Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
It is now almost three years into the current Parliament and Labour still doesn’t have an economic policy. This is despite having a Shadow Chancellor who was Gordon Brown’s Chief Economic Advisor and a leader who was Gordon Brown’s Chairman of the Council of Economic Advisors. Between them, they must surely have some idea of what they would do if they got into power.
Now, by ‘economic policy’ I’m not talking about the exhaustive detail that governments have to deal in and that only governments have the capacity to work out. Rather what I mean is an answer to the most basic of questions. Would a Labour government be committed to higher levels of spending and borrowing or would it live within the fiscal plans we have already laid out?
Though criminal suspects have the right to remain silent, there is a limit to how long those who would take office can keep the country in the dark.
Under increasing pressure to talk, Labour is beginning to crack. Anonymous, but well-placed, briefings to the media show that whereas one Ed wants continue Labour’s opportunistic attacks on government savings while getting ready to accept our spending plans at a later date, the other Ed wants to make a political virtue of spending and borrowing more.
On the record, however, the two Eds are united in silence – and will stay silent until such time as the battle between shamelessness and recklessness is settled. Yet they cannot remain completely quiet – something needs to be said to fill the dead air. And so, like a radio station eking its way through the small hours, Labour plays some old tunes from times gone by – re-announcing recycled policies to keep its listeners occupied.
But this presents a difficulty. Because Labour does not even have the rudiments of an overall budget, the only way they can answer questions about the funding of any announced policy is to have a parallel announcement on some specific standalone measure to raise the necessary revenues. In effect, this is a policy of hypothecated taxation, one that has no economic rationale, but which merely serves a political purpose – namely the avoidance of any statement on the general spending plans of a potential Labour government.
Labour’s specific problem is trying to get these revenue raising schemes to stand up. We had the most laughable example yet in last Wednesday’s Commons debate on the Finance Bill. Labour’s spokesman – my opposite number, Chris Leslie – claimed that a new programme of public sector jobs for the unemployed could be paid for by a repeat of the tax on bankers’ bonuses that Alistair Darling brought in between December 2009 and March 2010. In response to an intervention from my colleague Charlie Elphicke, Mr Leslie confidently claimed that the proposed tax would raise £2 billion – a ‘conservative estimate’, he called it.
However, according to the Centre for Economics and Business Research (which has studied City bonuses for several years), the bonus pool will amount to £1.6 billion this year, and less than that in the years ahead. Even the most arithmetically challenged observer will see that this poses a rather fundamental challenge to the credibility of Labour’s proposals.
When confronted with the fact that 2 billion into 1.6 billion won’t go, a discombobulated Mr Leslie promised to write to me with the authoritative basis for his calculations. I’m still waiting.
There is, of course, nothing wrong with requiring the banks to make a contribution given all the support they’ve received from the taxpayer. However, unlike Labour, this Government has introduced a permanent levy on banks, which raises £2.5 billion a year based on their balance sheets. It is a workable approach that has been emulated by other countries (though our levy is more than double that of France and Germany, relative to the size of each nation’s banking sector).
The moral of this story is that cobbled-together announcements are no substitute for an economic policy. Because some things never change, a full account of how the Labour Party proposes to pay for its promises is unlikely. But the time has now come for the two Eds to say where they stand on the most basic economic question of them all: do they plan to keep to the current spending plans or don’t they? This, surely, is the very least that should be expected from an open and honest Opposition.