How Labour should respond to the budget’s pensions shake-up

Labour and the Tories share a perverse incentive to talk down the economy just at the time that economic growth begins to soar. George Osborne and David Cameron, acutely aware that their strongest trait in the eyes of the public is the ability to take tough, unpopular decisions in the long-term national economic interest, have a very clear incentive to elongate the timeframe over which such tough economic decisions need to made. Their greatest fear is that, just as Winston Churchill lost the 1945 election despite winning the war, the recovery is ‘banked’ by the electorate, the crisis managers thanked and dispatched, and a new team – in the shape of Labour – brought in for the new post-crisis era.

Hence the shift in rhetoric in last month’s budget away from immediate perils towards the long-term nature of their plan. The key budget message was that future gains will only be realised if we ‘stick to our nerve … because there are 20 years of catching up to do’. This new, elongated plan consists of structural change to build ‘resilience’ and to ‘consolidate’ the gains made, the implication being that the job in hand can only be considered complete when deep internal scars have been healed. Which, as luck would have it, cannot happen in just one parliamentary term.

Meanwhile, the Labour party is nitpicking the Conservative party’s premise that the public will reward its ability to take tough decisions by attempting to undermine the idea that it was a good idea to take decisions that were so tough in the first place. While it is probably true that the economic recovery of the first half of 2010 was at least partially halted by consumer terror in response to the frightening talk of austerity and cuts following the general election (although the government will blame the euro), it is a different question as to whether, come 2015, the public will be interested in the events of a previous political cycle. And, while the economic historians will be amused that this slower-than-expected recovery meant the public finance out-turns ended up being nearer Labour’s proposals in 2010 than the Tories’ original targets, to repeat the mantra that the cuts were too far and too fast is, again, pretty much yesterday’s news.

The economy, meanwhile, is growing faster this year than in any comparable country and, with business investment now poised to accelerate, there is no reason to think this will not continue for some time. Investment will drive up productivity, which is linked to real wages, and, as consumer confidence and asset markets recover, interest rates will soon be on the up. It is also quite possible – and, in my view, likely – that official estimates of the structural deficit will be altered in the next year, making the government books look far closer to balance. But, most importantly, if you ask households or businesses whether the economic outlook is better than it was a year or two ago, you get a strong affirmative.

Faced with this indisputable truth, the parties are confused. When Labour admits progress, albeit in a sometimes begrudging tone, it challenges the government on the distribution of rewards, scoring points on cost-of-living arguments. The government matches this blow by blow in a defensive marking manoeuvre while simultaneously attempting to portray this, the fastest economic growth in my six-year-old child’s entire life, as no more than cautious steady progress towards a higher goal.

The problem is that neither a frozen energy bill nor the prospect of sending the banking sector to the competition authorities does a life-changing policy make. While any initiative that makes people’s wages go further will not be unpopular, it is small change compared to the innate desire of people and families to be able to better themselves, both in their own foreseeable future, and to secure the future of younger family members.

Incidentally, what makes me Labour is my very strong belief that the previous sentence is not simply a mantra for the so-called ‘aspirational middle classes’ but is also the case for people who identify as working class, that it is the entire raison d’être of the trade union movement, and that it justifies state action.

So, as some of us have been arguing for a while, we should get away from this language of income and costs, important though they are to daily life, and focus instead on the distribution of financial and other assets, including education, reputation and networks, because it is that which correlates more closely with power and opportunity. The chancellor stole a march on Labour with his pension reform proposals, which demonstrated a deep understanding of people’s relationship with their personal savings.

But there is more that can be done in this space that would chime closely with Labour’s values. We should dust off the asset-based welfare textbook, learning the lessons of child trust funds, the Savings Gateway and individual learning accounts, to use the power of time to enable the most vulnerable to take control of their own personal balance sheets. And, at the real bottom end of the pile, for those with negative assets (debts) we should use the concept of household solvency – not simply interest rates – to determine how easy credit should be regulated.

The key to next year’s election is as follows: continue to rein in public spending for the foreseeable future. Debt levels need to be halved to back where they were before the crisis struck. But, rather than confining talk of resilience and consolidation to the public finances, the party that wins will be the one that uses the improved economic environment to give people the tools to erect strong buffers in their own lives as well, regardless of their background.

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