Mid-way through its term of office, the damage wreaked on Britain’s social and economic fabric by the Tory-led government’s ideological experiment in austerity and deregulation is all too apparent.
Working households, young people, pensioners and vulnerable groups such as people with disabilities have been hit hard with steep tax rises, the restriction or removal of benefits and tax credits, and deep cuts to public services.
The effect of raising taxes and cutting spending too far and too fast on the economy has been to choke of the recovery and push us into the longest double-dip recession since the Second World War. Youth and long-term unemployment are at record levels, many of those in work are stuck in part time or temporary jobs, and for the majority wages are failing to keep pace with rising bills and prices.
The result is rising poverty and increasing strain on families and communities today – and permanent damage to our economy’s productivity and competitiveness tomorrow, as businesses fail, or put off vital investments, while the skills and motivation of our workforce are eroded by persistent joblessness and underemployment.
And because unemployment and low pay means the government spending more on benefits and tax credits while receiving less in tax revenue, George Osborne isn’t even delivering on his declared priority of deficit reduction, with borrowing up by a quarter so far this year.
The Tories’ answer to the failure of their economic plan is more of the same: a renewed assault on working conditions, with attacks on employment rights, health and safety standards, and national pay bargaining; and seemingly endless austerity, our economy trapped in a vicious circle of missed borrowing targets and slow or no growth.
Labour’s task is to offer Britain a better way forward.
We are calling for a new affordable house-building programme and a real jobs guarantee for 100,000 young people, funded by a tax on bank bonuses. We’d also bring forward investment in infrastructure projects, give a further boost to the construction sector with a cut in VAT on home improvements, ease the squeeze on families with a temporary cut in VAT, and a one year national insurance holiday for small businesses that take on new workers.
If implemented now, these measures could kick start the growth we need to get the deficit down.
Tough decisions on tax, spending and pay would still be necessary. But we have been clear a Labour government would be making different choices on deficit reduction – ensuring that the heaviest burden is borne by those with the broadest shoulders.
We would not be spending £3 billion now on a tax cut for the very richest – a £40,000 giveaway for every millionaire in this country, while millions of families and pensioners are paying more. And we’ve offered to talk to Vince Cable about his ideas for a “mansion tax” on properties worth more than £2 million.
There’s no doubt that the next Labour government will face formidable economic and fiscal challenges. Osborne’s lost years of contraction and stagnation will leave a legacy of underinvestment in Britain’s industries, infrastructure and skills, and billions in additional unplanned borrowing.
Because we cannot know the state of the economy or the public finances that we would inherit, we cannot make commitments now that the next Labour government will be able to reverse particular tax rises or spending cuts. But the pressures we face will drive us to be more radical, not less, in our pursuit of Labour’s values and priorities.
As well as redistributing the burdens of deficit reduction to better protect the living standards of those on low or modest incomes, we also need to look at what some have called “pre-distribution” – reforming the rules of our economy so that working people get a better deal.
For example, Ed Miliband has shown how a government ready to challenge powerful providers could do much to contain the costs that families face – ensuring energy providers offer cheaper tariffs, preventing rail operators from exploiting loopholes in fare regulation, and rooting out excessive fees charged by banks and pension providers.
We also need to ensure more long term investment in innovation and infrastructure to support the creation of more high quality, high skilled jobs – which is why Ed Balls and Chuka Umunna are now looking at the case for a British Investment Bank. And so that the gains of growth are fairly shared, pay needs to be set in a way that is responsible, equitable and accountable.
The public sector can take a lead in this, setting an example for the rest of the economy. I am working with Ed Miliband to see what we can learn from the pioneering Labour councils who are working with unions, contractors, and community organisations like Citizens UK to become living wage employers. They are finding that making this commitment to their staff can bring huge benefits in terms of morale, reduced turnover and increased productivity, as well as providing a boost for local economies and support for local communities.
A future Labour government could also build on the success of the National Minimum Wage by introducing stronger checks on excessive remuneration at the top, for example through employee representatives on remuneration committees, and looking at how we can bring greater transparency, and a stronger voice for employees, to bear at every level of the pay scale.
Ed Miliband has called it an economy that works for working people - instead of just a few at the top. And as we develop this vision, I am confident that, just as the last Labour government repaired and renewed our public services, it could be the next Labour government that repaired and renewed our economy – and be one of the great reforming governments in British history.
Rachel Reeves is Labour MP for Leeds West and Shadow Chief Secretary to the Treasury.