Growing the cake, not slicing it, needs to be Labour’s priority

Labour heads into the general election behind in the polls on economic competence. By May 2015, the gap may well be in double figures. No party has ever won being behind on both leadership and its ability to handle the economy. It is like the prospect of a man walking on the moon at any point up to 20 July 1969. It is not to say it cannot be done; it just means no one has ever done it before.

How Labour responds to the charge that it is the drunk who crashed the car wanting the keys back, or whatever laboured metaphor the Tories adopt, is crucial. As was discovered by frustrated delegates to the National Policy Forum in Milton Keynes in July, no shadow minister is going to give the green light to vague spending commitments. Where there are spending commitments, they are carefully costed and based on reallocated funds from elsewhere.

Labour is committed to creating a budget surplus and reducing the deficit in the next parliament. Its economic team has adopted ‘zero-based budgeting’ as proof of economic rectitude. The shadow chief secretary to the Treasury, Chris Leslie, has launched Labour’s ‘zero-based review’, which outlines the new approach. Shadow ministerial teams will have to report back in spring next year with their plans for each department. This will then feed in to the manifesto.

Of course, without clear principles to guide it ‘zero-based budgeting’ is a totally nebulous concept, a motherhood and apple pie policy which can mean whatever you want. Leslie has recognised this when he argued: ‘How you conduct a spending review says a lot about your attitude towards public services and the value you place on the role that government can play in helping build a better society.’

Indeed, one person’s idea of waste is another’s shibboleth. For example, the Taxpayers’ Alliance Bumper Book of Government Waste includes subsidies to the common agricultural policy, higher-than-the-average public sector pensions, and all benefits paid to people on more than £100k a year. You may consider contributions to the European Union, teachers’ pensions and universal benefits a ‘waste’, but that is a subjective political judgement, not a clear-cut economic case.

Labour must apply its own values to the eradication of waste and inefficiency. Big-ticket items such as High Speed Two, the renewal of Trident, the international aid budget and rail subsidies will have to be debated and justified. Leslie has spoken of the need to ‘declutter’ public services, culling the extra layers of management and duplication which have accreted over the years. There are also some bold ‘machinery of government’ decisions which can be made: the Department for Culture, Media and Sport and the Department for Business, Innovation and Skills could be subsumed into other departments. You could have a firesale of government assets such as the Queen Elizabeth Conference Centre, or some of the motorways. The government owns nearly 14,000 buildings and plots of land, including 40 laboratories and 18 museums. Do we really need as many?

Some decisions will cost money in the short term to save in the long term, such as Andy Burnham’s proposed ‘whole-person care’ in the NHS. A Labour government would need to apply strict tests of economic efficiency and social justice to all such decisions.

But the bottom line is that ‘zero-based budgeting’ alone is an insufficient answer either to Labour’s lack of economic credibility or the question of how to reconcile social justice with economic efficiency. As Labour learned during the 1990s, the only way to tackle injustice and an absence of opportunity is to get the economy growing. Growth is the only answer. You can slice the cake differently, or you can miss out a few of the ingredients: these things do not alter the size of the cake. Labour’s mission is to create the conditions for modern manufacturing, world-class services, booming trade and a flourishing science base.

Fostering growth should be the guiding principle of the zero-based review. That means radical institutional reform so that we devolve economic power and encourage inventors, entrepreneurs and business leaders. Andrew Adonis has helpfully pointed the way in his recent report. The authors of the Purple Book have laid the path. Enlightened ministers such as Chuka Umunna and Liam Byrne are using the right language.

It also means picking priorities. As the authors of the In the Black Labour pamphlet argued in January 2012: ‘Labour’s criteria for spending choices should be based on a simple question: will a spending option directly boost short and long-term growth and create jobs? This may mean very constrained funding for healthcare, pensions and welfare for the foreseeable future. It’s tough, but the alternative is ducking the genuine decisions nearly every government of an advanced economy currently faces.’

A zero-based review animated by a race for growth could help Labour in its principal task over the next nine months: to prove the majority of the public wrong and not only be competent on the economy, but brilliant.

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Photo: Roxanna Salceda