THE BLOG

Labour Leadership Contenders: Face Up to the Facts on the Deficit

20/07/2015 11:17 BST | Updated 20/07/2016 10:59 BST

When Labour MPs voted against the Budget this week our opposition was based on rejection of specific policies, when it is the fundamentals of the economy and terms of political debate we must challenge.

The Chancellor made dealing with the deficit his central case for this 2015 Budget, just as he did in 2010. He knows that fear of Labour profligacy helped his Party win the election and he thinks he can re-play that message again all the way through this Parliament too.

We accept the need to deal with the deficit but Labour has to break beyond the Tories' terms of debate. And to do so Labour's leadership candidates should take a leaf out of Tony Blair's book and adopt the mind-set of Labour 1997.

Two essential fiscal facts point the way and give lie to George Osborne's claim that there is no alternative.

The deficit this year stands at 3.7% of our national income, only slightly higher than the 3.3% Labour inherited in 1997.

While debt repayments are a lot lower, and more affordable, than they were at in 1997 - 2.5% rather than 3.3% of GDP - because of low borrowing costs.

So our view now on the constraints that the public finances place on government should be broadly the same as Blair's and Brown's view then.

Tight controls on departmental spending.

No additional borrowing for day-to-day spending.

Debt falling as a share of GDP.

And a tough value-for-money squeeze on existing budgets, because we know the public think that the biggest problem in government is wasteful spending rather than over-spending.

Applying this approach during that first Labour parliament after 1997 meant we ran a budget surplus, cut government debt, secured average growth at over 3% a year and boosted public service investment.

Applying such fiscal rules now means scope for big differences between Tory proposals and potential Labour plans. Room for a real alternative.

It means there is no fiscal need for such punishing benefit cuts, so we can afford to protect vital tax credits and housing and disability benefits.

It means there is no fiscal need - or economic case - for further cuts to public capital investment, so can secure vital public investment in homes and infrastructure.

Above all, it means there is no political need for Labour be shackled to the Chancellor's anti-state deficit devotion and deny ourselves and the country a more balanced and optimistic message on the economy.

After the OBR revised down growth in the reports published alongside the Budget, and the IMF cut UK growth forecasts for this year and next, any alternative Labour plan must be fundamentally about good growth.

Without more growth we can't create enough good jobs and unwind the productivity malaise; without export and investment-led growth we can't make the recovery sustainable; and without more equal growth across the country we can't spread opportunity widely.

The Budget precluded this path, as a calculated political choice. It was a small-state Budget from an anti-state Chancellor. The numbers don't lie, and according to the OBR Britain will end this Parliament with the Tories spending a lower share of GDP on public services than at any time since 1965.

So beyond our opposition to specific policies, Labour must contest the fiscal and political framing of the Tory Budget plans, and all four of our leadership candidates can borrow from Tony Blair to do so.