11/01/2012 08:45 GMT | Updated 11/03/2012 05:12 GMT

A New Economic Approach

Ed's remarks yesterday during his speech to London Citizens should be welcomed by both many in the Labour Party and the public. However 18 months into Ed Miliband's leadership the party has failed to make any substantial progress in developing distinct policies which is beginning to take its toll. The narrative on the economy is particularly an area where the Labour party has failed to make its mark.

There is a sense of complacency from some within the party, who appear to think that the coalition government will simply hang itself with their deeply unpopular cuts agenda. There exists a perception that the coalition will redress the deficit through draconian cuts and at next election Labour will be swept into power on the promise of some re-investment in public services and the economy.

With this strategy there is a risk Labour will be punished at the ballot box for having created a situation which allowed the government cuts to take place. Were the Labour Party to have won the 2010 general election, would a Labour government have been prepared to deal with the enormous backlash from having to enforce similarly deep cuts to public spending in order to balance the books?

The coalition government are scathingly critical of Labour's economic record and places blame at the door of the last government for Britain's structural deficit. One of the most prominent critiques is the fact that the Labour government ran a large budget deficit in the mid-part of the last decade when the economy was booming as opposed to running a surplus. But the rationale is quite understandable; it was not sheer mindless profligacy as Brown's intent was to redress the chronic under-investment in public services and infrastructure left by successive Conservative governments. It is worth noting that David Cameron and his party pledged to match Labour's spending plans, while also calling for less financial regulation when in opposition, whereas the Liberal Democrats were advocating an increase in public spending. This suggests that, either the opposition parties now in government were equally incompetent in understanding the ramifications of Britain's large structural deficit and high levels of public spending, or were just blatantly opportunistic in their promises - either way; it makes their assessment of Labour's economic record look superficial.

A legitimate criticism levelled against Labour's economic record, was the attitude that if money were thrown at public services then standards would improve de facto. This led to huge inefficiency in how public money was spent, with little accountability and poor consideration about its effectiveness. Costly capital projects under Private Finance Initiatives, and the establishment of Quango after Quango are prime examples of this. So much more could have been achieved with less, if public money was targeted more effectively. This in turn, would have meant a lower or even non-existent structural deficit while the economy was experiencing accelerated growth. The underlying weakness of debt in the British economy was exposed dramatically when the structural deficit reached unsustainable levels due to the Government's colossal cash injection into the economy in response to the economic crisis of 2008-09.

Unfortunately New Labour was convinced by the city's apparent invincibility, and believed there would be continued unparalleled economic growth. The fact of the matter is, Labour failed miserably on market regulation, even with the introduction of the Financial Services Authority. The problem lay in the fact that, after years of expounding the credo of 'no more boom and bust', Labour was convinced it had actually achieved this. Congratulatory praises and over-reliance on the city, led to a perception of infallibility which Labour fell for. It overlooked the fact that Labour's role historically has been to temper and redress the excesses of turbo-capitalism - but it completely failed - New Labour worshipped the markets.

There is a clamour for the mantle of 'the progressive party' in British politics and the reality is that Labour is the only legitimate choice providing that the party reforms. Simply opposing the cuts will not be enough to gain support and secure votes, it didn't work during the 1980s nor will it work now. Failing to develop a credible economic plan will allow the Tories to erode the Labour Party's record on economic competence which will ultimately cost Labour the next general election if it is not addressed robustly.

Labour has had to work hard during its last period in opposition and throughout its time in government to develop its reputation for economic competence - it risks damaging this by not being more vigorous in its explanation for decisions made in government and, more importantly, providing a credible alternative to the Coalition plan on deficit reduction. The mantra of the coalition of 'we are having to clean up the mess left by the last government', if said enough times, and for long enough, is more effective than one might think, indeed one recent poll shows that 44% of people prefer the deficit reduction strategy of the government in comparison to the 23% who prefer the Labour plan.

It is clear that the coalition will fight the next election on its economic record and present the argument that it made the tough decisions on the economy and tackled the deficit largely in one Parliament. For Labour, there is the imminent danger that failure to develop a coherent economic strategy, which is both comprehensive and realistic, and which robustly addresses Britain's vast structural deficit, could damage their economic credibility for a generation.