Matthew Oulton outlines the importance of Labour having a long-term economic plan if they are to win the next election.
In the 2010 General Election, the Conservatives talked incessantly about their ‘long-term economic plan.’ Many economists criticised it at the time, and sitting where we are, almost a decade on, it pretty conclusively failed. Indeed, over a decade after the advent of austerity economics, the economy, wages, and living standards had barely budged. When Covid-19 hit our economy, we had nothing to fall back, after 10 years of economic failure, and we are now dealing with the catastrophic results.
However, as a political strategy, the economic plan was a masterstroke. When the Tories returned to voters in 2015, having presided over a period of very little economic growth, stagnant wages, and patent failure to deliver the debt reduction promised, the Conservatives were able to promise a future just around the corner. We have tightened our belts in this Parliament, they promised, and the ‘long-term’ of ‘long-term economic plan’ is almost here.
The public, not being economists, just needed to know that someone was fixing things.
Now, a few years out from an election and in the midst of an economic meltdown, we should follow Osborne’s example. We now need our own ‘long-term economic plan.’ We need an economic strategy that explains to the public exactly how Labour is going to grow the economy, shrink the deficit, and improve people’s lives if we are elected.
The specifics can, and should, wait. We don’t know when we will be able to return to government and we don’t know what the fiscal position of the government will be when we do. As such, specific spending pledges are impossible to state at this time.
Further, this far out from an election, we don’t know what the government will do, and as such should be wary of trying to draw up precise dividing lines. After all, the best economic strategy in the world is no use from the opposition benches.
However, we can lay out some broad strokes that will be applicable regardless of when we regain power. Firstly, we must crush inflation. In the short-term, this may well mean tough decisions. We can redistribute some of the economic pain from the most vulnerable to those with broader shoulders, but ultimately crushing inflation will mean a decline in aggregate living standards. This is an unavoidable truth, given where we are, and we cannot shy from this. The public must trust Labour not to allow prices to spiral.
Secondly, we must be tight on current public spending. We must promise that any spending commitments will be funded out of taxation, so that there are no new current spending without commensurate tax increases. This can be branded ‘sticking to the Conservatives’ fiscal rules.’ There are two reasons for this: we shouldn’t exacerbate the business cycle through pro-cyclical current spending, and politically, we can’t be seen to splurge now for repayment later.
Thirdly, on the other hand, we must invest in the future. Rachel Reeves has already pledged a good deal of this, but there is the opportunity to go further. For example, we can fix the housing crisis without needing to increase taxes, since this would be long-term capital expenditure that doesn’t need to be financed out of general taxation. There is no problem with borrowing to build a house – that is literally the government taking out a mortgage on a secured asset. Further, the government should pledge other investment projects such as new rail or a government investment bank. We can’t spend infinitely – the markets and the voters won’t buy it, but we do still have the opportunity to borrow against assets (such as a new railway).
Finally, there must be a clear indication that Labour will guide the economy in a different direction. We need to explain that we will seek to structurally direct growth towards geographies and individuals who need it most, going beyond the New Labour vision of investing the proceeds of economic growth. In the long run, this will pay dividends, as an economy in which opportunity is shared around is also more efficient.
The purpose here is not to bind our own hands when it comes to policy making later on. Rather, it is to set the framework within which we can begin to discuss large themes – a more secure, just, and prosperous society – rather than policy minutiae. Obviously, sorting the policy detail matters, but the public do not actually want to hear about it. We need only to convince them that we can steward the economy more effectively than the Tories. They need to know that we have a plan.
Matt is the Vice-Chair of the Economy and Finance Network. He is a recent graduate in Economics, soon to begin postgraduate study. He’s from Merseyside, Labour’s true heartland, and writes frequently on a range of economic and political issues.
His interests in Economics focus on microeconomic theory and Public Policy, and his politics are characterised by a near-pathological obsession with returning Labour to government. He tweets at @matthewoulton.