How Labour can win back its past

We need to reframe the debate away from public spending to volatile tax revenues

Miliband foreign policy


“Who controls the past controls the future: who controls the present controls the past.”

George Osborne is clearly a keen student of his namesake, Orwell, for the chancellor effectively controls Labour’s past.

Osborne’s big lie – that Labour’s over-spending caused the deficit – has been coupled with effective slogans about maxed-out credit cards, and failing to fix the roof while the sun was shining. Those spouting this rhetoric were given the perfect prop in the form of Liam Byrne’s infamous note.

Labour lost, in part, because its reputation for ‘governing competence’ never recovered from being in office during the global financial crisis of 2007/8. Polling carried out the day after this election found that 57 per cent of voters thought the Tories competent.  Only 31 per cent thought the same of Labour. As the Tories found after Black Wednesday in 1992, when sterling was ejected from the ERM, a reputation for economic competence, once lost, is hard to regain.

In the debates swirling around the Labour leadership election there is talk of a need to ‘own the future’. No doubt this is true. But Labour must also win the battle of the past.

It was the global financial crisis that caused the deficit, not Labour over-spending. But the Tory government is intent on misrepresenting the past. Our attempts to point out that spending on hospitals didn’t cause the crash, or that Spain ran a budget surplus before it too was hit by a financial tsunami, have hitherto been in vain.

It will take sustained effort but even from opposition it is possible for the Labour party to regain its reputation for, dare I say it, prudence.

To do so we must stop relying on pledges to meet fiscal targets. We promised to balance day-to-day current spending as early as possible in the next parliament. While this seemed sensible enough for a government-in-waiting, it was vague enough to annoy the Institute for Fiscal Studies (IFS) and obscure enough to lead to puzzled faces every time I tried to explain it on the doorstep.

In an age when politicians’ pledges are widely disbelieved, a promise to eliminate the current budget deficit simply did not cut through with an electorate who hold quasi-folkloric doubts about Labour’s fiscal record. Not even pledges in stone could counteract the more resonant fact that Ed Miliband forgot to mention the deficit in his conference speech.

We urgently need to reframe the debate away from public spending to volatile tax revenues. It is both true, and less damaging, to admit that all of us (including Labour, the Tories, and even the saintly IFS) failed to anticipate the financial crisis and therefore, with hindsight, were guilty of relying on over-optimistic estimates of tax revenues.

Just before the crash the IFS and Treasury projections of future tax revenues were virtually identical. Meanwhile, in 2007 the Tories stated that they would ‘share the proceeds of growth’ and committed to matching Labour’s spending plans until 2011. When the crash finally came it wiped out about £14 billion of direct tax receipts from the financial sector, and the knock-on effects on tax receipts from the real economy were much larger.

Once the problem has been correctly identified as volatile tax revenues, we need to provide a solution. Faced with rollercoaster receipts from the sale of oil or copper, countries such as Norway and Chile create revenue stabilisation accounts – designed to smooth revenues when commodity prices fluctuate.

Here in the UK it turns out that revenues from the City are also prone to wild instability – but over cycles that take decades rather than years. Labour should prepare for the next big crash by creating a Financial Services Revenue Stabilisation Account.

This ‘Rainy Day Fund’ would only be used in the event of a future banking crisis. It could be used for any purpose – recapitalising banks, or propping up the economy by cutting VAT, or paying nurses. Imagine if, on discovering North Sea oil, we had set some money aside for use in a future financial crisis – austerity could have been avoided after 2008.

Sweden, which has endured two recent banking crises in the early 1990s and 2008, recently established a Stability Fund – with a remit limited to supporting banks in the event of a future crisis.

Where should the money come from? Well, we could do worse than slowly diversifying the UK taxpayer investment in our banks, selling off shares in Lloyds and RBS over time and investing in other assets. My personal preference would then be to pay off some of the immediate structural deficit with a one-off wealth levy on the unearned wealth of the top 1 per cent.

Once a current balance is achieved, small slivers of future tax revenues should be put aside into the fund when times are good. This is a long term project: remember that the enormous Norwegian oil fund existed on paper only for six years after it was established in 1990.

Finally, Labour has to convey that it has the discipline to shift government expenditure from day-to-day spending on items such as Housing Benefit towards investment in assets that will benefit future generations – infrastructure, science and technology, education and raising our skill levels, particularly of our poorest children.

Bickering about whether Labour overspent in the years before 2010 is to fight on Conservative territory. Labour should instead be telling the electorate about what it will do about the cause of the deficit – an unbalanced economy and tax revenues which collapsed after the global financial crisis.

When we’re accused of not fixing the roof when the sun is shining we need to respond with our rainy day fund. Until Labour can talk about the past with confidence, we will not be trusted with the country’s future.

Nick Donovan is campaigns director at Global Witness and former assistant director of the Royal British Legion. He is co-author, with Victoria Barr, of A Rainy Day Fund:Why Britain needs a financial sector revenue stabilisation account. He writes in a personal capacity. 

8 Responses to “How Labour can win back its past”

  1. GTE

    Osborne’s big lie – that Labour’s over-spending caused the deficit


    Levy (2012) explains that the last official figure for the state pension schemes’ obligations was
    produced by the Government Actuary’s Department (GAD), as at 31 March 2005, at £1.347 trillion,
    for Great Britain, based on the legislation in force at that date.

    In summary, the estimates in the new supplementary table indicate a total Government pension
    obligation, at the end of December 2010, of £5.01 trillion,


    Labour increased the debts at 636 bn a year. That’s more than 6 times the annual deficit.

    Since then the Tories have doubled it.

  2. stevep

    The battle for Labour`s past was lost in 1983 when a previously deeply unpopular Tory government won a landslide victory thanks to an electoral shift to the right during a period of nationalistic euphoria following the Falklands war.
    The Tories and the SDP/Liberal alliance benefited from the shift and Labour was seen as being somehow unpatriotic with it`s emphasis on left-wing policies and nuclear disarmament.

    Ever since that election, Labour has drifted to the right.

    Today, it`s not so much about Labour winning back it`s past as having the right dreams of the future.
    It should have learnt it`s lessons from history by now and realised that it`s not being a chameleon that counts, it`s wearing the flag with pride.
    Both the Union Jack and the Red Flag.

    Right now, a properly-costed and presented vision of the future which protected and empowered the British people would pay dividends in the future.
    Although we all enjoy the trappings of Capitalism, there is something much deeper aching in the heart of Britain. Something that only appears at times of national togetherness, during war, mourning or celebration. Something we know we`ve mislaid but can`t quite put our finger on where.
    It`s a desire to be part of a whole, to be “in it together”. A desire that transcends and yet enhances individualism.

    It`s something Labour can tap into and claim as it`s own. A unique “Britishness” that saw us through two world wars and various national crises.
    Not narrow nationalism, but an all-encompassing sense of “belonging” to something better.
    Attlee tapped into it, Blair tried to and failed with his “Cool Britannia”. Cameron`s “Big Society” was another contrived effort.

    Like I said earlier, Labour need to dream. The bigger dream the better.
    Never mind the American Capitalist dream, that`s their nightmare. Labour needs to dream of a better Britain and put all it`s effort into bringing it into reality.
    Where we lead, others will follow. As in 1945.

  3. Tom_Webster

    There are additional measures and necessary changes in argument that need to be employed. Instances of the former include rejecting the mythology of the free market (which we don’t have anyway once you take corporate subsidies into account) and bringing better regulation onto the financial sector; another is introducing a rent cap (which can easily be regionally variable) as that would substantially reduce the costs of housing benefit, claimed by workers and the unemployed but benefitting only landlords. Instances of the latter are to challenge the strivers vs skivers rhetoric, to draw attention to the misrepresentation of the supposed ‘health tourists’ and immigrant benefit claimants, and to make clear that a much better way to create a stable economy and a jet society is to shift the emphasis from the redistributive tax system we have which, with the greater impact of rising VAT on the poorest and the cuts to the top rate of income tax and coloration tax actually distributes in the wrong direction.

  4. Torybushhug


    Political books don’t often sell that well: the latest book charts show that this year Alex Salmond flogged 12,815 copies of his memoir, while Polly Toynbee clocked up 11,178 for her rantings, which will keep her in Prosecco for a while yet even if she has had to sell the villa in Umbria. Top of the pops for political populism this year by a long way is Owen Jones, who has sold a whacking 143,212 copies of The Establishment. His ever readiness to do media appearances has effectively been a fantastic marketing campaign for the book…

    Let’s not forget Owen wisely dumped his small not-for-profit lefty independent publisher last year, in favour of a more lucrative deal with the multi-billion pound trans-national corporation that is Random Penguin House. Workers unite!
    Guido has been doing the numbers* and everyone’s favourite anti-poverty campaigner has generated £1,347,114 in book sales (not including digital ebook sales). Any author worth their salt can typically negotiate 30% royalties. Given Owen had already got a hit book under his belt he would have been a fool not to have negotiated more, at least 35%. Meaning he will likely have earnt from The Establishment this year royalties in the region of £471,489, on top of his £40,000 salary at The Guardian. A cool half-a-million quid in the last 12 months…

  5. Torybushhug

    Lots of standard platitudes and abstraction in there, but the public know that one way or another an army of cheats, scroungers and immigrants will prosper under labour, paid for by all those that bother to plan their lives and live responsibly.
    They also know all the negative disruptive employees will be able to claim compensation for bullying or dismissal and that nurses can turn in on themselves in a Labour lead employee friendly society meaning patients get harmed. Again those that play by the rules are last to benefit under Labour.

    Under Labour the more you scrounge, the less well you plan a family, the more chaotic, the more 48 hour Play Station parties you hold, the more you benefit under Labour.
    Want to be a preacher, have 6 kids, don’t work, scrounge, pretend you suffer with agoraphobia, Labour is your tribe, oh but that’s right these are a tiny, weeney minority. Really, try going round Luton, there are lots of such characters that oddly seem to manage to put together a property portfolio and rent to ‘stupid English’ No doubt like Rotherham and other Labour councils you will dismiss this as a DM fantasy of course.

    If you are black and in the MET, compensation is almost guaranteed from the moment you pass the induction course. Left wing ideology ensures structures like this reward those that cheat the system. Ali Desai was rewarded several times and used the proceeds to buy up London property. The left causes all these distortions to thrive as the left sets the tone and agenda in so many areas of public life regardless of the Govt in charge.
    Want to be traveller, pay no tax and yet be cash rich, discard your litter, disregard normal society etiquette, no problem, the liberal legal glitterati will defend your human rights to the end whilst ignoring the old lady hounded by yooof on her estate, they are never interested in those that quietly play by the rules.

    The liberal left will hound you out of town if you are white (Jade Goody for example when she mispronounced the Indian contestants name on BB), but turn a blind eye if you are non white (again on the same show Jermaine Jackson repeatedly and casually referred to Jade and her Mum as white trash over many weeks, not a wimper from the liberal chatterati).

    If you are an ethnic minority you have the ultimate in upper hands, you can even rape and abuse girls over 16 years enmasse and the authorities will bend over backwards for you.

    You can be bigoted misogynist Muslim cleric and yet the liberal sect will invite you to speak at University, but all heel will break loose if you are leader of the French FN wanting to talk there.
    Again, the minorities and spongers win the day under the left.

    You talk of a new settlement possible under Labour, well the quiet hard working majority just knows in reality all those that sponge and manipulate will benefit most.

  6. Torybushhug

    The lefts big lie, ‘to say the right claims that Labour’s over-spending caused the deficit’
    The right in fact say ‘Labours over spending left us particularly vulnerable to an EXTERNAL shock’.
    The left want us spending more and piling up debt, what happens when China goes pop?

  7. Torybushhug

    The annual rent profit after all costs to include the odd repair / replacement on a £250,000 flat with a 75% interest only mortgage fixed at 4.2% (TMW for example) is around £450 per month.
    When the fixed rate ends, buy to let mortgage return to about 4% over base.
    If in 3 years time the base rate is 3% (Carny expectation), then that interest only mortgage will rise by £5250 per year, SO NOW THERE IS ZERO PROFIT and Landlords cannot simply hike up rents massively.
    So the reason they slowly increase rents yearly is to prepare for the day the sun stops shining. They know this day is coming.
    Your capping rents would mean LL’s would not be able to be in the business and so these properties will come up for sale (slowly, not enough to reduce prices to any noticeable degree), but overly tight mortgage regulation that was introduced in 2008 means millions cannot ever be property owners.
    All round another barmy idea from the left that will end up hurting tenants.
    I predicted the regulation of pay day lenders would lead to harm and today the IFS is reporting 4 out of 5 applications now declined and the bulk of these people are turning to loan sharks. Lefties never see the big picture.

  8. stevep

    George Osborne attacked Labour for borrowing and spending.
    They did it to save our economy after the banking crisis. It worked. The economy was growing by 1% when Labour left office.
    Osborne over the last 5 years has borrowed more than any Labour government in history – What`s he spent it on?
    Not us , that`s for sure. Private business and tax cuts for the wealthy.

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