Tough decisions on tax, spending and pay cannot be avoided. But when money is tight, our values and priorities matter all the more
The global financial crisis, and resulting global recession, raised fundamental questions about inequality, irresponsibility and Britain’s future economic prospects. These questions have only been sharpened by the failure of the Conservative-led Coalition to deliver the change that they promised, and their imposition of unfair tax rises and spending cuts that have choked off the recovery and pushed us back into recession.
For Labour, this presents a challenge and an opportunity: to advance an alternative to austerity and an agenda for reform that answers popular aspirations for a fairer, stronger economy that works for working people.
That is why we are working with economists, business people, trades unions and leading policymakers from around the world to ensure we learn the lessons of the crisis, and forge a new agenda that combines a strict focus on economic and fiscal credibility with policies to deliver the growth and reform our economy needs if we are to raise living standards and expand opportunities for the majority.
The current squeeze on ordinary families’ incomes and living standards is historically unprecedented. Tax rises and spending cuts have hit women, pensioners and households with children especially hard – while big banks and those with incomes above £150,000 have seen their taxes cut.
In addition, unemployment, underemployment, and stagnant or falling wages caused by the economic slowdown mean people are earning less. The result is what Ed Miliband has called “a quiet crisis that is unfolding, day by day, in kitchens and living rooms up and down this country” as people struggle to keep up with the rising cost of food, fuel and fares.
But the long-term costs go beyond even this. The current climate of uncertainty has a stifling effect on business investment, and current levels of joblessness have a scarring effect on people’s skills, motivation and long-term employability. The permanent damage this does to our economy’s competitiveness and productive potential will make it even harder to raise growth and living standards for years to come.
And the government isn’t even delivering on the deficit reduction it declared to be its central purpose. The latest figures from the Office of Budget Responsibility show the government on course to borrow £150 billion more than they planned – and that’s based on figures from before the economy fell into double dip recession.
As the failure of the government’s economic plan becomes clear, with the years of austerity and uncertainty stretching on into the future and no sign of light at the end of the tunnel, people are asking if we just have to accept all this, or if there is an alternative.
It’s our responsibility, as progressive politicians and policymakers, to show that there is.
First, it is because we are serious about deficit reduction and long-term fiscal sustainability that we have been urging the government to put into action a plan for jobs and growth that can restore business and consumer confidence, stimulate investment, and tackle the current crisis of joblessness and underemployment.
Second, tough decisions on tax, spending and pay cannot be avoided. But when money is tight, our values and priorities matter all the more. A Labour government would make different choices – ensuring those with the broadest shoulders bear their fair share so we can do more to protect living standards and opportunities for those on low and modest incomes.
Third: while tax credits and other forms of support for families will remain critical to reducing poverty and rewarding work, a Labour government could achieve far greater leverage over social and economic outcomes at much lower cost to the taxpayer if it found ways of addressing what Jacob Hacker has called the ‘pre-distribution’ of income and opportunity.
For example, a bold government ready to challenge powerful providers could do much to ease the squeeze on household budgets – reforming energy markets, regulating rail operators, getting banks and pension providers to be more transparent about fees and charges, or improving the availability of affordable housing (for first time buyers but also in the private rental sector).
We also need an active government strategy to reform the rules of our economy and increase the availability of high quality jobs paying a decent wage. I am working with Ed Balls and Chuka Umunna to identify the levers we could use to promote more long-term investment in cutting edge industries: from a more strategic use of government procurement to incentivise innovation, to examining the role that a British Investment Bank could play in getting more finance into strategic infrastructure and high growth sectors.
This is an exciting agenda that we have only just begun to explore. But already Ed Miliband’s call for a more responsible capitalism has re-energised the party, morally and intellectually, and opened new areas of discussion and debate across the policy community and wider civil society.
On the basis of the radical ideas and proposals these debates are generating, I am confident that, just as the last Labour government repaired and renewed our public services, the next Labour government can repair and renew our economy – and be one of the great reforming governments in British history.