Before the summer I said that we are now the underdogs in politics.
I posed the question whether our response to that fact was to give into
defeatism or to fight back.

I know what the answer will be from
our friends in Progress. It is not a question of whether we fight back
but how we fight back. That will be the subject of my remarks to you
today.

The economic and political challenges that the global
financial crisis have presented to us are formidable but they are not
ones that we in the Labour Party have been cowed by. They pose us with new tests of our policy
resourcefulness and our character that we should be confident about as
we frame the electoral choice the country will face in the coming year.

This means new policies, not business as usual.

The
first step – the foundation of all that we do – must be to continue to
set out clearly how we are taking Britain out of recession through to
recovery and build the new economy of the future. That means
continuing to provide real help for businesses and the unemployed. It
means actively investing in economic growth for the future. And it
means a responsible plan for paying down debt without eating into the
fabric of people’s lives.

Next, it is imperative that we continue
to be the change-makers in British politics. As modern social
democrats we must constantly rethink the role of the state in
delivering our social objectives in new times.

Finally, we must do more to take the fight to the Tories.

What
has been instructive is how the past year has exposed the limits of
David Cameron’s modernising rhetoric. The veil is being lifted. Their
only answer to the global financial crisis has been one of
retrenchment, regardless of the social consequences, recalling
Conservative governments of the past. It is our job to expose them and
the risk they pose to our economic future and the future of our
frontline public services.

Led by Gordon Brown, Britain has
driven the fightback against the global downturn. Our efforts helped
prevent recession turning into a 1930s Great Depression.

But,
despite signs that the economy is picking up, our work is far from
done. The task ahead is to build the new economy that will emerge from
the global whirlwind that has hit us.

There are three pillars upon which we build future prosperity.

First,
while the freefall in the economy may have been brought to an end, the
effects of the recession are not yet behind us. This is why maintaining
government spending and investment is vital.

We know, for
example, that to borrow the extra pound today in order to keep young
people in work, training and study will save many pounds of extra
public borrowing in future if our society end ed up having to cope
with the social catastrophe of long term unemployment, as we did in the
1980s.

Second, government must actively invest in the economic
growth of the future. It is growth that will be the biggest antidote to
debt and will determine how far and fast we are able to pay it down in
the future.

We need continued government action if we are to
create the right competitive conditions for the UK economy to generate
future jobs.

We are not advocating a return to the mistakes of
centralised planning or an attempt to pick winners. Rather, working in
partnership with business, science and university research, the
government should be backing the winning ideas and technology-based
innovations on which our nation’s future depends.

And, third, a
responsible approach to reducing the fiscal deficit that will not eat
into the fabric of people’s lives. In order to fight the crisis all
leading economies have had to borrow more. The costs of not doing so
would have been colossal in human terms and in the damage done to our
economy, resulting in lost growth for many years to come.

Our
duty is not just to pass on sound finances, but also a strong society,
and secure people, with the capacity to prosper. So we must not lose
our nerve in the face of high borrowing that we have had to take on to
deal with the costs of the recession.

But, of course, there will
be pressures on spending once we are safely through the recession. The
prime minister has said more than once that cutting the deficit will
mean tough choices. The chancellor has already set a plan of how we
will halve the deficit over the course of four years once we are
through the recession.

We will have to prioritise and economise.

The
choices Labour makes will aim to sustain our investment in the nation’s
priorities – an approach of “frontline first”. Our top priority will
be to protect essential services and activities on which the vast
majority of people who, for example, cannot afford private education
and private healthcare depend.

The public can be assured that
Labour’s approach will be based on clear values and principles, in
order to ensure social fairness, promote social mobility, and find the
cash for productive social investments in the nation’s future such as
education at all levels, including early years, and also research and
vital public infrastructure.

Making these choices will not be
easy, especially for a social democratic party so committed to public
services as we are. As we take decisions we must avoid falling into
the political traps our opponents wish to set for us.

The Tories
and their friends are yearning for people to think that because there
is a need for public spending constraint in the future we face an era
of deep, savage, indiscriminate across-the-board spending cuts wh oever
is in power. The Tories contemplate this with thinly disguised zeal
because as a matter of principle they want to create a “small state”.
We, in contrast, will continue to work hard to create the economic
conditions that will enable us to maintain frontline service delivery.

But
we should also not allow ourselves to be painted as a party that is
oblivious to economic conditions. That has never been the New Labour
approach to our nation’s finances under Gordon Brown and it never will
be.

We start from a position of credibility given that the big
success story of British social democracy in the last twelve years has
been the rescue, revival, and rehabilitation of public services as a
vital part of our national life. Britain’s welfare state and public
services survived the Thatcher/Major era – but only just.

Since
1997 Labour has, in effect, saved the NHS, transformed educational
standards and dramatically widened access to educational opportunity.
These achievements are now taken for granted, almost discounted by
those to the right and left of us.

It has led to public service
innovation, with the introduction and dramatic expansion of Sure Start
and Children’s Centres, for example, and modernised the delivery of
existing services with for example, the establishment of NHS Trusts and
academies. And all this has required a huge injection of additional
cash.

The New Labour mantra of “invest and reform” summed up a
policy which has seen public spending on the NHS double in real terms
since we took office. Per pupil funding in schools has also doubled.
At the same time public service delivery has been opened up to a
diversity of providers with a new range of choice for patients, parents
and service users.

This was absolutely the right thing to do for
our country. We did indeed fix the roof while the sun was shining,
remedying the legacy left by our predecessors.

Spending grew not
because increased spending was a political end in itself but because
this was required to correct the historic under-investment we inherited
and to respond to the public’s demand for improved services.

But,
even without the global financial crisis, public spending could not
have continued to grow at the exceptional rates of the past decade.
And having substantially renewed our infrastructure, our school
buildings and the hospital estate, the profile of capital spending will
not need to be the same as the last ten years.

It would not be
right to turn the remarkable and necessary period of catch-up in public
service provision over which Labour has presided into some kind of
eternal doctrine: that social democracy is about high growth in public
spending for its own sake, against which everything else we do is
secondary.

Our 1997 manifesto described the New Labour approach
as being “wise spenders, not big spenders”. This is and remains a core
New Labour principle. We do not believe that we should try to solve
problems simply by throwing money at them. We need to be: “effective
state” social democrats, not “big state” social democrats.

In
this light, and in contrast to the Tories, the defining question for
social democrats in the future is how do we continue to deliver quality
public services in a period of public spending constraint?

We
reject the argument of those on the right who argue that the state is
an obstacle to human freedom and who espouse a vision of the good
society based on a smaller state, shrinking public services and
essential support delivered somehow through the voluntary sector with
top-ups and opt-outs for the wealthy few.

Equally, we unashamedly
reject those who espouse the centralising or controlling state, arguing
that the solution to every problem in our economy and society is to
have more state. What matters is not b ig or small government, but
whether it values opportunity for all, responsibility from all,
fairness across society.

Our conception of the role of government
must evolve yet further. It is clear to me that we must continue to
transfer power to parents, pupils, and patients as we explained in our
policy programme, Building Britain’s Future earlier this year. We must
recognise that the solution to many of the challenges facing our
country will have to be found in the communities in which people live,
working in partnership with public services, rather than an expanded
central state.

We should approach the task with the mindset of insurgents who are restless with the status quo, not incumbents.

In
the initial phase of the Labour Government we gave priority to
centrally driven change through national targets linked to increased
spending. To achieve a quick turnaround in standards there was no
alternative.

Then the emphasis switched to decentralisation and
devolution of power. The establishment of NHS Trusts and school
academies were powerful symbols of this switch.

More recently,
the government has emphasised the role of service guarantees and
entitlements with means of redress available to individual citizens
where services fall short. For example, the right to be seen within 18
weeks in the NHS or offered alternative provision. The right to see a
cancer specialist within two weeks or go private on the NHS. The right
to a healthcheck.

These entitlements, backed up by the offer of
an alternative provider, will ensure that future reforms build on the
improvements of the last 12 years and there will be no going back. Our
plans to create real rights and entitlements are the new frontier of
public service reform.

Labour, then, have always been committed
“state reformers” and should feel no nervousness about the label.
Rather, today’s challenges require us to accelerate the pace of reform.

As
Ed Balls set out last week, this will mean an expanded role for city
academies to ensure that we continue to drive up school standards.
Equally, Andy Burnham sees building on the foundation trust model as
central to a future NHS. We will step up the pace of reform in the
knowledge that we will sustain the national coalition in favour of
public investment and public provision by ensuring diversity of supply
and choice, with services meeting the ever rising demands and needs of
citizens. These principles are key planks of Labour’s plans for the
next parliament.

There is still a large quantum of higher
productivity and improvement in service standards to be obtained from
the massive catch-up investment that public services have received in
the last decade. We expect, and ask for, ever increasing productivity
in the private sector. Now that we have built up the infrastructure in
our public services, the same expectations must apply to the public
sector.

The huge catch-up investment in public services the
government has made during the last decade should make higher
productivity and higher standards possible even in a period of public
spending constraint.

One of the keys to unlocking this potential
is to put greater power in the hands of users over the services they
receive. This means looking at areas where we can extend choice,
diversity of provision and the principle of individual budgets. For
example, we are working to give power to give power to patients through
individual budgets for those with long-term and chronic conditions who
can become expert in managing their own care.

As recommended in
the Darzi report we want to pay for quality, year on year increasing
the proportion of the payments made to hospitals which is linked to
patient satisfaction and quality outcomes.

The focus in Building
Britain’s Future on individual service entitlements can only be
achieved with a new power for frontline professional s to trust their
own judgement in delivering change.

The way forward is not to get
rid of individual service entitlements as the Tories propose. It is to
set a framework that allies these entitlements that the public rightly
expects to the creation of a greater space for our public servants in
how they deliver the services for which they are responsible. These
are boundaries we in Government must respect. If we want innovation
from our public servants we must ensure they have freedom and scope to
achieve it.

Of course, reform is no panacea or easy solution to
tackling the deficit and, yes, sometimes reform costs money. But a
renewed focus on reform must be a core ingredient in the mix if we are
to continue to deliver quality public services in a different climate
for public spending.

I am determined that my department plays its part:

• On student support, we are targeting benefits to those most in need.

•
There will be more shared contributions with government, employers and
individuals each contributing as in skills and university funding.

•
We are working to simplify government as we are committed to do in our
upcoming reform of the skills system and our continued drive for
simplified business support.

• We will decentralise and empower as we will complete the transition to a demand led further education system.

•
And a comprehensive review of the role played by national level
institutions such as HEFCE, the Skills Funding Agency, the Research
Councils, and Technology Strategy Board and their relationship to
central government will have the aim of cutting out overlapping
bureaucracy and duplicated programmes.

So the new economic
context presents a challenge for us and for every Secretary of State in
his or her department. But it also presents a challenge for our
opponents.

Politics is about elaborating alternatives and as we
move into a new stage of the electoral cycle, there will be ever
growing focus on the choice between the parties – assuming the media
ever get round to opening up the debate rather than take the election’s
result for granted.

When, before 1997, Labour moved to the centre
we were able to show genuinely different instincts on tax and spend, on
markets, on trade unions, on public ownership, on defence, on education
and public services.

People knew our values had been adapted to
modern needs. You could not say the same about Cameron’s Conservatives
in 2009. Their instincts, it turns out, have not changed.

The gap
between the early modernising rhetoric of David Cameron and the
entrenched instincts of his party has been exposed in their response to
the recession. Look at what has been kept from the first phase of
David Cameron’s leadership in the past year and what has been thrown
overboard.

Gone is the pretence of public spending not being
sacrificed in favour of tax cuts. Gone is the support for the principle
of tax credits and any meaningful language of concern for the
“have-nots” in society. “Vote blue, go green” has been consigned to the
wheelie-bin.

Kept is the commitment to an inheritance tax
favouring the wealthiest few in the country. Kept is the commitment to
a tax break for married couples even if there is no word on how it is
to be paid for. Kept is the determination to sit on the margins in
Europe, whatever the cost to business and jobs back home.

David
Cameron has followed a policy of concealment, not change. But the two
faces of his Conservative Party are increasingly on show. The one they
want to present to the public of a revamped Tory party. And the other
that betrays the reality of traditional right-wing Conservatism.

Most
critically, a clear choice has opened up between the parties on the
issues that will frame and decid e the next election – the economy and
public services.

Look at the Tories’ response to the recession.
Whilst Gordon Brown and Alistair Darling took the decisive action
needed, their opposite numbers were left floundering. David and George
got the big judgements wrong.

If we had followed the course the
Tories urged on us, the recession would have been deeper and longer,
and the costs to our public finances far worse. We would have seen
Northern Rock, its savers and mortgage-holders, go to the wall. There
would have been no funding for the Enterprise Finance Guarantee Scheme
that has given real help to small businesses. There would have been no
VAT cut to stimulate demand. There would have been no money for the
car scrappage scheme.

It is no use the Tories claiming
different. They opposed the fiscal stimulus and wanted to take £5
billion out of the economy straightaway in the middle of a severe
downturn.

At the G20 finance ministers’ meeting last weekend
there was unanimity that the stimulus should continue. Yet alone, and
in their haste for cuts, the Tories are arguing for its immediate
withdrawal before recovery is fully underway.

To do so when we
are not out of the woods would risk triggering an economic relapse and
would make the problem of tackling the deficit and bringing the debt
down in the medium term more difficult, not less. It shows the risk the
economic judgement of David Cameron and George Osborne poses to the
economy.

The same dogma which has seen them isolated in their
opposition to the economic stimulus is now preventing them from having
anything to say on how an active government needs to play its part in
investing in economic growth for the future. I enjoy having Ken Clarke
as my shadow but not because he has a single fresh policy or new idea
to rub together.

The fact is that a new generation of
Conservatives is now foaming at the mouth with excitement at the turn
of ec onomic events. They believe this releases them from the need to
remake the image of the Conservative Party as a “nice” party with a
genuine concern for fairness and commitment to public services.

It
presents them, instead, with their longed-for opportunity to take
forward the mission that Margaret Thatcher, Nigel Lawson, Keith Joseph,
and Norman Tebbit started in 1979, but failed to complete after 18
years in government. Now they see their chance and it is clear that the
modern Conservative Party – the face David Cameron does not want us to
see – is seizing it with both hands.

If we have learnt anything
in this recession, it is that everyone needs the security of strong
public services and active government, not just the poorest. The Tory
approach to public services is a direct threat to middle Britain and
the services on which families rely.

The consequences would be
savage. That is why the Tories want to sugar the pill. An unspoken
Faustian pact is on offer. The Tories will spend less on public
services. But in return less will be expected of public services. Less
will be required of those who work in public services. Less spending,
less real reform is what the Tories offer.

On the NHS, the
cave-in to producer interests has been craven. They have sided with the
BMA against extended GP opening hours. Difficult NHS reforms
undertaken by the Government have been opposed every step of the way by
David Cameron.

Instead, they want to turn the NHS into one big
quango without any prospect of reform. And they would abandon the NHS
entitlements that Labour has established, including the right to see a
cancer specialist within two weeks of diagnosis. The test for political
parties over the next few years is whether they can make the tough
decisions that protect the frontline. It’s clear from our plans to
create real rights and guarantees in the NHS that we will do this. Why
are the Tories so unwilling? Why do they want to scrap even the most
basic guarantees? That is the question they must answer if anyone is to
believe they are serious about protecting frontline services.

In
schools, the same principle is being applied where the Tories are
proposing to drop the Sats test in the last year of primary school.
Accountability to parents is to be sacrificed in favour of the producer
interest. It’s part of the same unspoken pact.

And the big
claims made for Michael Gove’s school reforms are undermined when the
small print reveals that at the heart of them lies a £4.5 billion cut
to the funding of school building projects.

So there is much at
stake. There is a real choice to be had between the progressive reform
offered by Labour and the ideologically-driven retrenchment and deep
cuts offered by the Tories.

Between policies to achieve economic growth, and the Tories’ abandonment of these in favour of “free markets”.

And
between Labour’s priority of middle Britain and people’s needs for
accountable public services, and the Tories’ desire to cut taxes for
the wealthy few.

But Labour will only win this argument by
demonstrating its continued commitment to fiscal responsibility and
remaining the change-makers in British politics.

That is our task.

So let us start the fight back now.