A fiscal plan that won’t survive contact with our economic enemies, but is worth setting out anyway, for one reason or another.

Sunny Hundal continues to discuss Labour fiscal policy using the uniquely engaging approach of asking loaded questions and then misinterpreting the responses to those questions.

I’m still hopeful he’ll at some point deal with the content of my reply to his questions, since he seemed so keen to hear the answers, but I’m willing to wait.

In the meantime, he’s asked for some examples of cuts I’d like Labour to make, and the timings thereof, which naturally I’m more than happy to supply, because I think of little else, and naturally, am more than capable of being a one man-shadow, shadow, shadow Chancellor.

Maybe I’ll get lucky, and Sunny will decide I should replace Ed Balls as Chancellor, after he’s been sacked.

Either way, it’s helpful for me to try and gather many of the things I’ve written on the subject in one place.

Now, because fiscal policy is a difficult beast, I should distinguish between different things, as otherwise people might get confused, and start accusing me of shifting positions because they haven’t understood the difference between “Now” and “in the future”, or between “Certain Cuts” and “All this Government’s cuts”. I’ll also, unasked, include tax increases in the debate because hey, this is a debate about fiscal policy, not just “cuts”.

So here goes:

Let us imagine that I am immediately transported into the shoes of George Osborne, and given magical powers to bend the Conservative party entirely to my will.

In that case, as I’ve written repeatedly, I would enact a limited fiscal stimulus.

However, I would also make some cuts. Eh? Fiscal Stimulus and Cuts? In case your mind is blown, then to be clear: in order to encourage growth. I would largely follow the advice of the SMF “Osborne’s choice” paper, which proposes we bring forward cuts that will likely be needed in the 2015-20 parliament to the current parliament, in order to fund spending with a higher fiscal multiplier.

Said cuts and tax increases include: Halving higher rate tax relief on pension contributions,(the cornerstone, at £6.7bn), capping maximum ISA holdings at £15,000, (£1bn) Rolling Child Benefit into the existing tax credits system (£2.4bn) Cutting Winter Fuel Payments and free TV licenses to better-off pensioners, (£1.7bn), and limiting free bus travel for the over 60s (£1bn). Cuts like these I would implement now, but I would spend the money on infratructure, industrial policy and the like.

But hold on, you might say. That’s crazy talk, You’re not going to be transformed into George Osborne. You’re only going to be transformed into Ed Balls, and only when he wanders into Number Eleven Downing Street in May 2015, when things are really, really bad, and then what will you cut? Eh? Eh?

Well you’re in luck. Because I’m the most boring man in the universe, I’ve thought about that too.

To begin with, I’d make some institutional changes (I’ve tried to explain why such institutional change is important here.)

I’d introduce a Chilean-style Fiscal policy commission, with the power to review fiscal policy in the light of current and projected growth rates, which would be required to sign off on Budgets, or issue directions on the size on the deficit.

Second, I’d conduct a zero-base spending review, following the principles set out by the Swedish Social Democrats in the 90s to identify spending reductions.

But hold on. These institutional changes, and reviews aren’t yer actual cuts. They’re just good, solid government, not slashing blindly from opposition. You’re wriggling, Sen!

So, to prove I’m willing to draw blood, on top of the cuts outlined above, I’ve proposed ending the ludicrous “triple lock” on pensions, which is being maintained at great expense even while people on low incomes suffer.

I’ve also said that the next Labour government will have to hold down public sector pay and hold down overall public services programme budgets, with any needed services expansion (say Social Care, Childcare) paid for either through tax increases or forms of co-payment. I’ve also said I think the proposal to cap tuition fees is a poor priority, and I’d junk it and use the money from Bankers taxes to reduce the deficit and, if we want to do anything spend, extend vocational education. (UPDATE: As Steve Van Riel has pointed out, there’s likely a need for some large-scale broad tax increase, a la VAT, NI or Income tax.  He’s right. I knew I’ve missed something important on the tax front! Also, I’d accept all of the Government’s defence cuts, not just some of them. Knew I’d forgotten something else. Oh, and while we’re on defence, My view is that we will need a nuclear deterrent, but I neither know enough about the details of the policy or the probability of Success or chance of cost reductions to have a definite view. In essence, what matters is what works here. If you can get a deterrent at lower cost, great, but it seems a bit unlikely.)

This isn’t a complete programme, by any means, but it’s a start.

Do I somehow think such a programme is populist?

No, not one bit. As I said, way back in 2011, “This is hardly an attractive left-of-centre position

That’s an understatement. The kind of programme I suggest would be painful and difficult and any politician proposing it would face a storm of outrage from interest groups, unions, and political commentators. As a political operative, I’ve shuddered at the difficulty of selling such a programme. Today, in the wake of the Italian elections, I can understand the populist appeal of some kind of Beppe, Boris, or Berlusconi’s, whose basic message is that it would be better if things were other than they are.

But the kind of hard politics and fiscal approach has one overwhelming political benefit. It is honest about our challenges, decisive and focuses us on the real challenges ahead. It runs towards our challenges, not away from them.1

As I said when imagining what I’d say to anti-Austerity demonstrators:

“I could explain why we needed to invest in private sector growth, and in capital projects, and in helping businesses form in places where far too few do.

I could explain that an industrial bank, support for innovation, support for people starting small business, for training apprenticeships, for building roads, and tunnels and wind turbines and power stations have to be our priorities, and that while we can increase tax on the wealthy, that would not be sufficient to do all we need, and that means limits elsewhere.

I could explain that I would be holding down spending in the public sector, not because I hated public services, but because it was the only way to build an economy that could support a superb public sector in many years to come.

I could explain that we needed to change the structure of the economy through improved social care, and help in early years, so more people could work. This would require families to contribute more, so to make that acceptable to them, these areas would require more support, all of which would mean everywhere else would suffer.

I could explain that while things would be tough, that pay would be held down, that programmes would be squeezed, expansion of services deferred, it would be for a greater purpose than Tory austerity to serve the few – a national renewal that worked for all.”

I’ve argued before that there’s a big political argument needed here – a need for a mission for national renewal, which is both fiscally conservative and progressive and speaks to larger social vision of shared sacrifice for the common good.

Such a mission does not gain credibility by pretending it would be easy. Rather it does so by frankly admitting how hard it will be, and setting out the first steps to achieving our aims.

Anyway, this is a far from complete plan, and given shifting economic conditions can only be a provisional answer, and one that will doubtless be used to suggest all sorts of sins on my part, from neo-liberal thinking, to political impossibility to muddled incoherence. Fair enough! Let the fun begin and all that.

PS: I know I’ve forgotten some proposals I’ve made, so when have a little more time, I’ll try to dig out some more of these policy proposals. If you remember them, do jog memory!

  1. It has even won elections for the left before – Sweden in 1994, or the Liberals in Canada, so it’s not a counsel of political despair! []

5 Responses to “A fiscal plan that won’t survive contact with our economic enemies, but is worth setting out anyway, for one reason or another.”

  1. Brian Hughes

    Stick an emergency “temporary” penny on standard rate income tax and get yourself more at a stroke than your heartless assault on us prudent pensioners with our massive ISAs who, once we’ve gambled away our fuel allowances, need to ride the buses just to keep warm.

    You could ring fence it for capital investment projects. Call it Labour’s Investment Experiment.

    Either that or join my campaign to remove the vote from the over 65s on the grounds that important things which governments take don’t have any real impact for about 35 years (cf the financial big bang). (The Roman Catholic Church has shown us the way by disenfranchising elderly cardinals in the vote for the next Pope).

    Then you’ll be able to steal all our little goodies and chuckle as you watch us impotently fume…

    Reply
  2. Keith

    This article and comments make for an interesting read:

    http://www.ft.com/cms/s/0/73219452-7f49-11e2-89ed-00144feabdc0.html#axzz2M7HNfnZj

    It is depressing that the Labour Party are still stuck in the Tory trap of having to discuss fiscal policy solely in terms of deficit reduction. It is saying something when the FT are discussing more radical fiscal policies than the Labour Party.
    There is now so much good economic debate out there discussing the fundamental flaws in classic neo-liberal economic theory that Labour really need to wake up to the opportunities available.
    Try
    http://www.centerforeconomicstability.com.au/
    and
    http://bilbo.economicoutlook.net/blog/
    for a flavour of where this debate should be at.

    Reply
  3. Anthony Painter

    Many of these savings/tax increases could be pushed towards investment/housing/infrastrucutre in the short term for fiscally neutral shifting that still reduces the structural deficit (the spending can be reversed in future years as any recovery picks up – it leaves interest charges on the structural current deficit but other than that it reduces it).

    Reply
  4. Anthony Painter

    By the way, I think it would survive contact with our political enemies. It would be ferocious but the bigger strategic win would be there for the taking.

    I just don’t think it would survive contact with our own party.

    Reply

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