like determination to accede to the very top. Given this and past experience – the lack of any challenge to Brown either when he became leader or last summer – D’Ancona seems justified in his view that “for all the sound and fury we can expect over the summer”, in terms of plots against Brown, ”the PM will still survive and fight the general election”. But D’Ancona was writing prior to the expenses story. Is this story a game changer? And, if so, how will the game end?

Martin Bright is right think to that there is a “distinct possibility that (it may end with) the Labour Party (going) into terminal decline as a credible political force”. He argues that the best way to avert that outcome is for “the younger generation of Labour politicians … to take control now”. Who can he have in mind? I don’t think Johnson or Harriet Harman, another potential successor to Brown, can be considered part of the younger generation. But James Purnell and Jon Cruddas could. Allegra Stratton has them down as a ‘dream ticket’.

“Why don’t James and Jon grow some balls and get together and challenge GB”, a “Labour grandee” apparently recently told her. The “grandee” will presumably hope that the expenses story has made these balls grow. At this stage, however, I am not sure whether it is certain that Purnell, nor Ed Balls or Yvette Cooper, either of whom (but surely not both?) might well consider standing in any contest that featured Purnell, is out of the expenses wood - though, this is far from the only question that might be raised about the supposed dream ticket. They are usually considered, for one thing, to be on opposing wings of the party. David Miliband – another member of the younger generation with leadership ambitions – certainly hasn’t come out of the expenses story as well as his brother or Johnson.    

If Brown can be prised from Downing Street – and that definitely remains a big if – then the number of names discussed here (Johnson, Harman, Purnell, Cruddas, Balls, Cooper and both Milibands) would seem to open up the spectre of an unseemly scramble for Number 10 – if they all were to grow balls, as it were - at a time when we face challenges so grave that Frank Field has been talking about the need for a national unity government. Peter Mandelson may insist that Brown is focused on these challenges, not his cleaner, but polls of 23 percent cannot fail to darken Labour’s mood music. It may now be the Tories turn to hold the expenses spotlight but David Cameron senses enough weakness around Brown to be edging towards a confidence vote, via the Royal Mail vote.

The chances are that Brown will avoid a confidence vote by giving enough concessions to Labour backbenchers to win the Royal Mail vote with Labour votes, while losing Cameron’s support for his Royal Mail plans. But how many concessions can Brown give without losing the support of the responsible Minister, Mandelson, a potential Geoffrey Howe in this drama if ever there was one? It’s bizarre that Brown has ended up in a position of such dependence upon his old foe – The Sunday Telegraph speculates that Brown may reduce this dependence, in respect of the Royal Mail vote at least, by moving Mandelson to the Foreign Office, “a post he has long coveted”. How these once bitter rivals play their cards on the Royal Mail vote may go some way to determining whether everyone’s favourite ex-postie, Johnson, ends up as PM. The Sunday Telegraph also suggests that Brown may try to prevent this happening by making Johnson Chancellor and, thus, “binding him in” to Brown. This creates the risk, however, as Peter Hoskin notes, that Alistair Darling will play Howe.

All of this, however, is just fluff and hot air – or “sound and fury” to use D’Ancona’s term. Not only is it fluff and hot air, it is fluff and hot air at a time of crisis. Shuffling deckchairs on the Titantic is the right expression. Martin Bright correctly grasps the depth of the crisis facing Labour. The worst thing Labour could offer now (and I have stopped assuming that things can’t get any more desperate, as that assumption has proved sadly, too unrealistic) is more fluff and hot air. That is to say more talk of a challenge to Brown. Talking about challenging Brown but not actually challenging Brown, i.e. not growing balls but pretending to, is the worst of all Labour worlds. It is worse than growing balls and challenging Brown. It is also worse than not growing balls and supporting Brown.

This is a crisis of fluff and hot air in a deeper and more dangerous sense than this, however. Brown promised the country a vision but, frankly, this only came into view with the credit crunch. This gave his government a sense of purpose that it otherwise lacked. Once a government and a party becomes so lacking in purpose that it needs a global crisis to give it one, it is little surprise that the public have little sense of what the party’s purposes, motivations and convictions really amount to. I fear that those battle hardened Labour campaigners, who are newly nervous about door knocking, would struggle to give a convincing answer as to what the point of a fourth Labour term would be, if asked on the doorstep. These lions have again been let down by the donkeys that lead them. And just as badly let down as they have been in respect of expenses.

The Labour Party, whoever leads it, desperately needs a stronger sense of direction. Until the party rediscovers, re-imagines and revivifies its purposes, it cannot complain about these purposes being unclear to the electorate. The most encouraging thing about the latest ‘date‘ between the ‘dream ticket’ is that it occurred at the launch of an exciting new Demos pamphlet. The Liberal Republic is a great publication by Richard Reeves and Phil Collins, which is likely to appeal to Alan Milburn, a name sure to be mentioned among the plotters. The likes of Milburn, Purnell and Cruddas are intelligent and bright enough to think through the thoughts that will need to be thought through for Labour to really rediscover its sense of direction. They should have the balls to do so and not to get distracted by the fluff and hot air. Only one of these pursuits, ultimately, will make a real difference. We were promised vision and we were promised substance. That is still what is required, whoever leads Labour.