Any reccession is terrible news for the economy, and more importantly for the families and businesses struggling in tough times. God, that sounds like a piece to camera, doesn't it? Sorry. Hard habit to break. Still true, mind.
This recession is worse, because it was avoidable.
Unfortunately, the more the government fails today, the tougher the fiscal challenge gets tomorrow.
The deficit will be stickier now, harder to reduce in the short term. That means the next Labour government will face even more fiscal pressure as it attempts to deliver our social justice agenda.
Now before I talk about the future, what about the past? How did we get here? Short answer. We got here because the government have screwed up.
Some commentators, notably Owen Jones, (there expressing the friendly comradeship the left is famous for), apparently believe that "In the Black Labour" advocacy of fiscal conservatism represented an endorsement of Tory economic policy. So I thought a few reminders that we've been saying since we started that the governent strategy would fail might be worthwhile.
As Anthony Painter and I said when we wrote in the Guardian on launching "In the Black Labour":
"The chancellor's autumn statement showed conclusively that George Osborne has messed up. His model of recovery – that export-led growth and private investment would step in as the state withdrew – was wrong. And he failed to allow enough flexibility should things not go as planned. The result is a faint but worrying reflection of the European periphery, where new austerity is piled on existing austerity in a desperate scrabble to hold on to fiscal targets."
and I underlined the point here in point three back in November:
"The government messed up because they got the short term economy wrong. We saw on Tuesday how we're all paying the price for that. In a demand crisis, you need to take action, and do so dramatically and boldly. To do otherwise isn't being fiscally conservative, it's just being stupid."
So, no question about that. The government got it wrong.
Yet that's not the end of the story for Labour.
If the government fails, this creates an increased pressure for the next government. The lower growth is projected in this parliament, the less likely it is we see deficits reduced, the higher the costs of failure and the bigger the challenge for a centre left government coming to power with a stagnant economy, high deficits and high social costs.
It's worth pointing out that we're pretty clearly now on the downside of the OBR projection for the economy. Here's what that OBR say will likely result from this state of affairs continuing. (they regard it as an Euro area issue, but the same point appplies for a domestic slump.)
"weak nominal GDP growth leads to significantly lower tax receipts, due to lower consumption, labour income and company profits. Taxes on assets are significantly weaker, due to lower equity prices and housing transactions;
unemployment-related spending rises, but lower inflation dampens benefits upratings and debt interest payments on index-linked gilts.
Spending, which is fixed in nominal terms over the current Spending Review period, increases as a share of national income. Growth in spending beyond the Spending Review period rises more slowly, as it is linked to
general economy inflation;
much of the additional borrowing compared to our central forecast is cyclical, but nevertheless, because of our assumption of slower potential growth, the CACB is no longer in surplus in 2016-17;
higher borrowing (both structural and cyclical) leads to public sector net debt rising significantly over the forecast period." (OBR March forecast Para 5.41, pp174-5)
Some in the Labour party may feel it's politically sufficient for the Labour party to simply point out that the government has failed and ignore the question of what such a failure will mean for a Labour government.
I profoundly disagree.
Ultimately, the next election will be about the future, and if Labour isn't clear about it's approach, we will be exposed, even by a failed Chancellor. Even now, with the government's credibility ratings tumbling, we are seeing "a plague on all your houses" attitude among the electorate.
The last ComRes poll said that while just 25% of voters trusted Cameron and Osborne on the Economy, only 19% trusted Miliband and Balls.
I don't want to be pessimistic. This poll represents a significant improvement for Labour compared to the Tories, and one that is reflected in all polls, but the fact that both parties score so badly should concern us. It suggests that the many in the electorate think that both major parties have done little to earn trust. My belief is that it is here the Labour party needs to focus, and it is not at all to soon to do so.
I feel so strongly about this because the truth is that the next Labour government will not have easy answers, and we need to prepare the ground for that now, if we want to achieve anything worthwhile in government.
I also feel, (and I have no evidence for this, only gut instinct) that people will actually appreciate a party levelling with them now. This is no longer the Nice decade, and so we no longer need nice politics.
Actually, when it comes to the challenge feel I was sort of vaguely prophetic here, in the Independent back in September:
"Plan B may be essential, but a return to growth will only ease eventual fiscal consolidation, not remove the need for it. Worse, if George Osborne sticks to his plans but fails either to grow the economy or cut the structural deficit significantly, that just means an even harder task falls to the next government.
Either way, our plans for the future will involve a programme of more taxes and less spending when the economy is growing. This is hardly an attractive left-of-centre position, but when stable deficit reduction becomes necessary, surely it's our duty to get the finances into the black in a way that matches left-wing aims.
It would be stupid to pretend a fiscal path back to black won't hurt. To cut the deficit and invest in industrial growth, we'd need a public restraint that would be painful for many. That pain might still be worthwhile if we could use fiscal stability to generate a better spread of jobs and wealth"