Unemployment fell by 33,000 in the three months to January and remains below 2.5 million, 500,000 less than economists predicted. Unemployment is around 2 per cent lower than in the US or France.
It could have all been very different, though, if Britain had pursued George Osborne’s slash-and-burn approach to economic management.
This election is being framed as a ‘choice’, for good reason. In the blue corner, the mantra is cut now, whatever the consequences, and balance the budget with big spending cuts. In the red corner, the strategy is to halve the budget deficit in four years, being careful not to choke off growth. To cut the deficit, Labour proposes a balance of tax increases and spending cuts – the burden should not be borne by those who use public services alone.
If you want an idea of how important the choice is, just look back to the recessions of the 1980s and 1990s. Unemployment reached three million on both occasions – communities are still scarred today.
Through the recession
The recession has been tough, the worst global downturn in 60 years. But the government has done all it can to support the economy and jobs, limiting redundancies, business closures and home repossessions.
The story of a young woman, Kelly, and her family sums up Labour’s approach and focus through the recession. Kelly’s husband has been out of work for six months, while she has worked part time at the same place for the past six years. Faced with losing their house, the government stepped in and has been paying the mortgage interest. And, although money was tight, Kelly did not give up her dream to go to university and is now the first in her family to do so. Kelly receives grants and does not pay to attend. They also receive childcare help, which means her husband is still able to keep job hunting and is now getting help from the job centre to start up his own business.
As Kelly told me: ‘The Labour government has helped me and my family. Without its dedication to our working-class family, and those in need of it most, me and my family would have lost everything. I am also grateful that during this economic crisis we have come out on top and are still working up to a better life.’
As Kelly’s story illustrates, Labour has sought to ensure it is not the poorest who pay the highest price for the recession. The VAT cut, increased child benefit, support with mortage costs, pension credit and winter fuel payments have all helped families and pensioners.
Labour has provided support for businesses, too, including loan guarantees, tax deferrals and the car scrappage scheme. Cuts in interest rates and quantitative easing have also got money into the economy when it was needed most.
Economists agree that the measures have made a difference. As the leading economist Professor David Blanchflower puts it: ‘A year ago I was particularly worried that unemployment would rise to well over 3 million. Fortunately, it is nearer to 2.5 million, primarily due to the prompt action of this government. VAT was cut, there was cash for bangers and help was extended to the unemployed in general, and to the young unemployed in particular, and these policies seem to have worked. Without this intervention unemployment would certainly have been well above 3 million by now.’
Balancing the Budget
The cost of supporting families and businesses through the recession is a budget deficit of over 12% of GDP. But without this increase, the recession would have been more painful and protracted – and in the long run would have cost taxpayers more as the economy would have taken longer to recover.
Over time, as the recovery is assured, our borrowing must fall. Government, like the rest of us, ultimately has to live within its means. That is why Labour has committed to halving the budget deficit in four years. By getting the economy moving again, targeted tax increases and cuts to public spending, this is achievable and credible.
While Labour has supported the economy through the recession, the Conservatives want to cut spending while the recovery is fragile. This approach goes against all the evidence. As Dominique Strauss-Kahn, managing director of the IMF, said: ‘We recommend erring on the side of caution, as exiting [from stimulus plans] too early is costlier than exiting too late.’ Cutting spending during the downturn risks plunging Britain back into recession.
But Osborne is not listening to the evidence. While the Conservatives stick with their siren call – ‘cut spending now’ – and promise an ‘age of austerity’, putting jobs, savings and homes at risk, Labour is ensuring a strong and sustainable recovery.
Under Labour, to reduce the deficit, people earning over £150,000 are now paying a 50% marginal tax rate, pensions relief for higher earners will be reduced and a penny will be added to national insurance to maintain frontline health, education and policing spending.
The priorities of the Conservatives are very different: their number one commitment is to raise the inheritance tax threshold to £2m, a tax cut of £200,000 for the richest 3,000 estates – one of the most regressive, anti-egalitarian tax changes ever proposed.
Under the Conservatives, the burden of reducing the deficit will fall on families with middle and low incomes – those least responsible for the crisis. Indeed the Conservatives are explicit about removing support from middle-class families by abolishing the working tax credit to families earning more than £31,000 and scrapping the child trust fund for children whose parents earn more than £16,000.
Perhaps most worryingly, the Conservative’s numbers simply do not add up. One of David Cameron’s real weaknesses is that he wants to be liked – by everyone. He promises a tax cut here, for married couples, and another one there, on inheritance tax. And a bit more spending, too, for example on more prison places. But you cannot promise, on a nod and a wink, everything to everyone. There are going to be tough decisions to be made in the years ahead – Cameron has demonstrated he is not up to making those choices.
Tackling the causes of the crisis
As we respond to the financial crisis, we must not allow the reckless, greedy behaviour of a few to put the rest of us on the line for so much again. Under Labour, there will be no return to business as usual for the banks.
Labour is leading the national and international debates on financial sector reform: on bank recapitalisation; the 50% tax rate on bank bonuses; more powers to tackle excessive pay and enhanced supervision; cracking down on tax havens; and increasing liquidity and the capital that banks put aside so they cannot take such huge risks again. Labour now leads the way on an international insurance fee or transactions levy on derivatives and currency trading.
Choices
The system we build in the wake of the financial crisis is up to us. Under Labour, financial markets will be structured on the premise that the banks cannot push the limits as far as they want; that self-interest does not automatically trump collective interest; and that the financial system is there to provide a service for customers, not a blank cheque for those in the boardroom. In place of the casino capitalism of the past, Labour will build a more principled capitalism.
The Conservatives say let markets decide and that there is no choice. But there is. Their choice is an age of austerity for people on modest and middle incomes, while those on the highest incomes are not asked to contribute more but get a cut in inheritance tax instead. Our choice is a different one: a growth strategy to build the jobs of the future and a new age of aspiration and fairness, paying down the debt and tackling excessive risk taking in the city. It is a fundamental choice on what sort of country you want Britain to be. It is the choice we will be making in just a few weeks’ time.
Photo: Stefan Rousseau/PA Wire/Press Association Images