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Tory Story 3 – Some New Year's resolutions for Labour
By Shibley Rahman / @shibleylondon
Opinion polls consistently return the verdict that Labour is economically incompetent compared to the Conservatives. Many would indeed agree that Labour didn’t get its economic messages across competently in the 2010 campaign. Labour tried to explain its economic strategy through a series of university-style tutorials, and sloppily allowed various ‘facts’ to go unchallenged. Ed Miliband and his team will have to learn from these mistakes.
This article looks at just three assumptions of the Tory Story on the economy. The true success of the Tory Story is its simple but misleading messages. The story has various components: for example, NI is “the jobs tax” but VAT isn’t, Britain is going bankrupt, and government debt is like a credit card debt. Perhaps Labour new year’s resolution should be to stop these corrosive myths from going unchallenged. Rebuilding the trust and confidence of the electorate in Labour’s economic strategy is a marathon not a sprint, so the sooner we get started the better.
Will the VAT have no effect on jobs?
To shift the limelight onto NI as the “jobs tax” is also to present an attractive story to the voter that a VAT hike presents no threat to jobs. The British Retail Consortium (BRC) in May 2010 forecast that as many as 163,000 jobs could be lost in the next four years if VAT is increased. They said that, in its first year, a VAT rate of 20% would reduce the deficit by £11.3 billion, but by the end of that first year there would be 30,000 fewer jobs in the UK, across all employment sectors, than if there had been no increase. The BRC has, instead, urged the government to prioritise public spending cuts over tax rises to tackle the budget deficit, as well as to aim to half the deficit over four years rather than the proposed three. Voters will be looking carefully at the unemployment count, while the expert economists forensically examine the GDP statistics, over the course of 2011.
Is government debt like a credit card debt?
David Cameron and Nick Clegg have consistently likened government debt to credit card debt (like paying for your weekly groceries). This is a plausible common-sense approach based on the electorate’s instinct for belt-tightening, and the hardships they will be experiencing in difficult times. The analogy is clearly weak, but analysis of that is way beyond the scope of this article. Given that the public appear to like this comparison, it might be useful to explain also what might go wrong in such terms. The biggest threat for the UK in 2011 is that unemployment goes up and therefore benefit payments go up, while tax receipts go down. This would be like credit card bills beginning to “flood in”, while you are unable to deposit any money into your bank account.
Is Britain going bankrupt?
In January 2009, David Cameron suggested that there was a “risk” that Britain would go bankrupt. George Osborne also has repeatedly warned that the country was facing financial meltdown. When asked on the BBC’s ‘Andrew Marr Show’ whether it is possible that Britain would go bankrupt, Ken Clarke said in contrast:
“I don’t think it’s a realistic possibility. Though, I mean I’m as gloomy as most people…I think it’s very important to realise the constraints of a responsible opposition.”
The media and the public seem disinterested in discussing this, but the spin of a bankrupt Britain relentlessly goes on unchallenged. Foreign investors currently fund about 35% of the government’s total debts, and there is currently little sign yet of them losing their appetite for government bonds, or gilts – the German government has had more problems selling its debts at recent auctions than the UK.
The solution
Thankfully, official data from the Office for National Statistics about GDP and unemployment will be hard for the coalition to put a positive spin on. When commentators say “it’s the economy stupid”, they fail to appreciate one further addition to that for 2015, that is, “and its social and economic consequences”.
In the meantime, Ed Miliband and team will have to work hard at identifying the reasons why the public trusts the Conservatives with the economy more. It is undeniably hard to explain in a punchy manner why the deficit grew so big under Labour, but a good start would be to point out that the Conservatives did indeed match our spending plans until the collapse of Lehman Brothers.
I wonder what resolutions Labour will make in getting its message across more successfully in 2011…
This article was originally published in LabourList on 2nd January 2011. It has had 69 comments so far.
Vince's speech at the LibDem conference: Many themes should be a top priority for us too
Vince’s speech, unlike the misreporting of it mainly from the BBC who patently didn’t understand the business or legal issues involved, made for very interesting reading for me as a Labour member with an interest in both business and commercial law. I would like to discuss various intriguing aspects of it for me.
But to hold our own we need to maintain our party’s identity and our authentic voice.
This is now being an increasingly difficult problem for the Liberal Democrats. There has to be by necessity an alignment of the beliefs and values of the leadership of the Party and its grassroot members. It was interesting to eavesdrop on the discussion that the Party had earlier this week on brand strategy, as it was clear from the floor that there is much confusion about the brand identity and brand equity of the members of the Party. Of course, the position on the rate of cuts which ultimately emerged from Vince Cable and Nick Clegg remains for many quite unfathomable, and certain issues are pretty straightforward by the Liberal Democrats, for example strong Liberal (anti-statist) values in civil liberties. However, certain grey areas see problems for the leadership and activists alike; for example, free schools is an incredibly perplexing area for the Liberal Democrats to embrace in a way so enthusiastically as Michael Gove’s fervour.
We will fight the next general elections as an independent force with our options open. Just like 2010. But coalition is the future of politics. It is good for government and good for Britain. We must make sure it is good for the Lib Dems as well.
Yes, indeed. It is now ‘do-or-die’ for the Liberal Democrats. There won’t be an end of ‘boom-and-bust’ in this context, unfortunately, because if the Liberal Democrats get the economic recovery and cuts wrong, even if the recession ends, they will be unelectable for a decade. However, it is argued that if the Liberal Democrats make a success of their new Coalition policy, the Coalition politics of pluralism could become accepted.
There was, of course, a global financial crisis. But our Labour predecessors left Britain exceptionally vulnerable and damaged: more personal debt than any other major economy; a dangerously inflated property bubble; and a bloated banking sector behaving as masters, not the servants of the people. Their economic model combined the financial lunacies of Ireland and Iceland. They built a house on sand and thought that they were ushering in a new, progressive work of architecture. It has collapsed. They lacked foresight; now they even lack hindsight.
If Cable feels Labour is in denial over the deficit, undeniably he has been slow to come to the conclusion that the crisis was global. I remember him pontificating in the Commons about how it was an academic philosophical issue of where the financial crisis came from, but it was necessary to find a solution for it. Vince Cable’s lack of acceptance that this was a global crisis historically speaks volumes.
We know that if elected Labour planned to raise VAT. They attack this government’s cuts but say not a peep about the £23bn of fiscal tightening Alistair Darling had already introduced. They planned to chop my department’s budget by 20 to 25%, but now they oppose every cut, ranting with synthetic rage, and refuse, point blank, to set out their alternatives. They demand a plan B but don’t have a plan A. The only tough choice they will face is which Miliband.
This statement is totally ridiculous. If Vince Cable is so self-effacing, can he not at least give a suitable explanation for this poster?
But I am not seeking retribution. We have a pressing practical problem: the lack of capital for sound, non property, business. Many firms say they are already being crippled by banks’ charges and restrictions.
This is undoubtedly a sensible line of attack for Vince and George to pursue, as it encompasses the Liberal
Democrats’ values of fairness, and Labour’s lack of engaging with the public about how the bankers, who had largely caused this crisis, were not been punished for their recklessness. If anything, it is perceived that Labour pumped lots of taxpayers’ money in it, whilst the leading CEOs in the investment banks received knighthoods and huge bonuses. Labour’s fundamental error, if there is to be one single one amongst the plethora, is the unforgiveable increase in the rich-poor divide, which will forever be a legacy of Labour. It began in earnest with Thatcher, progressed with Blair, and compounded through Gordon Brown’s long stint as Chancellor. This should be a top priority for Labour too.
And the principle of responsible ownership should apply across the business world. We need successful business. But let me be quite clear. The Government’s agenda is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them?
This is an incredibly important paragraph in my opinion, as short-termism has been identified by many academics in leadership, including William George at the Harvard Business School, as a major cause of irresponsible leadership in business. This, together with failures in corporate governance and corporate social responsibility in a post-Enron age, remain admirable targets for Vince’s wrath. This should be a top priority for Labour too.
??But the big long term question is: how does the country earn a living in future? Natural resources? The oil money was squandered. Metal bashing? Mostly gone to Asia. Banking? Been there, done that. What is left? Actually quite a lot. People. Skilled and educated people. High tech manufacturing of which we already have a great deal. Creative industries, IT and science based industries and professional services. In my job I meet many outstanding, world class, British based companies. But we need more companies and more jobs in the companies we have. It is my job as Business Secretary to support business growth. And this knowledge based economy requires more high quality people from FE, HE and vocational training. Here, we have a problem. Businesses cannot grow because of a shortage of trained workers while our schools churn out young people regarded by companies as virtually unemployable. The pool of unemployed graduates is growing while there is a chronic shortage of science graduates and especially engineers. There has to be a revolution in post 16 education and training. We are making a start. Despite cuts, my department is funding 50,000 extra high level apprenticeships this year – vital for a manufacturing revival. My Conservative colleague David Willetts and I want to sweep away the artificial barriers between universities and FE; between academic and vocational; between full time, part time and continuing life long learning; between the academic and vocational.
The ‘Yeah, but’ is that Vince Cable is making savage cuts in universities such as Cambridge, currently top in the world, at a time when we should be investing in basic research, translationary research and applied research, with a view to investing in our country’s future. This should be a top priority for Labour too.
