Labour needs a game-changer to settle the result of the next election once and for all. As it happens it has the perfect opportunity ready to hand. Osborne is foolhardy enough to announce 6 months before the election that he intends to impose further cuts of £25bn to get on track to eliminate the structural deficit by 2019, which an FT analysis suggests may have to be nearly double that, or around £48bn. This is an utterly reckless pledge which Labour should be exploiting for all its worth – as opposed to the actual silence with which it greeted this faux pas. There are 4 powerful reasons for Labour to go on the attack.
The mathematics show that there’s not a snowball’s hope in hell that Osborne’s latest de’marche can wipe out the deficit by 2019. Alastair Darling’s expansionary budgets in 2009-10 reduced the deficit (i.e. public sector net borrowing) from 10.2% of GDP to 6.9% within 2 years. Under Osborne’s public spending cuts the deficit increased to 7.2% in 2012-3, and only reduced last year to 5.7% because of the unexpected economic growth that only began in early 2013. However, that growth which has been so extravagantly talked up by Osborne and the Tory press is now rapidly deflating: in the second quarter of this year growth was reported of 0.9% and in the third quarter 0.7%, and the signs are clear that in the fourth quarter it will be just 0.5%. The deficit is set to rise again.
Financially, we were told that austerity was necessary to cut the budget deficit. Since it is not now actually reducing the deficit – it’s likely to rise this year to just over £100bn – there’s no rationale for continuing with prolonged austerity. The only reason that Osborne is persisting with austerity is, not to cut the deficit, but to carry through the real Tory objective of shrinking the State and withering the public sector, to get back to the Tory dominance of the 1930s. If Labour now repudiated austerity in favour of the far more effective way of cutting the deficit through public investment to expand the economy out of stagnation, generate real jobs, increase household incomes after a decade of steep decline, it would be a game changer at the election.
Politically there couldn’t be a better moment to strike. For all the manic talking up the recovery by the Tories, only 1 in 7 adults , according to a Populus poll last week, say they feel the benefit of a recovery where they live. If 86% of the population have not felt any recovery in their own circumstances despite a 9% real terms fall in average wages, then Labour’s message that it will abandon austerity in favour of genuine and sustainable growth would be music to their ears.
There’s one further benefit for Labour here. Cameron & co. continually lambast Labour for leaving behind an economic mess. Time to poke them in the eye with the facts: the Labour government in their 11 years before the crash (1997-2008) never ran a budget deficit bigger than 3.4% of GDP, yet the Tory government because it disastrously mismanaged the ERM from which it was unceremoniously pitched in 1992 ran budget deficits more than double that size in 1992-4. So who was the economic incompetent and who was was the prudent manager of the nation’s finances?