The spending squeeze will be dramatic and tough, requiring a very different governing strategy for Labour.
The spending squeeze will be dramatic and tough, requiring a very different governing strategy for Labour
The hard reality facing an incoming Labour government in 2015 will be the imperative of consolidating the UK public finances. According to the IFS Green Budget, public sector net debt in Britain by 2018-19 will reach £1.6 trillion: such levels of debt are a heavy constraint on future spending, leaving the UK vulnerable to higher long-term interest rates and rising debt interest payments.
That’s why Labour has signed up to a deficit reduction plan that will require an incoming administration to reduce departmental budgets by 31.2 per cent year on year outside the ‘protected’ areas of the National Health Service, schools, and international development. This is after five years of spending cuts in which a host of departmental programmes have already been cut by the coalition government.
The spending squeeze will be dramatic and tough, requiring a very different social democratic governing strategy.
The fundamental challenge for a post-2015 Labour government will be to reshape the British state – forging a model of governance which is not only leaner and more efficient, but better equipped to meet the social and economic challenges of the next decade. As resources get tighter so demands on the state are rising – the product of an ageing society and rising inequality fuelled by the ‘scarring effects’ of the great recession.
This is what Jon Cruddas, Labour’s policy review co-ordinator, describes as “the opportunity of austerity” – building a model of statecraft which is properly attuned to contemporary circumstances: decentralising power, investing in the capacities of local communities, building a new political economy after the financial crisis.
Of course, reform is inevitably easier when there is more money around. The Blair-Brown governments instigated major reforms of key public services, but had the resources to award year-on-year pay rises to public sector workers. As the going got tough politically, Labour was able to progressively improve the position of the poorest pensioners and families with children. The post-1997 governments did not have to choose between helping the most disadvantaged parts of Britain and addressing the aspirations of ‘middle England’: they could invariably afford to do both.
A Labour government after 2015 will not be in such a fortuitous position: it will face tough choices and trade-offs across the terrain of public policy. New models of reform will be needed. One fruitful debate being opened up within Labour circles concerns the objective of breaking down centralised concentrations of power, both of the state and the market. As Cruddas recently told the Local Government Association:
“Our country has suffered from decades of excessive centralisation in the market and the state. People feel that their opinions are ignored and their interests as workers and citizens excluded.”
In the post-war years, Labour defaulted to a statist model of social democratic reform, harnessing the power of central government to build a universal welfare state and National Health Service while creating the conditions for economic stability and full employment. Then, imposing change by pulling administrative levers in Whitehall seemed appropriate and legitimate; moreover, centralised dictat appeared effective.
Not so today. Labour has to emphasise the importance of ‘moral’ as well as ‘mechanical’ reform – allowing new centres of governance and power to emerge across the UK as an antidote to the central power of market and state.
In practice, that will mean policy delivery by devolving financial powers for infrastructure, skills, economic development, and welfare to work to new ‘city regions’, ensuring accountability through directly elected mayors. There will be greater use of pooled budgets in local areas, building on the previous government’s highly successful ‘Total Place’ model, driving efficiencies by breaking down silos and incentivising the integration of public services.
Moreover, any concerted shift towards decentralising power requires local authorities to raise more of what they spend locally, rather than through financial dependence on central government. The culture of arbitrary rate-capping and rigid financial controls overseen by Whitehall will have to end.
In an era of austerity, governments have to work alongside communities: the ‘big society’ was a proxy for replacing the state with Burke’s ‘little platoons’. But civil society and active government should always work in partnership as a means of advancing social justice and the public good. A bold demonstration would be transferring borrowing powers to local government to expand social housing, setting a headline target of half a million affordable homes within a parliament.
The electorate acknowledge that Britain is facing major upheavals: no party can promise more growth, rising living standards, and increasing public spending. Making costed, credible commitments and creating effective systems of governance to secure them will be pivotal for governing success.
In an era of insecurity, Labour politicians will have to set out the painful choices that lie ahead, but also the opportunities for Britain if we have the courage to reform our institutions and our system of government.
Patrick Diamond is a lecturer in public policy at Queen Mary, University of London
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