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Will hugging close to the coalition’s spending plans make Labour more electable?

July 15, 2013

Recent weeks have confirmed that politics can be a strange and unpredictable trade.

Barely three years ago the coalition came into office pledging to eliminate the UK’s structural deficit within a five-year term. Cumulative public sector net borrowing between 2011-12 and 2015-16 was forecast at £322bn. The voters were warned in terrifying terms that any larger a deficit would result in explosively higher long-term interest rates. As a consequence, Labour’s plans to borrow an additional £50bn over the course of the parliament were derided by coalition ministers as irresponsible and potentially ruinous to our economic health.

The outcome of near stagnant growth since then means according to the OBR’s own projections that five-year borrowing will come in at £539.4bn, almost £220bn more than planned. Yet what would have been regarded as reckless over-borrowing only three years ago has had negligible impact on interest rates (for now at least…).

By rights this might have been seen as a glorious vindication of Labour’s consistent contention that the UK government could, and should, have borrowed more in classic Keynesian style since 2010. By contrast, this grisly outturn in deficit reduction plans has instead persuaded the Opposition that it should stick firmly to the Coalition’s spending proposals for 2015-16.

George Osborne’s tactical gambit some weeks back of announcing a single year Spending Review so early for the first year of the next parliament was reasonably transparent. It was clearly designed to put Labour on the spot – should it show some leg now or hold back, lying low and not committing itself to its own plans on spending and, more toxically, welfare until the run up to May 2015?

So by sticking to the government’s proposals to trim £11.5bn from departmental budgets in the tax year that commences with the next election and folding so early in the game, has Labour walked into a trap? After all, you only stick to your predecessor’s plans or course of action if you wish to neutralise an issue, and fight the forthcoming election on what you perceive is more favourable ground.

In 1996-97 Tony Blair largely blunted the constant Tory refrain that the economy was thriving by matching the then government’s policies. Similarly David Cameron between 2006 and 2010 relentlessly sought to reassure the electorate that his administration had no plan to reorganise the NHS and would ringfence real expenditure on healthcare. Ironically the parking of that issue may yet make it harder for Conservatives to derive any political benefit in the aftermath of the appalling Mid-Staffs and CQC scandals. Whilst both assuredly happened on Labour’s watch, the nightmare scenario is that voters may see these examples of mismanagement as failings that have come to light during a time of austerity and blame the Conservatives in spite of the near decade-long political truce on the NHS. It is certainly encouraging that Jeremy Hunt is so firmly on the front foot as the patients’ champion – he deserves the Party’s strong support.

In spite of Labour’s clear failings here, it may yet provide the Opposition with a more familiar and comfortable line of attack in its May 2015 campaign (a reprise from 1997 of ’24 hours to save the NHS’ perhaps?).

What has also become evident in the political shadow boxing of the past month is a deep-seated lack of confidence that Ed Miliband has in being able to sell to voters his sincerely held view that the legacy of the financial crash is that the political facts of life are becoming more social democratic. Arguably he would be better advised to have spent the next two years painstakingly putting some meat onto the bones of his novel economic thinking although perhaps he is less convinced by ‘pre-distribution’ these days!

Instead I reckon in his and Ed Balls’ response to the Spending Review, Labour has signalled clearly that despite the coalition’s lack of progress in deficit reduction and its failure to oversee growth, the economy cannot be a potentially winning card for Labour in 2015.

To take just one example, on welfare the Opposition team are congenitally incapable of renouncing the ruinously expensive impact of working tax credits. When instituted in 1997 Chancellor Brown faithfully promised his next-door neighbour that its cost would not rise above £600 million per annum. The true impact of working tax credits has been to delay the urgent case for radically improving the UK’s skills base, whilst simultaneously enabling employers to drive down headline wages at a time of ever-higher immigration. This disastrous vehicle of social engineering has cost the UK taxpayer an average of £7.2 billion in each of the past three years, as part of a tax credits bill now exceeding £30 billion per annum.

However anaemic the state of the UK economy by election time, Mr Miliband has conceded the veracity of the Conservatives’ assertion that voters will be reluctant to hand the keys back to those responsible for crashing the car.