Jonathan Todd

I had this on Labour Uncut a few weeks ago. I think events since have justified my argument.

Public debt, said to be the consequence of Labour largesse, is the problem for the governing parties, and aggressive cutting the medicine. Labour contends that this remedy is too tough to close the deficit. As we recover from a global shock of 1929 proportions, slower cuts are required for strong enough growth to generate the tax revenues needed to achieve deficit closure. Lack of growth, as well as the deficit, is the problem targeted by Labour.

Are these well-established positions shifting?

Not as far as Labour is concerned. Some twitching can, however, be detected on the government side.

First, John Redwood wants an improved growth strategy. This is echoed by Liberal Democrat Mark Littlewood. This doesn’t mean the Tories and Liberal Democrats are about to concede, as Labour has protested, that they have no growth strategy. Since the formation of the government they have argued that the deficit needs to be addressed to retain the favour of bond markets and so control upward pressure on interest rates. They prefer this monetary stimulus to greater fiscal support. Yet the comments of Redwood and Littlewood are not insignificant. They acknowledge that the resources of the shrunken state could better target growth.

Second, Norman Lamont has stressed that the government is battling the headwinds of a global crisis. Osborne has long sought to frame our economic problems as being wholly the consequence of Labour profligacy. Lamont may have carelessly forgotten this script or his comments might indicate that the Tories want to start to get some excuses in.

Third, George Osborne has flagged the “flexibility” in his plans. This isn’t a policy shift, but a change of emphasis. The automatic stabilisers of tax and benefits were never removed by him. The treasury might also define “trend growth” to create wriggle room on the extent of cuts needed to eliminate the structural deficit.

Osborne’s commitment that Ireland would be the only eurozone member he would bail out was shattered, as was always probable, in Portugal. His officials must have briefed him that Greek default now seems inescapable. Fireworks will follow, probably knocking our economy still further off course. So much so that Osborne may resort to the Lamont defence.

With this, the chancellor’s pretence that the deficit is entirely caused by excessive Labour spending and nothing to do with global conditions would be nakedly exposed. While this would be a significant concession to Labour, half of voters now blame Labour for the cuts, as compared with a quarter attributing them to the government implementing them. Osborne’s acknowledgement that the UK is not an island would help. But probably wouldn’t be enough in itself to reverse these numbers – especially if Osborne gets traction behind a subtler Lamont defence.

The simple version of this defence is a global crisis. The more subtle and accurate one is a European malaise. The euro’s principles “have proved unworkable at the first contact with a financial and fiscal crisis” (Martin Wolf) and the currency zone “is looking very much like a system that amplifies shocks rather than absorbs them” (Ken Rogoff). Swathes of southern Europe are unable to generate the growth they require to manage their debts within the eurozone. This isn’t sustainable. Either consolidation into a currency and fiscal union occurs or bits of the struggling south must break away.

Eurozone leaders have not confronted this choice squarely. The economic interests of the UK are best served by having them do so before this dilemma overcomes them. However, Osborne potentially has a tenable political position even if our economic interests are not so protected. While the shocks triggered by Greek default may destroy his economic projections, he will shift his account of the economic problem to the European variant of the Lamont defence. It won’t have worked. It will have hurt. But it will be Europe’s fault as well as Labour’s.

The bond markets and the polls will then give their verdicts on this argument. The markets will want Osborne to hold fast to plan A. As the pain accompanying this plan deepens, the polls instead might indicate an increased sympathy for Labour’s slower cuts. Labour should not, however, seem to be willing this grim scenario.

Labour should be building on the criticisms of Redwood and Littlewood and spelling out how smart policy can secure faster growth. We should also be getting ahead of the debate on the euro. Ed Balls ought to demonstrate that he is capable of leading in Europe in a way that Osborne has not. Then any deployment of a European-flavoured Lamont defence would be followed by Labour contrasting the paucity of Osborne’s response to that of Balls.

I had this on Labour Uncut on the day of the Budget.

The current Spectator cover story claims that Conservatives are as struck by panic as they were in the autumn of 2007 when Gordon Brown seemed set to crush them by calling an election. George Osborne saved their bacon then and they look to him to revive them now. Everyone else is looking at Libya. Hence, the impact of the budget will be dimmed. But Osborne will try to pull a big enough rabbit out of his hat to wrest attention away from the middle east.

Osborne doesn’t begrudge Libya coverage, obviously; particularly not if it leads to his boss being seen as a competent and brave war leader. If – and clearly this is a massive if – a stable post-Gaddafi Libya emerges, then the earlier shambles will be largely forgotten and David Cameron will gain kudos, which will make him harder to dislodge from Downing Street. The resignation of Lord Carrington did little to dent the boost that the Falklands war gave Margaret Thatcher at the 1983 general election.

Osborne’s rabbit isn’t intended to divert eyes from Libya or the spotlight from Cameron. It will seek to disorientate Labour and have our leaders confuse tactics with strategy. Fiscal constraints limit the cards in play, but the cards available are all held by Osborne. He knows that he can use them to establish dividing lines that will set the terms of debate. He was as keen a student of Gordon Brown as either Ed Balls or Ed Miliband.

Both of whom will know that the biggest sting is likely to come in the tail of Osborne’s delivery. That’s how Brown used to do it. This way the respondent has least time to calibrate his rebuttal. Osborne pulled this trick last October when his concluding remarks on the spending review contained these words:

“The average saving in departmental budgets will be lower than the previous Government implied in its March budget. Instead of cuts of 20 per cent there will be cuts of 19 per cent over four years”.

This is an eye-catching claim. David Cameron subsequently went on a similar manoeuvre at PMQs. Both were too clever by half.

First, it undermines the strongest Tory attack line: Labour created the deficit and has no plan for addressing it. Labour must have a plan if Osborne is cutting departmental budgets by less than our plan. Shadow ministers should jump at the chance to forcefully make this point whenever ministers afford them the opportunity.

Second, like many eye-catching claims, it is too good to be true. “Gord bless him” was the response immediately after the 2007 budget. But the more the details were picked through, especially the abolition of the 10p tax rate, the less this was the case. The lesson: play it straight. Don’t let your rhetoric outpace the reality. Be open about the trade-offs and the reasoning driving how they have been approached. All of this is especially true in our post-expenses, hyper-cynical times. And it is as important for oppositions as it is for governments.

Cameron has already stupidly supersized his rhetoric: “the most pro-growth budget in a generation”. Such bluster from a prime minister is as much use to a chancellor as Ricky Hatton’s mum shouting “hit him, Ricky” at the ringside. “I never thought of that, Mum”, Ricky later reflected. Osborne may now think similar of Cameron and ruefully so, given that his ability to impact growth is closer to that shown by Hatton when knocked out by Manny Pacquiao than in securing a famous victory against Kostya Tszyu.

Balls might have out-boxed the Hatton beaten by Pacquiao, but we shouldn’t mistake Osborne for such a reduced opponent. Osborne is a smarter operator than Michael Gove, whom Balls so pummelled as shadow education secretary. There will be no missteps. Only precision targeted hits. Irrespective of the current Spectator cover story, the next edition, along with much of the rest of the press, will eulogise him. The rabbit will entice.

The trick for Labour will be to not let it distract. Chasing the rabbit is mere tactics. We should be all strategy. Both Douglas Alexander and Jim Murphy define our strategic objectives as a draw on the deficit and a win on growth. I would go further: securing a draw on the deficit is a precondition of avoiding defeat on growth.

Osborne thinks he has won the deficit debate, wants to close it and shift the focus to growth. He declares his actions last year a “rescue mission”, which necessitate no further cuts or tax rises this year. Yet the cuts largely haven’t hit. And it will be more redundancy than rescue when they do.

We can’t let Osborne have a win on the deficit. He pretends that the only choice is his approach to tackling the deficit or not tackling the deficit at all. We only defeat this by having a credible alternative. This demands unflinching straight-forwardness from us that, while they can be better managed than they are being by Osborne, cuts are unavoidable.

Effectively neutralising the deficit debate requires that we don’t go into the growth debate pushing more government as the answer. We need something more nuanced. This might mean a national investment bank or other carefully argued reforms. But it has to be about good Labour reform versus bad Tory reform, not unaffordable Labour spending versus Tory reform.

I wrote for Labour Uncut on Friday on the long march from Manchester to a new socialism.

Manchester, so much to answer for. And questions remain. We know that David Miliband, Nick Brown and (we hope) Red Ed will not be in Ed Miliband’s top team. This really was a “turn the page” election, but the next chapter brings questions as well as answers.

Let’s start with the positives. Simply having a new leader is a step forward. We’ve opposed an ambitious and fast moving government with one hand behind our back. Having a renewed ability to adopt clear positions, particularly on the deficit, liberates us. It is even better that these positions be taken by a leader with Ed’s verve and fluency.

It is imperative that the party unites as he does so. However, there is speculation that this won’t happen. Patrick O’Flynn of the Daily Express tweeted of Nick Brown’s exit as chief whip that it “just leaves him free to be chief whip for Ed Balls”. These big PLP beasts, as well as any disgruntled David Miliband supporters, must remember David’s exhortation on Monday: “No more cliques; no more factions; no more soap opera.”

The media will be loath, however, to see the soap opera end, as it will be to drop the Red Ed tag. Tories and Liberal Democrats will encourage the media, not least at Tory party conference, in this mischief making. Ed must provide the leadership, and we must get behind him, to fully escape the soap opera and Red Ed.

He may need to go further than imploring trade union responsibility in communicating to the public that he is not the trade unions’ man. The cuts which Ed should endorse in the comprehensive spending review are likely to generate sparks. But he must firmly maintain fiscal credibility and independence from the unions.

The TB-GBs mustn’t give way to the EM-DMs. The past, as Ed has repeatedly said, is a different country. So, we must do things differently: pulling together, not apart. This would be helped by having leading David Miliband supporters – Douglas Alexander, Tessa Jowell and Jim Murphy – in prominent shadow cabinet roles. Oxygen would be denied to Red Ed if these figures were on the broadcast media backing Ed, rather than Neil Kinnock talking about how he has got his party back or Charlie Whelan denying that he is “an unprincipled butcher”.

That Ed has ascended to the leadership with relatively few policy commitments enables him now to craft a distinctive policy package, which all wings of the party can champion. His speech made useful tactical moves – implicitly endorsing the Darling plan; acknowledging that governments, as well as markets, fail; recognising the importance of units of social capital, like pubs and high streets; reaching out to Liberal Democrats on AV, Lords reform and civil liberties. But his animating theme requires further development.

It would be a significant advancement to have this coloured by rhetoric as striking as that which David Cameron provided early on his journey to Downing Street:

“There is such a thing as society; it’s just not the same thing as the state.”

This indicated intent to move his Thatcherite party to the centre. (He has in government revealed himself to be a wolf in sheep’s clothing, particularly on economic policy). As well as moving his party away from its past, this line flagged its future (the “big society”) and critiqued its opponents (Labour’s supposed big government).

The whole Cameron narrative is there: Where are we? Labour’s big state. Where do we want to go? Cameron’s big society. How do we get there? Cameron will change his party into one capable of delivering his vision and the country will vote for it.

People, ultimately, didn’t vote for it in quite large enough numbers to give him a majority. But, still, we tend to underestimate him as simply a Thatcherite. While this accurately sums up his economic views, it doesn’t capture the significance of the big society, as a force for localism and public service reform, or the appeal of the coalition, and its attendant compromises, in a post-tribal political age.

Given this, and given that the government may be able to argue by 2014/15 that its tough medicine has done its job and better times are here, we must wonder: what will be Labour’s message at the next general election?

Ed needs to have our answer soon. Hint: big government – though it may be a caricature of much of what we did in government – should be avoided. Preparing the ground for the general election campaign must communicate that Labour has changed; making us newly able to rise to country’s challenges.

Ed should move quickly. Following the election of a new party leader “the moment for radical repositioning doesn’t last long”, as Paul Richards notes in his latest book. And defeat on the scale which we suffered in May – a 1983 vote share – demands radicalism. We have urgently to seek out and to occupy this political space. The long road from Manchester to a new socialism starts here.

In doing so, we must make ourselves into the political wing of squeezed Britain. Ed’s wonks should be beavering on policies to address its concerns. More urgently, language and positioning is required which brings all of squeezed Britain into the new generation.

I wrote for Labour Uncut on Monday that we should beware of George Osborne’s traps on the economy. I’m proud that the New Statesman thought this one of the best five blogs of the day.

Ostensibly, Manchester hasn’t greatly changed since Labour conference was last here. The buildings are all in the same place. The distinctive cool and charm remains. The corned beef hash at Sam’s Chop House still does the job.

Yet the British economy suffered a recession which shrank it by 6 percent in the intervening period. This is officially more than half way to a depression and a very big deal. Labour at the general election lost the trust of the people to steer the recovery from this. We won’t return to government unless we again become recognised as the party of economic competence.

The leadership election hasn’t flushed out a fully formed economic offer. Perhaps it was unrealistic to imagine that it could. However, some consensuses emerged. We want tax to play a bigger role in deficit reduction than does the government. But this risks the perception that we are a party of high tax, which is electorally arid terrain. And, while Danny Alexander may have suggested that this won’t happen, it would create a marked contrast between ourselves and the government if they do offer tax cuts in the second half of this parliament, upon which the Tories seem likely to insist.

Another consensus to develop during the leadership contest is that we want deficit reduction to begin later, proceed less aggressively and be more sensitive to GDP growth than does the government. But this risks the view that the party which built up the deficit in government lacks a serious plan for correcting it. That we are, in other words, reckless economic vandals. This is slightly hyperbolic, but isn’t so far removed from how many voters, whose support we need to form a government, see us. Consider, as an illustration of this, that 47 percent of voters in the south of England, according to new research by You Gov and Policy Network, thought that the last government’s spending had been “largely wasted”.

The attractions of the economic consensuses which were produced by the leadership election are clear. Nonetheless, to be blind to the risks which attach to these consensuses is to ignore the traps which George Osborne has laid for us. History suggests that we’ll struggle to get a full hearing for our (yet to be worked out) economic offering. We don’t want to gain an audience only to lose it immediately by blundering into Osborne’s traps.

This observation from Norman Tebbit in 2005 shows why we’ll have to fight to have our economic offer heard:  “For some 30 years prior to Black Wednesday, Gallup’s monthly tracking polls had asked respondents which party they saw as the more competent to manage the economy. Only once in all those years was the answer Labour. In the 12 years since Black Wednesday, only once has the answer been the Conservatives.”

What should this teach us? First, leadership on economic competence swept Labour into office and our loss of this lead swept us out of it. It is the economy, stupid. Second, once a party gains a lead on economic competence it doesn’t relinquish it lightly. The last time the Tories had such a lead over us it took us 30 years to overcome it. And, third, it took a catastrophe of Black Wednesday proportions for us to do so. But what made the political consequences of Black Wednesday different from, say, Black Monday, the stock market crash of 1987? Perhaps that we had Gordon Brown as shadow chancellor in 1992 and we didn’t in 1987.

As soon as he was appointed to this position, in the face of a media and political climate just as inclement as that which will greet our next shadow chancellor, Brown was utterly relentless and forensic in crafting an economic platform that would appeal to the whole country and overcome any southern discomfort. He courted prudence long before Sarah and the political impact of winning prudence’s hand was just as happy as his marriage to Sarah.

Black Wednesday, of course, helped us gain a lead on economic competence. But this lead may well not have materialised – even after the debacle of the exit from what Tebbit calls the Early Recession Mechanism – had we not had someone like Brown as shadow chancellor. Osborne’s economic stewardship undoubtedly threatens disaster. But warning of this won’t be enough for us to regain leadership on economic competence. After all, that’s what we tried to do at the general election.

Nor should we assume that the actuality of calamities induced by Osborne’s cuts will necessarily result in voters placing their economic trust in us. We will only reap a political benefit from such disasters if we can offer a credible and robust alternative approach.

Fully formulating this approach is the key task facing Ed Miliband and his shadow chancellor. Yvette Cooper, Liam Byrne and Pat McFadden are expected to address this afternoon’s plenary session on prosperity and work. While Ed Balls and David Miliband may be the front runners, this is a chance for them to make a pitch for the shadow chancellorship. Whoever comes to hold this post will be under tremendous pressure and will have only 13 days to prepare a response to the comprehensive spending review.

It would be best if they do so while making a concerted effort to avoid the traps that Osborne has carefully, but rather obviously, set. Once we accept that we won’t recover a lead on economic competence if we are seen as a party of high taxation, profligate spending and deficit denial, the way ahead on economic policy, though difficult, should be clearer. We should be party of tax justice, not high tax; effective public spending, not spending for its own sake; and a party of pragmatic and fair deficit reduction, not blanket opposition to all cuts.

I wrote for Labour Uncut today on the challenge for the new shadow chancellor.

The Labour leadership election will, finally, end on 25 September. But the identity of the shadow chancellor will be unknown until 7 October, when the results of the shadow cabinet election are announced. 13 days after this the new leader and shadow chancellor will lead our response to the comprehensive spending review. “It is”, as a leadership contender has said, “an incredibly tight timetable for the new leader and their shadow chancellor to map out a policy that might yet determine how we are viewed for the rest of the parliament.”

The general election too quickly gave way to the leadership election. (Which should have started later and been shorter). With the end of the leadership election, the formal involvement in the shadow cabinet election of four of our would-be leaders begins. This is a grueling pace. But the new leader and shadow chancellor will need immediately to demonstrate economic literacy, which means robustly critiquing George Osborne and articulating a credible and appealing alternative economic approach. While this is challenging, there are some relatively simple points that are worth underlining.

First, like the Liberal Democrats, we consistently warned prior to the general election that it was too much of a risk to the economy’s recovery to cut public spending this year. There is no evidence that these risks have significantly diminished.  Business credit remains weak. Lending to businesses fell for the eleventh consecutive month in July. Consumer demand remains sluggish, as tens of thousands of homeowners are expected to face at least four more years of negative equity and redundancies in the public sector are thought unlikely to be absorbed by additional private sector employment.

Second, no matter how the Liberal Democrats defend the shift in their position on public spending cuts this year, the UK is not Greece and was never in danger of becoming Greece. As Rachel Reeves has noted, national debt in the UK in 2009, as a percentage of GDP, was 72 percent, while in Greece it was 119 percent. Additionally, and crucially, having our own currency and a central bank that can set interest rates in the interests of the domestic economy provides us with far more flexibility than is available to the Greeks within the eurozone.

Third, our opposition to cuts this year derives from a deeper view: sustaining economic growth is an indispensible precondition of deficit reduction. In the absence of growth, the deficit will widen as tax receipts fall and unemployment benefit payments rise. Public debt levels are generally more sensitive to growth than changes in tax and spending. George Osborne can cut as aggressively as his Thatcherite heart desires, but if we slip back into recession this cutting will do little to contain the deficit. Indeed, it also risks a deflationary spiral if Osborne responds to recession by persisting with his cuts.

The risk to public finances posed by a double dip recession must be balanced against the risk of higher interest rates cascading through the economy – further credit crunching businesses and raising household mortgage payments – if the deficit reduction plan fails to convince markets. Reduce public spending too early and the double dip risk increases; cut too late and upward pressure on interest rates becomes more likely. George Osborne, in cutting earlier and by £40bn more deeply over this parliament, is putting more emphasis on the later risk than Alistair Darling’s plans do.

Yet, as no lesser economic authority than the FT’s Martin Wolf has observed, “the market is screaming its lack of concern about UK fiscal credibility”. In these circumstances, forcefully illustrated in Ed Balls’ Bloomberg speech, it is perverse for the chancellor to underplay the double dip risk of cutting too early and too deep for the sake of masochistic cuts ostensibly justified by market concern about the deficit.

In truth, Osborne’s plans are driven by an ideological imperative to reduce the size of the state. This goes against the premium which Anatole Kaletsky places upon pragmatism in Capitalism 4.0; his weighty tome on the financial crisis and capitalism’s future. “In an indeterminate world”, he writes, “both economic and institutional decisions will have to proceed by a zigzag process of trial and error.” Rather than this flexibility and adaptability, Osborne, as Pat McFadden has noted, has given us “faith-based economics”.

Labour must be careful, however, that we too do not become inflexible and dogmatic. While Osborne is underplaying the double dip risk, which even those red-blooded socialists at the British chamber of commerce worry about, and is willing a private sector led recovery through little more than his faith in it, the interest rate risk attached to the deficit should be squarely confronted by Labour. Being squeamish about this not only betrays our credentials as the party of pragmatic economics but leaves us seeming trapped in what Phil Collins has called “the comforting illusion that state spending is a straight line to progress”.

This illusion can attach to social as much as to economic policy. And the public sees through it. The mood music emanating from Labour risks seeming too statist if we seem unwilling straightforwardly and even-handedly to address the deficit. Alistair Darling has left plans which should take us a long way towards avoiding this outcome. But our new shadow chancellor will still have crucial decisions to take during a testing first fortnight in office.