Putting the UK in the black may be risky for Labour

Dan Corry
AN INTERESTING and important debate on fiscal policy is taking place on the left. It’s been described as “In the black Labour” and has been debated on the progressive website Policy Network. It’s about whether Labour should partly abandon its Keynesianism and go “fiscally conservative”.

Its hardest advocates are sometimes called old Blairites, but the argument resonates across the spectrum of Labour party thinking. And its origins come from a number of places.

First, like it or not, many of the cuts will have been enacted by 2015. This is the reality and there’s a view that Labour needs to say what it will do then. Saying it will just spend more does not seem to cut the mustard.

Second, there’s an argument that the left’s apparent infatuation with spending has obscured its other messages -- what you spend it on and how you create a more people-friendly market economy. To some of the new generation, socialism is the language of priorities, not just of increasing the fiscal deficit.

But third, and most importantly, some left wing thinkers and economists argue that it will be hard to get a hearing for anything at all unless Labour is tougher on its fiscal message.

By recalling Labour’s recovery from being thought economically incompetent after the 1970s, the argument is that Labour may have to talk very tough on fiscal responsibility to overcome suspicion. As Gordon Brown, before 1997, promised to follow Tory spending plans in his first two years, Labour must now trump the coalition by making hard decisions. This means introducing tough fiscal rules (tougher than George Osborne’s malleable rules), accepting cuts, and increasing the independence of the Office for Budget Responsibility.

This is a sensible approach and it is not surprising that rising star and shadow chief secretary Rachel Reeves recently outlined an approach exactly in its vein, nor that her boss, Ed Balls, has made similar speeches.

But what are the dangers in this? One is that it splits the Labour movement. Some strong voices on the left want to forget the fiscal position and how the public perceives it. If Labour seems to disagree in public, the public will see a divided party -- and that never wins votes.

Another danger is that this position inadvertently suggests that government can’t make a difference to the macro-economy, public services or private sector productivity. It plays into a narrative that the last Labour government didn’t have a good economic record and that health and education didn’t get better through major investment and reform. This is not only wrong but could close down important elements of what progressive policy must be about.

And that leads into the last danger, that Labour’s message sounds too similar to the coalition’s and that the public feel they might as well have those who revel in cutting services than an opposition which appears to have come to it lately and reluctantly.

There remain, therefore, tricky issues for Labour to negotiate. But the fact that these debates are now happening shows that Labour is starting to get its act together again.

Dan Corry is chief executive of New Philanthropy Capital and a former Downing Street adviser.