In the Black Labour

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A DISCUSSION PAPER

In the black

LabourWhy scal conservatism and social justice go hand-in-hand

Graeme Cooke, Adam Lent, Anthony Painter & Hopi Sen


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There is nothing right wing about scal conservatism. It simply means that those rom whom the

state borrows can have absolute condence that it will meet its obligations to repay, come what may.

This means adopting an approach which is careul, risk averse, and cautious. More importantly,

Labours ability to advance social justice can go hand-in-hand with a clear, scally conservative

stance.

Nor does scal conservatism mean ailing to respond to an economic crisis. As we on the centre-let

are not nave enough to think markets are perectly stable phenomena, we recognise the state will,

on occasion, be required to step in to prevent collapse. While there is a major absence o private

sector demand, the government must ll the gap; not just to keep the economy growing but to

protect long term scal sustainability.

But being in a position to respond to a crisis requires preparation, usually by avoiding decits in

the good times. As Ed Balls said let-o-centre governments need to avour tough scal policy

because rom time to time, i economic crises occur, you may have to relax that. But you have to

build up the credibility and the means to do so. In other words, eective Keynesianism requires

scal conservatism.

Yet the challenge the centre-let aces is not just the immediate crisis in demand, but about our longer

term approach to public nances. The debate about this governments current scal policy may be

raging but ar less attention has been paid to what comes next. The Ofce or Budget Responsibility

(OBR) has made clear that even i the structural decit is closed, Britain aces a major scal challenge

over the coming decades as a consequence o demographic pressures and alling tax revenues. All

the parties need to calibrate their plans to this reality, including Labour.

In this context, it is important to recognise that scal conservatism need not imply an absolute limit

on the size o the state nor the level o spending but it does recognise that these are constrained by

the wealth o the nation and the productivity o the economy. This insight has three very signicant

consequences.

First, extra resources spent by the government must be backed by tax revenues and the ruits o

economic growth. I we want to collectively und something, weve got to collectively pay or it.

Second, spending is not the only way to secure improvements

in our country and the lives o its people. In act it is oten the

least good way to do so. Structural or institutional reorms, which

aect the causes o inequality and injustice, are oten better and

invariably more enduring.

And third, conronting the reality o limited resources reveals priorities as the true currency o politics.

In the coming years, the central distinctions will be about what the political parties choose to spend

scarce unds on as much as the total they plan to spend.

So, Labours principal political task is to demonstrate to people, as well as to convince itsel, that it canbe trusted to govern in this era o scal constraint and that it has a compelling project or economic

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2 | In the black Labour | Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen | December 2011 www.policy-network.net

Introduction

Conronting the reality o limitedresources reveals priorities as the truecurrency o politics


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and social reorm within that demanding context. The reality o our scal situation means that any

uture Labour government must look to reorms rather than spending to advance centre-let goals.

We recognise that some will see an endorsement o scal conservatism as an acceptance that the

journey towards greater social justice will have to wait. We disagree. It does mean there are not

unlimited resources but then that is always the case. But it also compels us to be much clearer about

what is most important (and what less so) and much more ambitious in advancing our political goals

on a ar broader canvass.

There are two major imperatives to a centre-let scal conservatism: to lock in scal sustainability

in the long term; and to advance centre-let goals in the context o limited resources through clear

priorities and bold reorms.

As governments across the world come to terms with the impact o the nancial crisis, a picture

is emerging o how scal sustainability can be guaranteed or the uture. This is based on three

elements: a clear short term goal to address the current scal crisis; a new settlement to maintain

sustainable public nances over the longer term; and a strong institutional ramework to ensure

governments stick to their scal goals.

The Coalition Governments immediate goal is to clear the structural decit entirely by 2016/17,

ollowing revisions in the Autumn Statement, and to have net debt alling by the end o the current

Parliament.

As or Labour, it remains committed to Alistair Darlings

plan to halve public sector net borrowing by 2013/14 rom

its projected peak in 2009/10 (and have net debt alling as

a proportion o GDP by 2015/16). However what is unclear

is how or when Labour proposes to eliminate the remainder

o the decit (structural or otherwise) or, indeed, whether it

would.

Taxpayers, voters and lenders to the British state eel they have a right to know what the main

opposition party would do about high levels o borrowings and when they would do it by. Satisying

this demand is undamental to being regarded as a credible alternative government. But this is

not simply a matter o electoral calculation: certainty and stability are genuinely prized economic

possessions which HM Opposition should uphold as much as the Government.

Some may eel that opposition parties should avoid being pinned down on their plans too early

in the electoral cycle. While this may be good political advice under normal circumstances, in the

current case it is highly questionable. It is precisely the vagueness o Labours position over its short

to medium term plans or the decit that conrms the voters worst suspicions about the Partys lack

o commitment to addressing the scal crisis.

Beyond these concerns with the current scal crisis, there will be a strong imperative once thedecit is cleared to adopt new targets to control public spending and ensure scal sustainability

an imperative Ed Balls himsel has acknowledged. It is now widely accepted that while the rules

www.policy-network.net3 | In the black Labour | Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen | December 2011

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It is precisely the vagueness o Laboursposition over its short to medium termplans or the decit that conrms thevoters worst suspicions

Ensuring long term sustainability: clear goals and tough accountability


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www.policy-network.net5 | In the black Labour | Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen | December 2011

policynetworkdiscussionpaperevery line o public spending, with nothing o the table but based on a clear ocus on shiting unds

towards jobs and growth.

In addition to tough prioritisation, the other

consequence o iscal conservatism is to

acknowledge that social justice is advanced

ar better by bold reorm and well-targeted

investment than public spending: this applies to the public sector as well as the private. Ultimately,

this will orce the let to articulate a dierent conception o the state.

Even in times o scal restraint there is a central role or the state as a generator o greater wealth,

equity, and security. But these benets will have to arise through a policy ramework designed

to deliver a regionally and sectorally balanced economy. Labour should be shaping this debate

by developing detailed policies on how ideas such as a state investment bank, innovation-ocused

public procurement, reormed taxation, stronger consumer rights, and greater competition can be

used to give the UKs most innovative entrepreneurs real support while also improving pay and social

mobility. In short, Labour needs to take a orensic and honest look at how a pro-active growth and

innovation policy can coincide with the goal o a airer economy.

Underlying this is the recognition that welare mechanisms are never preerable to a genuinely

productive and balanced economy that raise the living standards o those on low and middle

incomes. In the coming decade, the extra resources New Labour ound to compensate or market-

based inequality wont be available. So deeper and more ambitious reorms must be conronted to

ensure the economy works or working people.

The path outlined here is dierent rom much o the current polarised debate. It accepts the need

or both scal conservatism and economic activism. It combines certainty and sustainability in the

public nances with the construction o a balanced, innovative economy with equity and security as

key goals. Unlike many o the policy options now on oer, it aims to combine a long term vision o

a decent society while being honest about the very challenging scal and economic context within

which that vision must be achieved. Labour, we believe, must now make that vision and that honesty

its own.

Graeme Cooke is visiting ellow at the ippr. He writes here in a personal capacity

Adam Lent was ormerly head o economics at the TUC and is an associate ellow o the ippr. He

writes here in a personal capacity

Anthony Painter is a writer and commentator. He is author o the orthcoming report: T his human

business: why the new bottom line is social

Hopi Sen is a ormer head o communications or the Parliamentary Labour Party. He is now a

consultant, writer and commentator whose work has appeared in The Guardian, Independent, Policy

Network and Renewal. He also blogs at hopisen.com

Policy Network

Ultimately, this will orce the let to articulate adierent conception o the state

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In the Black Labour