Return to growth has helped Labour more than the Conservatives

Blog for ShiftingGrounds on 30th Sept
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Return to growth has helped Labour more than the Conservatives

Wandering around Labour conference last week, it was hard not to be struck as much by what wasn’t being discussed as what was. Among everything, there was one particularly notable absentee. It’s something which should give the Conservatives, who kicked off their get-together in Manchester yesterday, more pause for thought than they might initially grant it.

Flicking through the fringe guide in Brighton, I struggled to spot a single event dedicated to austerity. By comparison, last year’s conference fizzed with debate on double dip recessions, multiplier effects, what a fiscal stimulus might or might not look like. This year: barely anything. The trench warfare of ‘austerity vs growth’ that so dominated the first few years of this Parliament is dead, it seems. Largely it’s been killed off by a nominal return to growth, of sorts, and the Labour leadership’s recent decision to back Conservative 2015/2016 spending plans.

In many ways this is profoundly depressing. The intellectual case against the Government’s economic strategy was and remains overwhelming. While it continued to drag the country back into recession or flat lining growth, it was perfectly understandable that pointing this out consumed the large bulk of Labour’s emotional and political energy.

But the truth is the party have long been fighting an uphill battle with public opinion on this issue. Not least this is because, as widely noted, the Conservatives and their friends were very adroit at framing the problem as one of over-borrowing and over-spending; credit card metaphors and all. Whatever the empirical merits of its case, the left by comparison has failed to come up with a critique of austerity that resonates outside the pages of the London Review of Books.

Consequently, even as economic news worsened, while the deficit and economic crisis were the dominant concern in British politics, Labour were – and probably always will be – at a disadvantage.

Thus, as the agenda has moved on as growth filters back, it’s been to the party’s advantage. While I still think there were less painful ways of neutralising the issue, the pledge to match the Coalition’s 15/16 spending plans has also at least made it harder for the Conservatives to allege that Labour will ‘turn the taps back on’.

The resulting breathing space has allowed Labour to move on to broader, longer-term and more populist themes that go with the grain of public opinion: who benefits from growth, the cost of living and the fundamental structural problems in our economy. Ed Balls gave a much more rounded speech than in recent years, including on childcare among other issues. Chukka Umunna spoke encouragingly on economic democracy and employee representation within companies. And in the best speech of his leadership so far, Ed Miliband outlined the big strategic themes that would define his premiership: a global race to the top, not the bottom, and an economy that works for working people.

Though more will need to be done to flesh all of this out, already Labour are making head way, as the poll bounce off the back of Miliband’s pledge on energy prices has shown. They have set the agenda and started to forge a new centre-ground, tapping into what Miliband advisor Tim Horton has called ‘the angry middle’. It’s hard to imagine they would have the political oxygen to do so if the economy were still in the tank as the party gathered in Brighton.

The Conservatives, meanwhile, are left in a difficult position. Growth may be strong enough for Labour to see the need to broaden its pitch, but it isn’t strong – or felt – enough for the public to give the Conservatives any real credit in the polls, or for the party to credibly be triumphant. Labour’s new living standards agenda also plays to three key Tory blind spots. The first is that the key squeezes on people’s disposable incomes – energy, transport, housing and the like – along with stagnating wages, all represent failures in private markets. All ultimately require critiques of and interventions in those markets.

This is not something Cameron and co. feel instinctively at home with. Like most politicians who cut their teeth in the pre-crash era, they are much happier reforming the state than the market. When they do offer answers they tend towards the tentative or technical. You feel they will probably always struggle to tap into the public’s anger on these issues, or match Labour for zeal.

The second weakness is Osborne’s continued faith – repeated over the weekend – that rising growth will be enough to help increase living standards across the board. The Resolution Foundation have long shown that this is no longer the case, and has not been since 2003.

Finally, and most pressingly, is that Cameron has long struggled to define himself or his Government beyond the ‘national emergency’ of tackling the budget deficit. Both in opposition and in government he has done little to map out what kind of country he would like Britain to be in twenty years time. There is little sense of mission beyond the bottom line. The ‘Big Society’ was his first and doomed attempt at redressing this. The ‘Global Race’ narrative is probably his best effort, but it remains clunky and lacks cut through with the public.

All of which represents a significant opportunity for Labour as the agenda moves beyond the narrow politics of the deficit, though none of which should be a cause for complacency for the party. Unfortunately, welfare in particular is still an issue in which the Conservatives are able to mine vast reservoirs of public enmity – and the Labour leadership still need to do a little more to grapple with the issue.

But the last few weeks have shown anything, it’s that the second half of this Parliament will be fought on much tougher ground for the Government than the first. The facts of British political life are no longer Conservative.

François Hollande has achieved far more than his critics suggest

Piece for Shifting Grounds and New Statesman
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If you listen carefully, you can hear it coming. With next Monday marking one year since François Hollande was elected French President, a tidal wave of I told-you-so’s and smugness is about to be visited upon us by Westminster’s commentariat.

It’s fair to say that most of them have never much liked the French president. And we are sure to be gleefully informed that the first year of his Presidency has been a disaster. It will invariably be held up as a stark warning to Labour against carrying any challenge to the austerity consensus into the next election.

It won’t surprise you to learn that upon closer inspection, things turn out to be a bit more complicated than that.

Hollande has certainly had a difficult time of it, sliding recently to 25 per cent approval in the polls. Much of this can be laid at the door of his one unambiguous failure – his inability to overcome German opposition to redrawing the EU’s fiscal pact towards a greater focus on growth. As a result, unemployment is stuck at around 10%, and consumer confidence is low. The Eurozone remains largely frozen.

Some of it is also his own personal style. Hollande’s more low key, unfashioned image and patient approach – once a selling point – has bored a nation who became used to the glitz and hyperactivity of the Sarkozy years (in much the same way that ‘Not Flash, Just Gordon’ rebounded on Brown).

But if he has failed to offer much hope at a European level, the same cannot be said about his record at home. For starters, he has already made good on most of his key campaign promises, such as the hiring of 60,000 new teachers, raising the minimum wage and setting up a Public Investment Bank to lend where banks won’t (which given time could prove crucial to the country’s recovery).

But it is on budgetary matters – tax and spend – where Hollande has offered something most markedly different. Contrary to received wisdom in parts of the British press, the French President never campaigned against the principle of deficit reduction; simply against the notion that this is best achieved through deep spending cuts and huge tax hikes on ordinary people (this is after all what austerity has come to mean). And it is here that his actions in government bear far greater scrutiny than the widely held, lazy caricature that he has bowed to 'inevitable' cuts.

In 2013, only a third of Hollande’s deficit reduction measures comes from reducing spending. And all of this is coming from departmental spending freezes, not deep cuts.

The rest comes from increased taxes, largely on big businesses, banks and wealthy individuals. This includes increased wealth taxes, alongside hikes on taxes on assets and dividends. A new 45 per cent top rate has been brought in for incomes over €150,000, while companies will have to pay 75 per cent tax on any salaries over €1 million (replacing the 75 per cent income tax rate struck down by France’s constitutional court). Big banks and oil companies have also been hit with special levies. Tax exemptions have been scrapped.

While weak growth across Europe has made things harder than expected, these measures will still see France’s deficit fall to 3.7 per cent in 2013, from 4.8 per cent in 2012. Hollande has also shown admirable flexibility, resisting pressure to bring in any further deficit reduction measures to meet draconian EU targets while the economy is still weak (he has instead delayed them).

The ratio between taxes and spending reductions will level up a little in 2014, and some entitlements may be means tested. But freezes are likely to continue to take precedence to significant cuts on the spending side.

Whatever one’s view of Hollande, to equate this with the medicine meted out by other Governments in Europe is fatuous. Compare it, for instance, to George Osborne’s approach, whose ratio of cuts to taxes is 80:20, with that 20 per cent borne by people on average incomes while millionaires pay less. It’s also a world away from the broad-based slash and burn policies being implemented in Italy or Greece. Low and middle income households in France have been protected, as have public services.

Here Labour can still draw positive lessons, as beyond the need for short-term stimulus now, they face up to longer-term decisions over whether to accept the enormous cuts currently pencilled in by the Tories for 2015 and beyond. The deficit faced by any incoming Labour government is likely to be of a similar order to that faced by the French President.

Drawing inspiration from Hollande, but outside the fiscal straight jack imposed on Eurozone countries, Labour could set a longer more flexible timetable for elimination of the deficit. Assuming they inherit low growth, they could then pledge a freeze on overall departmental spending. This would be tough but would cancel planned Tory cuts and shut down accusations of profligacy or ‘turning the taps back on’ in a relatively painless way, providing them space to talk more about growth and living standards. Beyond that, levies on the well off and big businesses (e.g Financial Transactions Tax, Land Value Tax, restoring the main rate of corporation tax etc) should go towards paying for the rest of deficit reduction.

Within this overall spending envelope, further tax rises on the top (a 50p rate, mansion tax etc) could pay for tax cuts for those on low and middle incomes, aiding demand. Growth measures requiring capital spend would then be funded by taking money from budgets with the least impact on domestic demand (cuts in defence and international development to pay for a large house building programme, for instance).

There are many areas, of course, where Miliband will want and need to do the exact opposite of Hollande. He will have to be careful to not be seen to over-promise, given the public’s already brittle faith in politics. But a closer reading of François Hollande than we will be afforded in our newspapers reveals an important truth; one that can be rescued from the carnage of an otherwise difficult first year for the Socialist President. When it comes to how, when and on whose backs the national books are balanced, there are still choices.