The challenge facing us today is clear. It is to secure growth and sustain it – keeping the recovery on track and laying the basis for future prosperity. The new Government’s economic policy should be judged on how it rises to that challenge. And it is the same challenge to which Labour must rise. Politics is easier in black and white. It’s tempting to argue against all cuts. But we have to be a credible opposition, preparing for government, not bedding in for years out of it.
It’s tempting to reduce the debate to cuts versus no cuts. That might provide a clear dividing line, but it won’t wash. A year ago, our position was overshadowed by a simplistic debate over investment versus cuts. The country stopped listening to us, with the inevitable result. We have to recognise the need to cut the deficit at the right time and in the right way.
It’s also important to explain why the deficit arose. It is not because we were “overspending”. In fact, for much of the past decade, the Liberal Democrats and Tories frequently called for even more spending.
When the banking crisis hit us, our tax revenues fell dramatically – just as they did in most other developed countries. We maintained spending to stop recession turning into depression. We cut VAT and put more money into the economy. The result: unemployment was lower than people expected. So, too, were the number of repossessions and business failures. Contrary to Tory claims, our plan worked. We will get all our money back from the banks. The economy is growing more strongly than most people thought and borrowing is £10 billion less than forecast.
Having acknowledged the reason for the deficit, we shouldn’t be afraid to acknowledge the need to get it down in a measured and balanced way. If we don’t, whatever else we say will not be credible and will leave a space to be filled by the coalition’s reckless approach.
It is too simplistic, therefore, to reduce the debate to being for or against cutting the deficit. What is needed is a coherent and credible economic argument.
Instead of indulging in the fiction that nothing needs to be done, we must engage in what is a more difficult task: explaining to the public why George Osborne’s approach is wrong and why our balanced approach to securing growth while reducing the deficit is right.
Such an approach will also force the coalition to justify its reckless gamble with growth and jobs. The risk now is that the recovery is derailed – which, far from reducing borrowing, would increase it. That’s the coalition’s choice – and it’s the wrong one.
Our plan, which was to halve the deficit in four years, was tough – but it was right because it addressed the twin challenges. First: to secure growth in the short term. We need an approach that avoids stripping demand from an economy in which private sector confidence remains fragile. That is why I support a consolidation plan consistent with the pace at which the private sector can create jobs as the public sector steps back.
Second: to sustain growth in the future. Government must ensure public finances remain on a sustainable footing to underpin growth in the medium and long term. Halving the deficit in four years would have done that. While its delivery would have been difficult, it could have been achieved.
No Chancellor would choose to raise taxes. However, in order to reduce the deficit, some tax rises – such as the 50p rate for those earning more than £150,000 and National Insurance contributions – were needed. Achieving the halving of the deficit would have also required greater drives for efficiency and reductions in spending on programmes.
Our balanced approach would have encouraged growth and avoided undermining our commitment to a fair society with quality public services. In contrast, George Osborne’s decision to take an additional £40 billion out of the economy amounts to a reckless gamble with growth and jobs. But spending does have to come down. Much of the public spending associated with the recession was always intended to be temporary. We spent more public money to keep people in jobs in both the public and private sector while the economy was recovering. Reducing borrowing too quickly would damage the economy. But getting it down in the right way is in the interests of everyone in this country.
Further, it is wrong to argue that believing the deficit needs to be reduced now amounts to saying we were wrong to invest in the past. Yes, the Labour Government did increase public spending. We did so because we believe a decent education matters, an effective National Health Service is a matter of fairness and because investing in transport, for example, helps to build a strong economy. We spent more money building new schools and hospitals because they were needed, while investing in a much-neglected rail system and putting more policemen and women on the beat to keep people safer on the streets. And we spent money getting people back into work. That was a sensible investment.
One of the most pernicious myths in politics is: “They are all the same.” It is imperative we are not painted into that corner. But it is quite possible to argue that the deficit should be reduced while maintaining clear water between Labour and the Tories. To suggest that any acknowledgement of cuts makes us both the same is wrong. We never have been – and never will be – the same, as I fear the country will find out in the coming months and years. Put bluntly in the current context, there is a very big difference between our approach to cutting borrowing and the approach of the new Tory Government. There are differences of scale, priorities and – above all – intent.
Make no mistake, my successor at the Treasury and his new-found Lib Dem friends are not pursuing policies borne out of necessity, but ideology dressed up as necessity.
Alistair Darling is the Shadow Chancellor and Labour MP for Edinburgh South West
