Regaining credibility on the economy is key, but just as crucial is how we reform public services
It was a piece of choreography almost worthy of Peter Mandelson, lifted straight from the New Labour playbook circa 1994. The attempt by Ed Miliband and Ed Balls last month to inject a welcome dose of reality into Labour’s internal economic debate was greeted by a roar of anger from the party’s biggest union backer. If the voters had not got what Miliband and Balls were trying to say, Unite general secretary Len McCluskey’s overblown cry of betrayal helped ensure that many more now do.
After hanging around the foothills for too long, Labour has now begun ascending the mountain it must climb to restore its economic credibility. It has done so by accepting what the public has long known: that no government can spend money the country does not have. Asserting its belief in fiscal discipline (notwithstanding the economy’s current need for a temporary stimulus as it slips ever closer to a second recession) was the key to the restoration of Labour’s fortunes in the early 1990s. Many opposed the rigid enforcement of rules against uncosted spending promises and the pledge to stick to Ken Clarke’s spending limits for the first two years which, as Gordon Brown’s chief adviser, Balls pioneered when the party was last in opposition. He was right then, and he is right now.
But this is just the beginning and the task now is for the party to grapple with the fundamental issue that it will face over the next decade: what is its point, and how can it achieve its objectives, in the ‘age of austerity’?
In many regards, Miliband’s recent warning that ‘how we deliver when there is much less money available is going to have to be different to the approach taken by Labour in the past’ echoes the arguments made last year in The Purple Book. He is right that, if it thinks intelligently and radically, Labour can achieve many of its goals even if it cannot – and, indeed, should not – rely on ever-increasing levels of public spending to do the heavy lifting. He is also correct that the social democratic model bequeathed to Labour by Tony Crosland – and which, broadly, informed many of New Labour’s actions in power – relied too greatly on ‘tax-and-spend’ redistribution to curb and correct the excesses of the free market. As Miliband put it: ‘Sometimes in government it felt like … we were spending money to patch up the failures of the economy we inherited.’
One solution, as the political economist Joseph S Hacker has argued, is for Labour to start thinking about how it shifts from redistribution to ‘predistribution’ which pays more attention to ‘the way in which the market distributes its rewards in the first place’. Boosting vocational training, backing banks which lend only in their home region to ease the north-south divide, encouraging greater employee share ownership and, indeed, more employee-owned companies along the lines of John Lewis, might all form part of a useful mix of practical measures to bring this about.
But this is only part of the answer and there remains a gaping hole in Labour’s agenda where there needs to be an argument about the ‘new reality’ as it affects public services. Indeed, the words ‘public sector reform’ were notable only by their very absence from Miliband’s first big speech of the new year. So what could Labour’s leader have said? The Purple Book provides some of the answers. To start, commit Labour to ‘reinventing government’ to ensure that the maximum is wrung from every pound of public spending. Subject all government programmes to a ‘public value’ test with some functions decentralised and others removed entirely. If we are serious about transferring power out of Whitehall to local town halls, abolish the Department for Communities and Local Government, and merge the largely redundant Scotland, Wales and Northern Ireland Offices into a department of the nations.
With money tight, Labour has to demonstrate it will be unremittingly intolerant of failure in our public services. To do that, it must enlist the help of public service users and staff. That is why, as shadow education secretary StephenTwigg has argued, a Labour government would not only raise the status of the teaching profession and improve discipline, but also lengthen the school day and back headteachers who want to dismiss consistently underperforming teachers.
And Miliband should pledge to give people new rights where services are failing. For instance, if schools fail to meet minimum attainment standards for three years running, there should be a competition to bring in new providers. Similarly, parents should be able to trigger competitions for new schools where standards fail to improve. Or Labour could allow parents with children in schools that are officially assessed as consistently poor to receive an education credit worth 150 per cent of what it is costing to educate their child and let them take that to any other state school.
Finally, there is an important debate that Labour needs to have about its priorities for public spending. As the IPPR report Making the Case for Universal Childcare argued before Christmas, increasing the declining rate of female employment – which, after rising steeply for the last two decades, has dropped dramatically since the onset of the financial crisis – is crucial to raising household incomes, broadening the tax base and thus ensuring fiscal sustainability. But, as countries like Denmark, Sweden and the Netherlands show, that requires the availability of high-quality, affordable childcare. Similarly, prioritising social care not only promotes the health, wellbeing and independence of the elderly, but can deliver significant savings in NHS spending.
But this will involve difficult choices: prioritising universal childcare over higher education spending, and redirecting spending from wealthier pensioners – such as that which goes on winter fuel allowance, for instance – to help fund expanded social care. Ultimately, Labour will have to decide whether it wishes to place a greater emphasis on universal public services or universal benefits. Or, to put it more bluntly, does Miliband want to become prime minister so that – whatever the shape of the coalition’s final proposals – he can restore child benefit to higher-rate taxpayers or give all children the best start in life by providing universal childcare? We have edged only slightly closer to knowing the answer.
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