Labour's deficit reduction plans for the next parliament are genuinely different to those of the Conservatives.
Labour’s deficit reduction plans are tough but also genuinely different to those of the Conservatives
Once upon a time the NHS was supposed to be the British religion. Today it’s arguably the deficit, with politicians of all stripes emphasising their own credibility by promising to ‘pay it down’.
For better or worse, this is where we are. For many of us on the left that’s deeply unfortunate – but it’s largely down to our failure to win certain arguments since the world economy exploded in 2008.
So deficit reduction is where we are – in this parliament and the next one – whoever is in office.
But that doesn’t mean that deficit reduction is the same across the board, despite what some may wish to tell you. Labour’s deficit reduction plans for the next parliament are genuinely different to those of the Conservative-led coalition, and are being laid out today by Ed Miliband.
We’ve had a quick look at some of these differences and why they’re important.
Ensuring that those with the ‘broadest shoulders’ really do pay their fair share
For all the jibes about his being out of touch, George Osborne is a politically astute chancellor. This is why, if you look at the distributional analysis of the recent Autumn Statement, it appears to show that the most well-off 10 per cent have shouldered the greatest burden of deficit reduction under this government.
See the black dotted line? It doesn’t quite chime with all the sound and fury about a coalition government ‘by the rich and for the rich’, does it?
Yet it would be a mistake to take this at face value: look at where the rest of the line sits – the poor are clearly hit the hardest after the top decile. In fact, they’re hit to such an extent that you might say the impact on the top 10 per cent is cover for the assault on the bottom 40 per cent.
Meanwhile when the coalition talks about the rich ‘bearing the greatest burden’ they’re mainly referring to entitlements they’ve removed from people who very often didn’t use them anyway. Meanwhile early in this parliament the coalition increased VAT – a tax we know disproportionately hits the poor.
Labour’s plan is both more straightforward and more transparent: a Mansion Tax on properties worth more than £2 million, an increase in the top rate of income tax – still the most progressive form of taxation – and a tax on bankers’ bonuses.
Dealing with the underlying problems that are causing the deficit to rise
As opposed to swinging the axe wildly in the fashion of the current chancellor.
Once upon a time the coalition talked a great deal about ‘rebalancing the economy’. However during the prolonged period of economic stagnation in 2013 and early 2013, George Osborne abandoned his supposed long-term goals in a dash for growth.
As such the country is now following a trajectory that is dangerously similar to the pre-crisis one – a house price boom and consumer spending based on ever-increasing personal debt. In their obsession with shrinking the state, the coalition has prioritised appearing ‘tough’ over being correct. As a result, services have deteriorated, welfare budgets have risen and slow progress has been made on the deficit.
To deal with rising welfare and falling tax revenue we really do need to tackle low pay, insecure jobs and housing shortage, as Labour points out.
Differentiating between productive spending and other outgoings
Not every pound spent is equal, and it’s folly for the government to seek to fix public spending at an arbitrary figure of 35 per cent of GDP.
We often hear public debt being compared to ‘the household credit card bill’. Yet it’s more illuminating to compare the public finances to that of a business – UK PLC if you like. In business there is a point at which debt becomes unhealthy, but if the business is profitable and wants to grow then it will invariably run up debts.
The mistake on Miliband’s part is to (apparently) rule out borrowing to invest: today the Labour leader stated that the manifesto will not have commitments funded by borrowing. However he also claimed that spending on public infrastructure – infrastructure which helps the country to grow – was very different from public spending more generally.
This sounds like a bit of a contradiction – does ‘productive investment’ not justify borrowing? What about capital borrowing for house building?
For better or worse, deficit reduction is the political reality against which Labour’s economic credibility is now being defined. Cut the deficit Labour must; but they’re making a genuine attempt to do it in a fairer and more intelligent way than the Tories.
James Bloodworth is the editor of Left Foot Forward. Follow him on TwitterLike this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.