Three major things I’ve learnt from recent Labour speeches

3:23 pm - June 24th 2013

by Duncan Weldon    

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Following major speeches from Ed Balls and Ed Miliband a couple of weeks ago, the shape of Labour’s economic policy is becoming clearer. Another intervention from Ed Miliband this weekend provided more clarity.

So, what have we learned in the last month? I think there are three key takeaways.

The first is a new emphasis from Labour on the importance of capital spending – an emphasis which makes a great deal of economic sense.

This was evident in Ed Balls’ Reuters’ speech. Whether one uses the multiplier estimates of the OBR, the IMF or any other major forecaster the evidence is clear – capital spending has the highest multiplier. In other words, it is the most effective way to support growth.

One disadvantage of capital spending as a way to support the economy has always been the supposed lag in terms of a lack of ‘shovel ready’ projects. This is less of an issue at present with an obvious, clear and pressing need to build more affordable and social housing and also the convenient existence of the National Infrastructure Plan providing a list of potential projects.

When the challenge is to embed, sustain and accelerate a recovery rather than prevent the economy falling off a cliff, there is a clear case for capital spending over VAT cuts as a form of fiscal support.

Another obvious advantage of capital spending is that it not only boosts growth in the short run through its impact on demand but also can provide longer term benefits. A VAT cut boosts growth, but capital spending also provides some form of longer term asset – be it more houses, better infrastructure or more roads.

The second part of Labour’s emerging policy position is a nod towards new fiscal rules.

This is often presented as Labour accepting Coalition spending plans, but I’m not at all sure this is the case. It is worth remembering that the forthcoming CSR is only taking spending to 2015/16 and, under the current fiscal framework, even more savage cuts are required in the following years.

In many ways the current framework is the worst of all worlds – too flexible to actually ‘deal with the debt’ but too short term to allow any support for growth. It is perfectly possible to design a better framework – one that acts over a longer period, is responsive to the economy and which recognises the key role of growth in getting the debt/GDP ratio down in a sustainable way.

Such a framework might start by targeting lower debt/GDP by, say 2025, as suggested by Nick Pearce (£).

As I’ve often argued – a short term focus on debt risks the UK underinvesting in its future. You can’t cut your way to victory in the ‘global race’ the Prime Minister is so keen to remind us of.

The final element in Labour’s emerging position is perhaps the most important. What is often called ‘responsible capitalism’ but what cools be thought of as ‘supply side reform’. Something I’ve written about at some length over the past year.

It is important to remember that as well as a pressing problem of weak demand, the UK faces deeper problems. Things were starting to go wrong well before 2008 – median wages stagnated, consumer debt rose, the economy was unbalanced. Fixing these wider problems requires more than a new fiscal policy. It needs wider changes to our national business model.

Questions of course remain – what role does taxation play on Labour’s plans? What will their fiscal rules look like? How do they see the role of monetary policy? But the outline of the agenda is now pretty clear.

A longer version of this blog post is at Touchstone blog.

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Story Filed Under: Blog ,Economy ,Labour party ,Westminster

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Reader comments

When those new young labour M.Ps accepted the 74 manifesto did they know reversing the industrial relations act would put labour out of power for a generation, or where they so obsessed with ousting Heath as he was so bad that they thought the way to t the country up and running agin was to get the workers incentives to work by giving in To union barons and letting them become militant, ignoring the disgraceful way they’d acted,at the point that it would lead to a see change that they couldn’t see ,and on sort inflicted Thatcherism on us destroyed themselves,and, put labour out of power for a generation been stopping for a second to think why?!


I can’t answer for the Labour MPs of 1974, but I would suggest that the lesson to be learned from the 1970s is that massive state intervention within a capitalist economy cannot create socialism. Neither is it very efficient. Thatcherism did more of the same but the rhetoric was changed.

Three major things I’ve learnt from recent Labour speeches.
1. Miliband is a worm who will say anything to attempt to get favourable coverage from the right wing press who brainwash the floating voters.
2. Labour will deliver the same austerity with an apologetic simper instead of a Tory sneer.
3. The Labour front bench consists of Balls, Miliband and er….

Personal abuse of Labour front-benchers is cheap and apt to reflect more on the mental incapacity of abusers to engage in informed, rational debate on substantive policy issues.

I’m more concerned over what a Labour government would propose to do about reforming Britain’s banking system, not least since the business and financial press are saying that it is probable another financial crisis is looming because it is challenging for some banks to meet the new, tougher minimum capital requirements and because the prices of government bonds will fall steeply as QE is phased out. Try John Plender in the FT on: The world is still being held hostage by its rotten banks

Btw Ed Balls has much to explain about the regulatory failings in Britain’s financial system which allowed the financial crisis to brew and then burst in 2008. I was sad to read media reports that “greybeards”, like Alistair Darling are to be kept off Labour’s front-bench as Balls doesn’t inspire much confidence IMO.

John Kay in the FT on 26 June 2013: “The UK has gone farthest in the direction of [banking] reform. Not far, and not quickly, but farthest.”

Let us hear from the Labour front-bench what actions a Labour government would take to speed the process of banking reform so as to prevent another financial crisis.

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