The Labour left’s response to Tory cuts hits the wrong target


9:25 am - June 21st 2010

by Sunny Hundal    


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There are two narratives in play right now. First is the Labour party’s response to Tory cuts is summed up by Alistair Darling as an “ideological war against the public sector”.

The second is the view that these Tory cuts will harm Tories in the long term and will shift public opinion against them.

I’m not convinced that this knee-jerk reaction against cuts will shift public opinion against the Tories. Look at what the polls are saying.

Who do you think is most to blame for the current spending cuts? – asks YouGov.

48% of people blame the previous Labour government while only 17% blame the coalition government. 19% blame both.

Asked if the government’s plan to cut spending to reduce the deficit was good or bad for the economy, 49% said it was good and only 31% said it was bad.

Both are bad numbers for Labour and the left narrative for obvious reasons. It means the Tories can blame Labour for their ideologically driven cuts. That is a problem we cannot ignore.

If the public is not convinced by how the left respond to the cuts, then we won’t be able to force the Tories on the defensive.
So:
1) just complaining about the cuts isn’t going to work because people are expecting them anyway.

2) just talking about how it will affect the public sector isn’t going to get far. Most people won’t think of nurses and policemen in this case – they’ll be thinking of fat-cat council chiefs. The TaxPayers Alliance will ensure this happens and we have no clever advocacy group on the left able to challenge that. Worse, the polling shows that even if people see their local hospitals or police numbers cut, they’ll blame Labour for it. So I don’t think either of these lines of attack work.

What will work?

I say take the Paul Krugman, Martin Wolf and David Blanchflower approach. These economists have been arguing that without maintaining spending, the economy is likely to fall back into a deep recession. They’ve been arguing that the Tories are exaggerating the extent to which markets demand these cuts and that the impact on employment will be destructive.

In other words, instead of just defending the public sector, the arguments should be reframed to talk about those whole economy in general. It should be repeated continuously that the Tories are talking down the economy and destabilising it. It should be stated repeatedly that Tory economic policies will increase unemployment push us back into recession.

These arguments apply to everyone, not just public sector workers. Ordinary voters will only be alarmed if they think Tory policy is actually more destructive rather than being worried if a few nurses and policemen lose their jobs (they’re far more likely to worry about their own jobs and security than that of public sector workers).

This isn’t to say I’m in favour of cutting public sector jobs. The talk of a “structural deficit” is rubbish. I’m just saying the left has to find a response that is popular outside the traditional base.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. Mike Killingworth

And why have we no clever advocacy group on the left? Why can the Taxpayers’ Alliance get media coverage that Unions and groups like the Fabians can’t?

2. Richard Blogger

Sunny, while you are right, being on the right side of the intellectual argument gets you nowhere: the public cares not a jot about theories.

The argument should be about services. People will start to see the services that they have depended upon either disappear or be provided for a charge. Don’t think that the NHS is immune from this. We will see Lansley sell off hospital services and as a result of those companies’ desperate attempt to make profits, waiting lists will rise back to 1990s levels.

What Labour need to do is explain how they could have kept those services, could have achieved the “efficiency savings”, without affecting things like waiting lists for hospital treatment and without bringing in charges. Not an easy task, but it is the only way to convince the population that the Tory cuts are doing harm.

When my elderly neighbour has to wait 12 months for a hip operation, she will not want to know what Krugman has to say about it. I would be able to say that under Labour it was a guarantee that treatment happened within 18 weeks (too long in my opinion), and that a year waiting list is a direct result of the Conservative government.

I don’t (quite) agree, though share your concerns about getting the response right.

Firstly, there is a lot of under the radar targeted messaging which should be done to explain to people how particular cuts will affect them, with compare and contrast of e.g. “cuts in your area vs no cuts in wealthy Tatton” and e.g. every family getting info about all the many cuts which have affected children.

If the cuts plunge us back into double dip recession, then the coalition will rightly suffer politically, that isn’t really a matter of getting the narrative right.

What is politically more challenging is if, as in the 1930s and 1980s, some areas are devastated by Tory cuts while more prosperous areas see some growth.

4. Luis Enrique

Yes. Martin Wolf’s most recent column is very convincing. They key point, for me at least, concerned every country trying to tighten at once, whilst the private sector still wants to save. If just one country did it, then that country’s private sector surplus could find a home in other countries’ government debt – if every country tries to do it, it doesn’t work. The only thing that would make Wolf wrong, that I can see as of now, is fiscal tightening somehow coincided with the private sector deciding it wants to borrow and expand, but I can’t see any reason for supposing that will happen.

Sunny though, a small point – it wouldn’t be wise to say the cuts will send us back into recession, because there’s a reasonable chance they will not. There’s no need to create a hostage to fortune. Just say they will depress growth and worsen the employment situation.

Also, I’m not sure what you mean by “talk of a “structural deficit” is rubbish”: as things stand, without some major fiscal contraction, do you expect the government to still be running a deficit in a few years from now? If so, then you think there’s a structural deficit, if not than you are making a forecast that’s out of line with those made by people you often like to quote like the IFS. I’m not sure trying to rubbish the notion of a structural deficit would be a very successful ploy.

5. Flowerpower

Alistair Darling himself planned departmental spending cuts of £50 bn. Labour’s election platform was to halve the defecit over four years.

And what everyone here conveniently forgets, the Fiscal Responsibility Act was passed in February this year. The Act puts a legal obligation on the Treasury to reduce borrowing in every success2015/16ive year from 2010/11 to 2015/16. It also requires Government debt to be lower in 2015/16 than in 2014/15, as a percentage of GDP.

The Fiscal Responsibility Act was a Labour measure. The coalition government could, if so minded, brand its cuts as “Labour Cuts” on the grounds that they are being implemented in order to comply with the FRA.

Labour cannot now deny the salience of the deficit or the need for cuts without total loss of credibility.

The TUC has put out what looks like a very good pamphlet at http://www.tuc.org.uk/publicsector/tuc-18087-f0.pdf

The talk of a “structural deficit” is rubbish.

Er no it isn’t. Labour was running a big deficit even during the so called ‘boom’ years which were a mirage anyway.

You can’t tax at 39-40% and spend at 42-3% indefinitely.

Personally I think they should have spent more – up to close to 50% as some of European neighbours.

But you have to make the ideological case for higher spending to the voters. This should have been done via higher banded rates of taxation for the well off, aggressive action on evasion and something that is completely off the radar here but is used in other European countries – a wealth tax.

The structural deficit is £50-100 billion.

The total personal wealth of the UK population mainly held in property and shares is £9000 billion.

Of that £9000 billion the bottom 50% own about 800 billion and the top 20% between £5000 and £6000 billion. The bottom 10% actually have negative wealth with their assets worth less than their debts.

http://www.statistics.gov.uk/pdfdir/wealth1209.pdf

A very small tapered annual tax on the wealth of the top 20% could easily close the structural deficit especially if combined with the removal of the ceiling on NI contributions.

I know your tribalist instincts won’t like this but the Labour Party really is partly responsible for the vicious cuts that are coming. Leaving a big deficit for the incoming Tory administration was an open goal for a far right government who wants to gut the state.

Chris Dillow thinks that it could be that the notion of a structural deficit is a pseudo-scientific concept, intended to give a cloak of respectability to what is, in essence, a narrowly political desire to cut public spending:

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/06/what-structural-deficit.html

9. Alisdair Cameron

As the assumption seems to be that simplistic narratives are the ones gaining traction, then surely the best angle to be taking is one across both the public and private sectors, contrasting the situation of ‘bosses’ with ‘workers’.So attack high-paid City chiefs and Council bosses, attack vanity-project white elephants,attack marketisation which has proved corrosive,counter-productive,exclusionary (undermining universal services) and more expensive. Hit out at managerialism: http://www.independentaction.net/ is pushing such a line, but I don’t know that much about ’em.
Yes, it’s way,way too glib an analysis (if you could dignify it as such) but I’ll wager it’d strike more of a chord, and reinforce the need to preserve public sectors workers’ jobs,while at the same time cutting waste and moving towards greater fairness…

I think Richard Blogger has nailed it Sunny. No, the argument shouldn’t be about public sector workers losing their jobs, it should instead be about the impact of those losses on public services.

You might be right, it might well be the case that the public at large doesn’t feel much sympathy for public sector workers facing unemployment, especially when the current media narrative is so focused on nonsense bollocks like so-called public sector gold plated pension schemes and so on, but if we can shift the focus on to how job cuts across the public sector will inevitably lead to a reduction in services, then I think we’ve got a good chance of getting people on side.

Look at the reaction last year to Hannan’s attack on the NHS for example, and how as soon as people thought the NHS was in danger the Tories were forced to go on the defensive. These are the arguments we need to be using; it has to be about cuts impacting on the delivery of key public services, services that people all too often take for granted and that they don’t yet realise they’re set to lose unless they’re prepared to fight for them.

Talking in theoretical/economist terms on the other hand bores the pants off people. People need to know how cuts will directly affect them, how cuts to the public sector will actually impact on their own lives not just on the lives of those facing redundancy.

11. Luis Enrique

Chris Dillow is right to say that statements along the lines of:

“the structural deficit is £X”

is pseudo scientific in the sense of specious – it’s wrong to talk as if the structural deficit is something that can be measured like an item of a profit & loss statement.

He’s wrong to say that it’s an empty concept that should be rejected.

The “structural deficit” is really a (highly uncertain) forecast, conditional on economic conditions. It is merely the result of asking the question “what do we expect the deficit to be, once the economy has recovered”?

A more complete answer to such a question might involve specifying a range of scenarios (perhaps different rates of growth) and a probability distribution for the deficit. But it still makes sense to have a “central forecast”, a “mostly likely” expectation, and call it the structural deficit, so long as you understand it as being what it is. The only difference between the idea of a “structural deficit” and a “forecast deficit” is making the forecast conditional on “once the economy has recovered”.

If you really want to say that the concept of a “structural deficit” is empty, I think that would be tantamount to saying you can have no> idea of the expected future deficit, conditional of the economy having recovered, and that’s just silly. If you believed that, then you’d believe that the government could announced tomorrow that it is halving taxes and doubling spending, you’d still be saying that the idea this would leave us with a “structural deficit” (i.e. spending and taxation plans that don’t add up even in good times) is “pseudo scientific”.

[It’s possibly I have misunderstood what Chris Dillow takes the words “structural deficit” to mean]

12. Stuart White

I agree with Richard Blogger and Cath Elliott.

Attacking the cuts simply, or primarily, because they threaten the interests of public sector workers, won’t resonate. On the other hand, making concrete and vivid to people what the loss of services involves for the users of services might well resonate.

In particular, what we need is testimony. We need to get people’s stories out about how the cuts are threatening harm to them.

One idea: a website on which people can post short films – 2, 3 or 5 minutes – telling the story of how the cuts affect them. Let a 1,000 stories bloom…

13. Luis Enrique

I agree that focusing on how cuts tangibly affect people sounds like it’s likely to be make more of an impact than abstract economic theorising … although I don’t think that’s quite what Sunny was suggesting focusing on – he was emphasizing jobs and growth – but on the “impact of cuts” theme, why not complement those messages with examples of things the ConDems don’t cut or taxes they don’t raise?

i.e. they cut home visits to the disabled, but they don’t cut , or “they cut homes visits to the disabled, but won’t raise taxes on venture capitalists taking home millions”

“The “structural deficit” is really a (highly uncertain) forecast, conditional on economic conditions. It is merely the result of asking the question “what do we expect the deficit to be, once the economy has recovered”?”

What do you mean by “the economy has recovered”?

I kinda agree with Don Paskini’s comment. But what I will also say is that I don’t expect many people have fully considered the consequences of these cuts. Many will probably, as well, fall for the usual propaganda about “benefit scroungers”…the usual suspects as opposed to the banking system. Also, I don’t think the government et al have a strategic plan, just that they need to make cuts not precisely where, so they will be illogical (which cuts are overall) and frenzied.

I also don’t believe the cuts agenda has fully sunk in especially and maybe people believe that it’s just this amount of money that needs to be saved etc. But it isn’t the Con/Dems will come back again this time for your pensions as well (with class traitor, hater of the public sector, John Hutton at the helm). There is a chance, a big chance, there will be a double-dip recession.

I think in getting the message out, the trade unions need to be at the forefront as public sector workers will be at the frontline, along with other groups in society who will feel the impact of these attacks. The other question that needs to be asked is, where are these so-called savings going to?

And who were the random sample in this YouGov questionnaire ‘cos the people I speak to are very very very aware of the impending cuts and are deeply worried for their jobs and services.

There are alternatives to the cuts and those alternatives need to be got out.

16. Luis Enrique

Don,

There’s no objective answer to that question. Write down a range of future scenarios for the next decade, ranging from the economy shrinking 3% each year to it growing 5% each year, and all points and combinations inbetween, and decide which of those you’d classify as “the economy has recovered” and “the economy is still in the shit”.

It doesn’t really matter, the point is merely that it’s useful to ask whether the taxation and spending plans currently in place would leave us running a deficit even when things have got better, for some definition of “got better”. The point is that if the government cannot run a surplus (or a smaller deficit*) during good times, when can it? Is the government in a position to say: “we’re running a big deficit now, because we are in a recession, but don’t worry, things will get better and when they do, we’ll be in surplus” or can they only say “we’re running a big deficit now, because we are in a recession, and it looks like we’ll still be running a big deficit even if things improve”

Imagine you are lending money to a fish & chip shop. You might not be worried if they make a loss during very hot days when people are having barbecues and don’t want fish and chips, you might not worry if they make a loss during a temporary shortage of potatoes, but you would worry if they’re still making a loss when conditions are favourable – that would tell you they haven’t got a viable business and cannot be expected to repay your loan.

If you think the economy isn’t going to get better, and we’d also be running a big deficit in that case, then that’s another (worse) problem.

* actually, we don’t necessarily have to run an actual surplus any time soon because of things like seigniorage and population growth, but I’m simplifying.

We are going to have to play the long game. Opposition to cuts isn’t going to be a natural winner straight away. But if Britain goes into a double-dip recession, the deficit figures don’t improve much because tax takes are lower, prices rise and quality of life standards decline, people will only turn back to Labour specifically and the left more generally if both groups were known to have opposed the cuts fiercely. So we have to oppose cuts vehmently, visibly and as effectively as possible, make our case strongly and understand that it may not have an effect for 12 months or even longer.

18. Fllowerpower

If the public sector unions are presented with a stark choice: wage cuts or job cuts – which will/should they choose?

19. Cynical/Realist?

49% of the public simply agree with cutting the deficit. Most of the readers of this blog would agree with that bland statement. What the public won’t stand for is the decimation of their public services – and thats what they are about to get. When the Tories cuts start to lead to poorer services the public won’t agree. When the Tory cuts lead to a new recession the public won’t agree. And the Tories are playing a very dangerous game trying to pin this all on Labour. Voters blame ‘the current lot’ at the best of times – even more when they can see the hugly stark change of direction we are getting.

The Tories are selling the lie that Britain’s deficit caused the recession. The deficit isn’t good by any means and Labour need to seriously look at their handling of the economy. But there is no clamour amoungst economists, business or the public for the cutys to go as deep as quick as they are. I can only hope the Tories are setting themselves up for a major fall when people see through the lies and see the real agenda behind all this.

I just hope thats before people start having a credit card machine installed on the hospital doors.

20. Cynical/Realist?

Flower Power – or a combination of less severe cuts with a fairer tax system (or even just making sure all tax due is collected) so that those at the bottom aren’t hit harder and the burden is shared? That’s not an option is it? Its just a matter of which way of screwing the poorer do we like best.

21. Cynical/Realist?

@17 – well said.

The polls are merely indicative of the fact we have a new government, which as usual, will enjoy a honeymoon period. In a way they are doing the right thing from a political point of view – which is get the hard work and controversial stuff done now, and exaggerate the problems they are facing as a result of the mismanagement of the previous regime. Every new government on the planet does it, because it usually works.

Basically the task for the opposition is not “how can we can get the polls to support us now”, but “how can we get the polls to support us in 2014?”. Tim F is right, this is a long haul effort.

As Luis comments @ 4, Martin Wolf’s warning in the FT about the risk of another recession from public spending cuts before Britain’s economy has moved onto a path of self-sustaining growth is certainly persuasive. And that warning is underlined by the concurrence of public spending cuts in other leading west European economies – notably in Germany.

But note too this by Chris Giles in Monday’s FT:

“Public spending cuts will hit poorer areas of Britain hardest, striking twice as deeply in parts of the Labour- dominated north of England as in the Conservative-dominated home counties.”
http://www.ft.com/cms/s/0/f906b3b4-7cad-11df-8b74-00144feabdc0.html

But they are not saying there should be no public spending cuts at all or that the government need take no account of a fiscal deficit running at 11% of GDP. There is already a widening gap between the yield on the German government’s 10-year bonds and the 10-year bonds of the British government.

Btw the notion of a “structural deficit” – the deficit that would still exist when the economy is not recessed – is not “nonsense” but it is verging on impossible to measure it with any degree of confidence until years after the event when we can be fairly confident about the history of the economic cycle.

24. Flowerpower

Cynical Realist @ 20

I’d guess tomorrow’s budget will raise taxes, make some taxes fairer, and may well even tighten up on avoidance. But some cuts in either the public sector headcount or pay will also figure. What if Osborne says the public sector pay bill must be cut by X% but it is not for him to micromanage how this is done…. and leaves it to managers and unions to decide whether to cut headcount or cut pay….. then what should the public service unions do? Headcount cuts are more likely to impact the quality of services, but pay cuts might be hard to sell to members.

There’s an important political aspect that’s been missed: Labour were hated but their vote didn’t drop as far as expected. If the coalition can sell the meme that all the pain of their cuts is due to Labour incompetence and they were inevitable under any government they have a win-win: Labour destroyed for a generation and all the privatisation they could have dreamt of.

Anger at the continued excesses of the City and the banking sector while we suffer cuts and the inevitable increase in crime as welfare is destroyed must play a part in any political strategy from the Left. The fact that money paid to public-sector workers largely remains in the local economy and that they pay UK taxes must be important. If fat-cats can be shown to be avoiding UK tax and city profits can be shown to go overseas there must be some scope for at least a bit of rabble-rousing anti-coalition rhetoric. So far there is nobody in the public eye arguing this.

The effectiveness of climate sceptics is that they convinced the public that the established science was questionable. The Left has to do the same with the economic analysis of the coalition. We also need to remember that one of the most effective New Labour strategies in the run up to 1997 was instant rebuttal: Every Tory statement was answered with an alternative as quickly as possible.

Classic New Labour dilemma resulting from their own ideological stance. NL have been the architects of their own downfall.

When, at some point in the future, it is time to write the definitive history of the 1980-2010+ decades. The single phrase that will define the political zeitgeist of Thatcherism as well as Blair/Brownism will not be found in the musings of Goldspan, Friedman, Keith Joseph, Reagan or from the yuppie cartoons of the broadsheets, but two Irish men and a Scot who cobbled together the a line from a song:

‘Well, tonight thank God it’s them, instead of you’

For thirteen years, New Labour sat in silence as the pensions, terms and conditions of those working in the private sector where ripped up, set on fire and the ashes were danced on in front of the faces of millions of people and now the Labour Party cannot understand why these people are so unconcerned regarding the public sector’s jobs and pensions? For thirteen years the Labour Party has played one group of people against another group, taking from the poor to give to the very poor. Watching in silence as jobs were boxed up and shipped out to India, China and the like and the Labour front bench sat in the type of silence that would make Marcel Marcel look like a vuvesala player. The same stoic silence when millions of people where shunted onto zero hour, casual contracts, in the name of ‘flexibility’. The Labour Party have been actively responsible for Capital dismantling the gains made by working class people in the late 19th Centaury and are now forced to watch helplessly as the concessions of the post war are systematically dismantled? Well? Why complain now? Surely you realised that watching millions lose their standard of living was going to end up causing resentment?

I agree with Darling insofar as he is as saying that the Tories and the Lib Dems are undertaking an ideological war on the public sector (did anyone listen to Edwina Currie’s orgasmic squeal at the thought of denying funding to a hospital on any questions?). Yes it is being sold to us as cutting the budget deficit, but given that Labour ministers used to display their complete contempt for those low paid workers, is it any wonder that so many people are willing to accept that?

I think the key problem for Labour in opposing the cuts (whatever exact form they take) is that prior to the election they were also promising cuts – but really just a few months later.

I suppose Labour could take the position that the Tories should close the deficit gap by concentrating more on increasing revenue (i.e. more tax on wealth) instead of cutting services… but in power they seemed less interested in that, and in opposition they don’t seem to be calling for it either. As far as I can see, they’re doing what oppositions always do in these situations: calling for the problem to be magically made to go away. Most people know this isn’t possible, even if they don’t buy the standard right-wing boilerplate rhetoric about local public sector fat cats (rather than the sort-of-obvious gigantic international financial meltdown) causing both the recession and sudden deficit.

Sunny’s article also says we should take more notice of the ideas of Paul Krugman: as I understand it he’s saying that in reality the markets aren’t likely to suspect the government insolvent any time soon, and the deficit therefore can go on increasing for much longer to provide much-needed economic stimulus. That’s likely true in the USA, but that prescription certainly couldn’t have helped Greece, and won’t help Spain either. In the case of the UK? Who knows.

I agree with much of Jim’s assessment @26 and can add a few more factors.

The booming financial sector produced the house-price bubble – which pleased those who owned their homes and second homes – and it also produced buoyant tax revenues which could be spent on the public sector, often very wastefully. The financial crisis pricked the house-price bubble and tax revenues from the finance sector sank, while more public spending was required for unemployment benefits.

Taxpayers in London and the South East have been bankrolling the rest of the country as this map illustrates:
http://www.thisislondon.co.uk/news/article-23416323-details/The+REAL+north-south+divide:+South-East+is+'bankrolling'+Britain/article.do

You can’t tax at 39-40% and spend at 42-3% indefinitely.

Bullshit. If trend economic growth is 2-3%, then that’s exactly what you can do, because you’re keeping the national debt flat as a % of GDP. The only reason you might not be able to do that is if trend economic growth has fallen, as Chris D suggests on the next post…

@27 Jungle

I think the key problem for Labour in opposing the cuts (whatever exact form they take) is that prior to the election they were also promising cuts

This is why Labour need a new leader who is a proper break with the NuLab past – so it’s a thanks but no thanks D Miliband and E Balls and A Burnham. They are all tainted by association with the sins of Blair and Brown. From what I’ve seen of Diane Abbot in the hustings etc she’s articulating the language of the vast numbers of ordinary folk who are angry at being told they will lose services and jobs while the rich who caused all this mess still get away scott free.

@27: “In the case of the UK? Who knows.”

The yield gap between 10-year German government bonds and 10-year UK government bonds is already widening at 2.66% v 3.53%
http://www.economist.com/node/16379995

Btw “contrary to left-liberal mythology, current public spending under Margaret Thatcher increased by 1.7 per cent a year, between 1979 and 1990. The ‘Iron Lady’ cut overall spending in only one year – 1988-89.”
http://www.newstatesman.com/uk-politics/2010/06/spending-cuts-canada-deficit

32. gastro george

The YouGov poll is typical of most, in that the framing of the question is vital, especially in areas where the public has views that are logically conflicted. It’s where worse-faith pollsters than YouGov use poll question framing to push their own agenda.

The public will favour cuts, because they play to the narrative of value-for-money, waste and fat cats. In the same way, they will favour lower taxes (as well as apple pie).

But if you ask them about specific services, they are much more likely to support them. Further, if asked whether these services should be cut or taxes should rise to pay for them, they are more likely to say the latter (other peopl’s taxes of course).

This is how a coherent left narrative could be formed. As services are cut, emphasise and publicise the specific.

No, the argument shouldn’t be about public sector workers losing their jobs, it should instead be about the impact of those losses on public services.

I’ve already addressed this Richard and Cath – people might lose publis services but that doesn’t mean they’ll come to Labour over it. In fact polling shows that people are expecting cuts and they blame Labour for over-spending.

This idea that we can convince people that the cuts are Osborne’s fault is naive, given that Osborne is going out of his way to emphasise how much he’s going to cut and why it’s needed. They’re laying the ground for an argument they expect you to make already.

Once you make the argument, people will simply say: ‘yeah well the Tories said they had to cut because Labour spent too much money, so I guess I have no choice’.

Which is why I don’t buy that reponse.

Luis and others on strucutral deficit I’ve now linked to the piece I was referring to above.

34. Luis Enrique

john b @29

Doesn’t that depend on the initial stock of debt? If you have GDP growing at 3%, tax constant at 0.4 of GDP and spending at 0.43, if you start with debt = 100% of GDP that’s true, but if you start with debt say 50% of GDP I think it will increase until it stabilizes at 100%.

I may be embarrassing myself in public here, having either misunderstood you, or got my calculations wrong.

I think the Indy’s front page today – saying that Osborne’s policies will cause mass unemployment, is actually spot on. That is the approach that works for me:

See article here

36. Luis Enrique

hah! I knew it – hence, of course, you can do it “indefinitely”

(I the debt staying flat as % GDP threw me, but that wasn’t really the point).

@35:

Compare this headline article in Monday’s FT:

“Official forecasts will show George Osborne’s emergency Budget hitting growth and costing jobs in the short term, government sources said last night, but the austerity measures will also create a brighter climate for the economy by the end of the parliament.

“In a tough Budget that seeks to overachieve on plans to eliminate the deficit, Treasury ministers accept that the new and independent Office for Budget Responsibility will mark down the growth and jobs forecasts as government spending falls and taxes rise.

“But insiders who have seen the forecasts said that because the OBR will assume this is just a temporary shortfall of growth, the effect will be to increase spare capacity in the economy, creating room for a faster growth forecast just before the next election.”
http://www.ft.com/cms/s/0/ac41f48a-7ccb-11df-8b74-00144feabdc0.html

Of course, a five year Parliament provides more time for this cunning fiscal plan to mature and yield electorally encouraging results.

Gotta love the rigorous journalism at the Indy.

But does the Chancellor risk creating unemployment on a scale not seen since the 1970s?

Unemployment now (at 2.5m) is very substantially higher than it was in 1979 (1.4m) – or indeed at any point during the 1970s. Presumably they meant the 1980s, or maybe the 1930s – what’s a decade or so between friends?

39. Luis Enrique

Sunny,

yes, I’ve read that, and it agrees with what I was saying at comment 11 with respect to these numbers being “specious”, but Chris Giles is quite wrong to say we haven’t the “faintest idea” what the structural deficit is (and he’s getting a bit hung up on the technicalities of how the estimates output gap relates to it)*

Obviously we have a “faint idea” of what the deficit is likely to look like should the economy return to modest growth in the next few years. I’d put a lot of money on it being somewhere between -5% and 20% of GDP. My point is merely that even with large bounds of uncertainty, we can still have a central expectation.

As I explain above, not being able to measure something is not the same thing is it being a useless concept. If you really take that literally, and argue that we know nothing about this thing referred to as the structural deficit, then were you Chancellor and a minister approached you asking for more money, or the Treasury asked you whether we needed to increase taxes or could afford to cut them you’d have to say: “I’ve no idea”. And you don’t believe that, do you? I bet you do not believe that we could afford to halve taxes. Why not?

One could make many of the points Giles makes about the future earnings of Apple Computer Inc. or Amstrad plc (especially if estimates of manufacturing spare capacity played a role in your model of forecast profits, analogous to the output gap) . I would not say it’s “rubbish” to talk of Apple’s future profits being larger than Amstrad’s.

Don, I suppose that’s the “technical” answer to your earlier question – the economy has recovered once the output gap has closed and the technical definition of the structural deficit is, I presume, what the deficit looks like once that has happened. So far I’ve been thinking more informally. You get the “bad news for the economy is good news for the structural deficit” thing Giles talks about, because if you hold the deficit constant and revise upwards the output gap (what he calls bad news for the economy) then that means there’s further to go closing the output gap, and doing so will erase more of the deficit leaving a smaller deficit once the output gap is closed. But of course one could have kept the lower GDP number, kept the estimated output gap, and have just revised down estimated potential GDP. All the fiddling about with the actual estimated non-observable numbers aside, it still makes sense to ask what we expect the deficit to look like under current spending/taxation plans, once economic conditions have improved.

40. Luis Enrique

here Matt Yglesias says UK cuts are at least grounded in some sort of sensible idea: it will enable us to keep interest rates lower for longer.

@34 yes, but debt at 100% of GDP is completely sustainable so Not A Problem (see: people whose mortgages are 100% or more of their annual salary – ie pretty much everybody).

@40 although Matt doesn’t have a bad point.

43. Stuart White

Sunny @ 35: I agree that the spending cuts, right now, are probably bad for the economy and pointing this out should be part of the campaign against the cuts.

But the weakness in this approach is that we clearly have to cut the deficit at some point, or over some time frame, so it is really just an argument for postponing cuts not against cuts themselves, no?

So to complement what you are saying we also need to say: ‘Yes, at some point the deficit has to be cut. But the burden should be on tax increases not spending cuts.’

At the moment, the tax increases are apparently politically unthinkable, but the spending cuts are not. How do we make the spending cuts unthinkable, or at least less thinkable, and prompt a more balanced national conversation of the balance between cuts and spending?

I think one way to do this is to bring home the concrete reality of the cuts on people. Render the abstract concrete and vivid. That means focussing on service-users and their stories.

44. Stuart White

Ooops, that previous post of mine was referring to Sunny @ 33, not 35.

45. gastro george

… the austerity measures will also create a brighter climate for the economy by the end of the parliament.

A government of monkeys could profit from the inevitable growth bounce after a recession. What we are seeing here, if one was cynical, is an attempt to prolong the current recession in order to bring the economic cycle back into sync with the political one.

… the effect will be to increase spare capacity in the economy, creating room for a faster growth …

… as if we didn’t have spare capacity already. What we don’t have is the demand to use that capacity.

I think your strategy is wrong. You are talking about something that hasn’t (in peoples real lives and minds) happened yet.

There are some good ideas in the economic fluffle spoken here. Most people are not economically literate – I know some of you will disagree, but it is true.

You have to wait for the cuts to happen and the fall out therein. It ain’t gunna be nice, but the vast majority are not going to feel it until it hits them. Get activists ready, today, now, to take the real stories of how these cuts are effecting people. Get them to the papers, TV stations, whatever they need to do. Tell the stories of the fatcats still getting mega-bonuses even when Mrs Winthorn is being brought out in a casket because of her heating bill being too high.

It’s not OK to be filthy rich when the poor are still begging for a soup kitchen. It is not OK to be filthy rich when someone has to wait years for treatment. It is not OK to be filthy rich when schools don’t have books, walls, roofs or teachers. I think you get my drift.

What I haven’t heard much yet about these pretty awful Lib-Tory cuts is that they are motivated for self serving party political reasons (rather than economic reasons).
They are bad for a lot of other reasons (damaging public services, widening inequality, threatening growth) but it seems fairly clear to me that the Tories in particular are cutting deeply and quickly for base political expediency.
By which I mean that it suits their political timing to cut deep, well away from an election, and then perhaps cut taxes etc closer to an election.
What I suspect would anger the public the most would be a suspicion that the Libs and Tories are doing this for political reasons……

Attention ought to be brought to various expensive and experimental schemes the National Government is going ahead with regardless of Teh Krisis. And contrasted with certain cuts, especially ones relating to jobs. Bevan was right about the importance of priorities.

Stuart: How do we make the spending cuts unthinkable, or at least less thinkable, and prompt a more balanced national conversation of the balance between cuts and spending?

I think one way to do this is to bring home the concrete reality of the cuts on people. Render the abstract concrete and vivid. That means focussing on service-users and their stories.

I think this is a good argument to make.. also made by Cath and Harpymarx.

In fact I like the idea of a blog collecting personal stories about cuts. I could do that quite easily on LC, but there are websites like Tory Stories which are meant to do this too.

Here’s my question: What if the public is braced for cuts? What if they feel the pain but they justify it by saying it was inevitable and all Labour’s fault because they wasted money?

It’s a stupid narrative but that’s the dominant one right now. The polling by Reuters today underlines this.

So the question is, if that is the narrative, how do you make the electorate become angry at the Tories? Hence my view we should actually focus on unemployment and the state of the economy than public sector cuts

50. Luis Enrique

What if they feel the pain but they justify it by saying it was inevitable and all Labour’s fault because they wasted money?

It’s a stupid narrative but that’s the dominant one right now.

It’s not that stupid a narrative, with some caveats. Read Martin Wolf :

Can we not at least blame Mr Brown for the bloated public spending and grotesque fiscal deficits? Yes, but also only up to a point. Between 1999-2000 and 2007-08, the ratio of total managed spending to GDP did rise from 36.3 per cent to 41.1 per cent. But the latter was still modest, by the standards of the previous four decades. The jump to a ratio of 48.1 per cent, forecast for this year in the 2010 Budget, is due to the recession. Nominal spending is currently forecast at 3.5 per cent higher in 2010-11 than forecast in the 2008 Budget. But nominal GDP will be 10.3 per cent lower and tax revenues 16.4 per cent lower. Critics of his fiscal policies were right, but the error was far larger than anybody imagined. It is true, however, that Mr Brown must take a share of the blame for Labour’s failure to ensure the extra spending would be well managed.

The fact the Labour set spending too high is true: it’s rightly part of the “narrative”. Another part is that it only turned out to be so much too high, ex post, because of the banks imploding. But that doesn’t change the fact that spending is now too high, and it means that “the public” are right to think cuts are inevitable, sooner or later. So Sunny I think you’re correct that the left needs to take account of the possibility that the public are “braced for cuts”, but wrong if you think that’s because they’ve been duped.

51. Mike Killingworth

I suspect the “popular” view goes something like this:

1. Labour spent not wisely but too well. Intelligent public spending takes time to bring on-stream. Incompetent, unwanted projects (that correspond to bees in bonnets) and non-jobs that bloat bureaucracies don’t. Wrapped up in this somewhere is resentment of the geographical distribution, with taxes being raised in London and the south-east and spending taking place north of the Trent – obviously a caricature, but then the “popular” view is, by definition.

2. The comfort factor requires a counter-factual belief that the pain of cuts can be borne wholly by out-groups such as immigrants, tattoo’d welfare claimants (but not pensioners) and bankers. This is economic nonsense of the first water, naturally, but the “popular” addiction to it is the reason why Alistair Darling is, deep down inside, glad to be out of office.

This suggests that the “next Labour” narrative should focus:-

– in the short term on getting ministers to say, over and again, that popular belief (2) is tripe. To be fair to the Cleggeron, it does say this and might even argue in its defence that it can’t tell the Mail and the Sun what to write;

– in the medium term on a narrative of “smart spending” with, initially, examples from local government and a description of the techniques by which such spending can be identified. For example, if, as I believe, the Coalition has decided that – if push comes to shove – free State education will have to go before the NHS or pensions (and there is an electoral logic to that) Labour will need to do better than simply talk of rights and principles.

Additionally, Labour will need to re-visit the geographical consequences of the election result. Its attempt to concoct a NE Assembly deserved to fail, but I think there is a narrative to be told in London about the powers of the Mayor and the Assembly. (I am thinking of the likelihood of “English Votes for Enlish Laws” at some stage and the difficulty Labour has in obtaining a majority in England again.) It is sad to me that we have talked of the 2012 Mayoral Campaign solely in terms of personalities when I think we should be talking powers.

Enrique

Why is spending “too high”?

I ask because people seemed to want a lot more doctors, nurses, police, teachers, teaching assistants, classrooms, hospital wards, and so on.

So the “too high” bit might be your opinion. But we should accept it for what it is. An opinion based on political ideology. Not a fact dictated by economics.

One could equally argue tax is too low, or that had the economy not collapsed, spending was about right to raise services, with economic growth paying for the additional cost in the long term.

It’s opinion.

53. Mike Killingworth

[52] M4E – people don’t like paying taxes and they even don’t like their boss having to pay them either. Many are convinced that their boss’s taxes threaten their job. Their boss pays outfits like the Taxpayers’ Alliance to peddle this stuff.

Most bosses I know about are always planning to cut – or expatriate – jobs no matter how much or how little tax they pay.

54. Luis Enrique

m4e,

yes, you’re right. Too high, per se, is an opinion. Too high relative to tax income, leaving us with a gigantic deficit that we need to do something about, is not mere opinion. I rather meant the latter, but wasn’t clear. What we need to do about that is also a matter of opinion, although the answer to the question: “what would trying to close the deficit solely by raising taxes and not cutting do to the economy?” is a matter of fact, even if it is unknown.

Hence my view we should actually focus on unemployment and the state of the economy than public sector cuts

You do have to be careful though Sunny, for two reasons. The first is that until Labour have an answer to the ‘what would you do?’ question, their attacks will just look opportunistic and hypocritical – remember that Labour promised over £55bn of cuts themselves – where would they have fallen?

The second is that there is absolutely no guarantee that Osborne’s cuts will plunge Britain back into recession – in fact most forecasts show trend growth returning pretty strongly next year.

A far better approach would be for Labour to come up with a credible, left-of-centre plan for reducing the deficit in a reasonable timsescale, and then attack the Coalition where they disagree. But then, without a permanent leader or a cabinet that is a little tricky.

It’s actually a bit of a bugger for Labour – the timing is so bad. The budget today is likely to be the key moment for the course of the Parliament, and Labour haven’t got a leadership structure in place.

Sunny is absolutely right to stress the importance of maintaining spending (especially on public investment) to avert double dip recession. Growth is the missing link in this budget – the outsourcing of the forecasting to the OBR unerlines the lack of interactivity between the budget measures and forecast growth. A year ago we had internationally co-ordinated reflation, led by Brown and Obama, but now, as Luis Enrique says, we have simultaneous deficit reduction mania everywhere and Obama is isolated.

It’s not that Darling is wrong to speak of the Tories’ (and Orange Book Libs’) ideological motivation, and it’s not that we shouldn’t also highlight the damage of service cuts, and the impact on the poor in particular, but the macroeconomic arguement, pushed day-in, day-out, will win the argument in the end.

However, we could also usefully argue from the beginning for higher taxes on the rich (to make those to blame pay for the crisis), the elimination of tax avoidance and for the cancellation of thr Trident replacement, which will ultimately have a big effect on the deficit and ultimately, with sufficient gropwth, pave the way for improved public services.

57. Mike Killingworth

[56] I’m not clear how any government is supposed to “eliminate tax avoidance” which is perfectly legal. Or perhaps you mean that schemes like ISAs should be scrapped.

If you mean tax evasion well everyone – even the Taxpayers’ Alliance – will sign up for that. No government has ever managed to do it, though, any more than they have been able to make it rain only at night.

Enrique

But as you yourself said, the gap between tax and spending at the moment is largely a result of the recession, not of public services being expanded beyond what was reasonable to the public.

Putting up tax is never popular (Though in 2001 the UK public voted overwhelmingly for parties committed in writing in their manifestos to higher tax)

But neither is cutting education or policing. And the recession more than anything else has forced that choice on us.

What it is though, is a choice. To put up tax or cut spending. (Or more accurately to decide degrees of each).

And Labour, though it played it’s part in the recession, is not to blame for a collapse in global banking that triggered the recession that has led to a Tory government choosing to focus on cutting services.

59. Luis Enrique

m4e

the gap between tax and spending at the moment is largely a result of the recession, not of public services being expanded beyond what was reasonable to the public

yes, but regardless of the cause, we have a level of public sector spending that would never have been chosen if the Labour government had known what we know now. And, whilst some of the gap between tax and spend will close as (hopefully) the economy recovers, not all of it will (that’s what all the talk of a structural deficit is about). I agree, we must choose the mix of tax increases and spending cuts. And because I think the mix will involve some cuts, that’s why I’m arguing that the people are right to think that cuts are inevitable, partially because, with the benefit of hindsight, Labour set spending too high. This is only a small amendment to Sunny’s position, as I understand it. I don’t really have a view on the extent to which Labour is “to blame” for having done so.

What it is though, is a choice. To put up tax or cut spending. (Or more accurately to decide degrees of each).

That’s true, but the British have never accepted taxation levels in excess of 40% for long. It’s a perfectly valid position to call for much higher taxation to pay for unprecedented levels of public spending, but I would doubt that it’s an electorally popular one – that, after all, is why Labour paid for their unprecedented levels of public spending by borrowing.

Enrique

I have to be honest and say I’m not convinced about talk of structural deficit. The deficit was simply not very large before the recession. And that suggests the structural bit, rather than cyclical bit, is a small proportion of the total.

Tim J

again, I’ll stress that in 2001 the Lib Dems and Labour had commitments to tax rises in thier manifestos and said it during campaigns. And the public backed that.

The electoral system tends to warp that public outlook when it comes to electoral results. But people readilly voted for higher spending and the taxes that came with it.

again, I’ll stress that in 2001 the Lib Dems and Labour had commitments to tax rises in thier manifestos and said it during campaigns. And the public backed that.

Although one of the key pledges Labour made in 97, and 2001 and 2005 was not to raise income tax. I don’t disagree that some tax rises can be popular (especially if they apply to other people). I just doubt that people would run joyfully into the arms of anyone promising substantial additional tax rises just now.

Tim

The only unambiguous conclusion we can take from the recent election is that the electorate were unwilling to run enthusiastically into the arms of any party.


Reactions: Twitter, blogs
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    RT @libcon: The Labour left's response to Tory cuts hits the wrong target http://bit.ly/cMTP8G

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    RT @libcon: The Labour left's response to Tory cuts hits the wrong target http://bit.ly/cMTP8G

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