There is nothing left wing about not taking the public finances seriously. Public money needs to be spent effectively, to achieve what we want to in the most efficient way. We need to raise it in ways that are fair but also that don’t discourage behaviours we want to encourage. And the total debt that we wrack up does matter.
But there is also nothing sensible in the policies of austerity that we have had to put up with for the last eight years. Of course, after deliberately letting the budget deficit and debt rise in a classic Keynesian way to support the economy in the wake of the financial crash, the debt would have to be brought down over time. But the way the government did that since 2010 was not only damagingly sharp and done totally unfairly, but in undermining the strength of the economy it added to the problems of debt as a percentage of GDP. This austerity is one of the factors behind the collapse in productivity growth in the last years, something that needs to be addressed if we are to have healthy growth in living standards and the resource to rebuild our public services.
The 2017 Labour manifesto moved economic policy on from the 2015 manifesto. There is now more commitment to public ownership of some key public utilities; more detail and ambition on tax rises for those at the top; and a pledge for serious investment in infrastructure. There has also been more interest in recent times in trying to look at some old left approaches of encouraging different forms of co-op, employee ownership, mutuals and so on. To the extent that these can succeed (at scale), they will be welcome, but will still not transform the essential nature of the choices on public finances – and certainly not in the short to medium term – because they will take a long time to work through to a better economic performance.
In 2013, the Fabian Society asked a group of us to propose a progressive approach to public spending and fiscal policy. Much has changed but many of the insights and ideas there are still relevant. And essentially, the issues tackled in the 2013 report – regarding how to decide how much to spend, where to spend it and how to spend it effectively – are eternal questions that will face any incoming new government.
It is conventional wisdom, fairly or not, that the markets will be suspicious of a radical left government – and that could cause problems in the management of the economy if we are to avoid unnecessary pressure on the pound and or interest rates. This is not just some neo-liberal knee-jerk reaction (although it is partly that), but the fact that policy uncertainty is rarely good for investment and growth. The existence of a clear strategy and set of fiscal rules – as outlined by John McDonnell – will help, but there will be a need to quickly show that these will be adhered to and were not just useful rhetoric.
Planning where to spend money and how much is to be paid for by tax is crucial. Whatever money is to be spent in an area should be spent well, and a modernised version of the public service agreements of the past, that linked departmental allocations to achieving goals makes lots of sense – be they about tackling poverty or regional imbalance; reducing carbon footprints or waiting times in hospitals (as long as they are not turned into cascades of targets and KPIs at the front line).
Making sure funding goes more into preventative work (the fence at the top of the cliff) not just acute need (the ambulance at the bottom) is also crucial if politically difficult, and changing government accounting, planning cycles and value for money assessments to embrace this could be transformative. The 2013 Fabian commission proposed a new Office for Public Performance to ensure that spending was done well; and a stronger more independent Office for Budget Responsibility to show there were no attempted fiddles going on. This still makes lots of sense and would help a radical Labour government show it was serious in terms of value for money, to reassure the public as well as the markets.
There are always concerns on the left that matters like nationalisation or spending on housing appears to make things much worse in the public accounts when they are in fact about buying or creating assets. As long as the asset is well managed financially in the public sector, and the houses meet needs and return revenues, this should not matter, and the 2013 Fabian report suggested a number of changes to the accounts to make this more obvious. Whether a change to the accounting rules here is the key or just to get people more focused on the true balance sheet effects is debatable. It would certainly help though if they were changed so that private finance, that can at times be helpful, was only used when it has real advantages rather than to circumvent accounting rules.
These are difficult but ultimately tractable issues. But the big and horrible decision is how much of whatever amount we deem sensible to spend, we are we going to spend on key areas like health, education, and local government, and what that leaves for everyone else. The Conservative government recently announced increased funding for the NHS, which Labour will no doubt want to trump – and indeed most analysis of the needs of the NHS shows that it needs more than the Tories are allocating to give decent standards of care. But that analysis also shows that the past approach, whereby room was found for this by spending a lower percentage of GDP on things like defence, are running out of rope.
There are so many areas we want to put right – from Surestart to youth services, mental health to domestic violence, crumbling roads to the disappearing police force. In 2013 we argued for favouring ‘future orientated’ spending, like education, over other areas but this has consequences elsewhere. And even within priority areas, decisions are tough. We all know that we should not continue to hold down public sector pay the way it has been for many years now. But surely not everything extra that we want to spend on health do we want to go to improving the pay of the workforce, however desirable that is.
One way or another Labour will need to arrive at some sense of priorities over time, a time scale for putting things right, and a process for arriving at these decisions pretty fast post being voted into office. And it shouldn’t really wait until Jeremy is on the threshold of Number 10 before engaging in this.
That brings us to the tax issue. Increasing corporate tax relative to what is planned can raise some money (and is sensible as long as the rate does not go too high), and taxing the best off more and even a financial transactions tax can also help fiscally. However, in the end there is a need to look at raising very serious amounts of money which means tax has to increase for the great majority. While recent polling suggests more appetite for this now than a few years ago, it will be need to be done with care to avoid the ‘high tax for the sake of it’ epitaph being rung unhelpfully round the Labour neck once again. All this will call for a radical but tough Treasury
Those who think a tough Treasury is an obstacle to a radical left policy and want to weaken it and even break it up, get it all wrong: a well led and strong Treasury is an essential agent and anchor for such change. Alongside the recreation of something like the National Economic Council of 2008-2010, this would give a Labour government the best chance of success in its ambitions.