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 Twitter
58 Responses to “Why Labour’s deficit reduction plans are genuinely different to those of the government”
Leon Wolfeson
Ah yes, your relativism – you condemn Ed for having an income far less than yours, simply because he’s not ideologically pure enough for you.
Also, no surprise you don’t get how useless BMI is as you make up numbers.
TN
“This article is about as convincing as the plot of an average episode of Scooby Doo.”
So basically it’s like every other Bloodworth article.
TN
This is just Toynbee-esque levels of Labour support. Adopt the Tory line but with a “progressive” face.
Norfolk29
Does that matter when they are a lot cleverer than Cameron and Osborne. Most of the options are identified by civil servants, witness George Osborne 2012 budget as a good example of Treasury economists trying to see just how stupid George Osborne was. They succeeded beyond their wildest dreams. Ministers, especially PM’s and Chancellors, select what is politically acceptable from a range of options open to them. Again, Osborne is an exception, as no Treasury economist would have recommended putting up VAT by 33% in the middle of a recession and put what was a modest recovery of 1.9% (May 2009 – May 2010) back to zero. It is not a matter of will or courage but of political judgement. Miliband will remove zero based contracts, will increase the minimum wage for those he cannot put onto a Living Wage, will build 200,000 a year by 2020, will remove many of the loopholes through which Amazon, Google, Facebook and Starbucks and many other multi-nationals escape paying their fair share of tax in the UK. It is not that Osborne and Cameron cannot also do these things, they do not want to do these things.
Norfolk29
Both of them have been ministers in the Brown Government and both know the difference between knowing the facts and having a belief that certain options are available (based on not knowing the facts). How many of us emerge from a project without wondering what happened to the ideas we had when we embarked on the project. I designed computer systems for 20 years and always kept the original papers so that the project review could benefit from what is known as 20/20 hindsight. It was always revealing how different the result was from the aspiration.