Editor’s note: This article was originally published on 30th January 2014 – we republish it today to mark the Labour Party conference.
What actually is Labour’s policy? That’s the hideous question that we’ve set ourselves in our weekly Pinning Down Miliband series. This week, it’s their fiscal plan that is at the end of our lepidopterist’s tweezers. Happily, that plan is easier to discern after Ed Balls’ speech to the Fabian conference last weekend. Sadly, it’s still not up to much. But before all that, let’s travel back through the mists of time, back to when dinosaurs ruled the Earth…
The Gordon Brown years
I don’t want to get too caught up on what Labour did: the deficit that was growing even before the crash; the debt that reached two-thirds the size of our economy even without the bailouts; that sort of thing. After all, this series is about what Labour plans to do. But there’s one set of numbers from Gordon Brown’s time in the Treasury and No.10 that is, I think, particularly relevant to today. That is, the spending numbers.
Here’s a graph I’ve put together which shows both total public spending during the Labour years and its annual percentage growth:
Which is really a pictorial way of saying: Brown increased public spending, after inflation, from £450 billion to £716 billion over thirteen years – a 59 per cent increase. Or, if you prefer to view things in terms of the overall economy, public spending rose from 38 per cent of GDP to 47 per cent. Any way you look at it, spending was on the up, up and up.
We’ll return to this later. In the meantime…
The early Ed Miliband years
The fact that we can kind of skip over the first, say, three years of Miliband’s leadership speaks volumes. This was the time when Labour, stuck in the stasis of a hundred policy reviews, would only talk in limp hypotheticals. If they were in power instead of the Coalition, they would probably, maybe, perhaps have followed Alistair Darling’s deficit reduction plan (which would, according to the IFS, have performed even worse than Osborne’s against the vicissitudes of our economy). If they were in power instead of the Coalition, they would have cut VAT. If they were in power instead of the Coalition, they would have kept the 50p tax rate in place.
But they weren’t in power instead of the Coalition, so none of it mattered.
There were, admittedly, times during this period when Labour strained for fiscal credibility. As early as January 2012, Balls admitted that he couldn’t commit to reversing any of George Osborne’s spending cuts. Jim Murphy – one of the party’s few politicians who understands our fiscal predicament, and also, incidentally, a casualty of Miliband’s last reshuffle – even went so far as to identify £5 billion-worth of defence cuts that he accepted. But, generally, either the sums didn’t work or there were no sums to begin with. The defining policy of this period was Labour’s bank tax – which they then used to “fund” almost all of their spending proposals, well beyond the revenue that the tax would bring in. As it was in Government, so it was in Opposition.
The here and now
All of which brings us to Balls’ big speech last Saturday (25th January 2014). Just like Miliband’s conference speech, this did a lot to orientate Labour towards Government. No more those policies for an alternate universe in which the Coalition didn’t come to power, and that have long passed their use-by date. Now the Opposition actually has a fiscal plan – well, okay, it’s more of an outline, really – for if it wins the next election. That plan comes in two main parts:
- A deficit pledge. Or, in Balls’ words, “We will get the current budget into surplus as soon as possible in the next Parliament.”
- A debt pledge. “The next Labour government will balance the books and deliver a… falling national debt in the next Parliament.” Presumably, following Osborne’s supplementary fiscal rule, that means debt growing no faster than the economy by 2020.
The debt pledge we’ll leave aside, except to note that it’s a slower trajectory than the Office for Budget Responsibility expects (p7, here) under the Coalition’s policies. It is, like Osborne’s rule, contingent on the implementation of the deficit pledge, as well as on the overall state of the economy.
As for the deficit pledge, let’s get the main caveat out of the way first: it too gives the Shadow Chancellor more breathing space. As it stands, the OBR expects (p15) the current budget to reach a small surplus in 2017-18, before recording one of £28 billion in 2018-19. Balls’s “as soon as possible in the next Parliament” could mean that he will achieve that surplus sooner. Yet it could also mean that he achieves it later – in 2020, say.
And there’s another caveat: the current budget doesn’t account for investment spending (which is generally a small proportion of overall spending). So long as he didn’t contravene his debt rule, Balls could go crazy in the investment column.
But this deficit pledge still has some worth, particularly for its clarity. It jettisons the “rolling, five-year period” that Osborne uses for his own deficit rule – and that was always a bit peculiar – and replaces it with a set five-year period. Also, the “current budget” measure is more straightforward than the “cyclically-adjusted current budget”, which makes greater demands of forecasters’ imaginations.
Most importantly, however, it commits Labour to delivering some degree of austerity. If the OBR has it right, the deficit on the current budget will be around £50 billion at the time of the next election. That’s £50 billion of fiscal consolidation that, in the event of a Labour victory, Balls will have to achieve on top of what the Coalition has already done. As Hopi Sen suggested in an insightful post this week, there will be cuts.
What does it all add up to?
And yet you’d be forgiven for doubting Balls’s promises. After all, as Osborne has found out, committing to do something is very different from achieving it. So what’s the Shadow Chancellor’s plan for making good on his pledges?
Exhibit A is the “zero-based review” of public spending that the Shadow Chancellor has commissioned. But there’s a complication there: the phrase “zero-based” is thrown around as though it’s synonymous with “spending restraint”, although they’re not necessarily the same. As I pointed out on Monday, Gordon Brown used to order zero-based reviews all the time. That’s what his Comprehensive Spending Reviews were. And the result? Look at the graph at the top of this page again. Spending rose by 3.5 per cent, 5.2 per cent and 3.2 per cent in the three years following the Comprehensive Spending Review of 2007. As I said in my original post:
“Seems to me, the crucial thing that Balls has said about zero-based reviews came in September 2012. ‘With zero-based budgeting,’ he explained, ‘you can test spending not on the basis of whether it is easy to slash, but whether it meets your priorities.’ And whose priorities are those? Labour’s. Which certainly aren’t the same as the Tories’, and may not be the same as most taxpayers’.”
Which leaves Exhibit B: Labour’s proposed tax increases. But what are they? The 50p tax rate will raise, in the words of the IFS, “little revenue,” if it raises anything at all. We can probably assume a mansion tax, but that will pull in something between £1 billion and £2 billion. The notorious bank tax could raise the same, provided it isn’t spent a hundred times over. Er… that’s it.
Of course, Labour aren’t going to publish a proper Budget now – and nor should we expect them to. Balls, ensconced in the Treasury, would surely have to make spending cuts and introduce tax rises in an effort to meet his fiscal rules. He might even announce some of them before the general election. But, in the meantime, practically all we voters have to go off is the experience of the recent past; from the extravagance of the Gordon Brown years to the silliness of the early Miliband leadership. Which is to say, Labour are asking us to take them on trust – but why should we?