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Discuss 40 years in politics with David Blunkett/Economic policy

23rd January 2012

Hi all,

Following the very positive response to my unorthodox comments last time on the EU, this one is going to grasp the thorny nettles of the economy and the political dilemmas which get in the way of intelligent discussion. But first an invitation and a reminder:

1. Discussion with David Blunkett

[The meeting will be held at 7.30pm on Thursday 2nd February at Inham Nook Methodist Church in Pearson Avenue, Chilwell, Nottingham.]

I'd like to invite you to an evening discussion with David Blunkett. He's going to be focusing on Labour's alternative to the current government, but also reflecting on his life in politics over the last 40 years. I'll be chairing the meeting and contributing my own comments. In addition, there will be ample opportunity to ask questions about anything you like. David is stimulating and frank and has always been committed to the issues of making British life better (rather than merely winning elections. Ironically, although he's blind, I found he was almost the only Minister to add personal notes to official civil service-drafted replies, often drawing on his own experience in the tough Sheffield environment where he grew up.

The meeting has a dual function: it's also a fund-raiser. In the run-up to the last General Election, we were outspent by the Conservatives in Broxtowe by a 3-1 margin. While there are limits to how much electoral success money can buy (the swing from Labour in Broxtowe was once again one of the lowest in England, even though we did just lose the seat), it's obviously unsatisfactory if one side can send out much more campaign literature than the other. I'd like to invite you to contribute £5 (or £2 if you're not currently employed) on the evening – more if you can afford it! – to help redress the balance and level the playing field next time. If you can't attend but would like to contribute, you can find a donation button on our website www.broxtowelabour.com.

2. Field Farm feedback – still worth commenting

Although the official deadline for the consultation has just been reached, I know from experience that late feedback is considered until the planning committee actually meets. So if you'd like to respond and haven't yet, please see tinyurl.com/fieldfarm .

3. Politics and the economy

Given that Ed Balls has said that we can't promise to reverse the Government's spending cuts, many people – notably some union leaders – have been asking whether Labour actually has a distinct economic strategy? Does Labour's policy amount to doing much the same, just a bit less harshly?

This misunderstands what Balls said (essentially that we can't credibly promise now what we can do in 2015 when the economy may be very different from now), but there are some genuine dilemmas that I'd like to explore.

First, briefly, about debt and deficits. As I've written before, the widespread belief that we have or had an unusually high debt level is simply wrong. In 2007, just before the banking crisis, the key debt:GDP ratio was lower than in 1997, when Labour first took over. It remains lower than most countries – it is, for example, better than Germany's. That's why we are not yet under severe market pressure. We do, however, have a deficit problem (debt is what you owe; deficit is the annual increase in what you owe) – our deficit is higher than most countries, because the size of Britain's financial sector meant that a bigger banking bailout was needed than in, say, Germany. If that isn't addressed, we *will* eventually have a debt problem.

The dilemma is that we also have a recession, and recessions reduce tax revenue and increase unemployment payments, making deficits worse. If the deficit is tackled by severe cuts, as the Government is doing, the recession deepens and we risk ending up making the deficit worse – which is what happened in the 1930s. That's the reason that it now looks very unlikely that the Government will reach its target of eliminating the deficit in this Parliament. There is an entirely separate argument about each individual cut, but the economics of cuts during recessions are generally that they're unhelpful and simply reduce everyone's standard of living without solving the problem.

On the other hand, we can't just indefinitely run a deficit and hope for the best. So the challenge facing every government is to find the `sweet spot' (or `less sour spot' might be a better description) of a level of cuts or tax rises that reduce the deficit without depressing the economy.

Whether that actually exists is really not clear: every government is groping for it. But plainly some cuts and tax rises hurt the economy more than others – from the purely economic viewpoint, the abolition of the regional Business Link advisory service network for small business is probably a lot worse than, say, reducing the coastguard service. Cuts that affect poorer people have a more severe impact on the economy because people on low-incomes normally spend what they get (feeding back into then economy), whereas someone who is already wealthy may spend the same whether their current income rises or falls.

In responding to this, Labour has two difficulties. One is that most people have bought the "Labour left us in unmanageable debt" narrative, so by disagreeing we look as though we're in denial – yet we can't really apologise for something that didn't happen. That issue, however, is historical, and by 2015 many people will have lost interest in arguing about who did what when. More seriously, because we believe that the Coalition's programme will actually shrink the economy, anything we promise in today's terms may be unrealistic by 2015. Really we'd like to fast-forward to 2014, by which time we'd have a concrete situation to talk about.

Hence the complex message –

(a) we don't agree with the scale of the cuts, and believe they will shrink the real economy.

(b) We don't agree with many of the specific cuts, such as reductions to policing, the damage being done to the disabled and low paid, and the squeeze on the NHS, though we accept a public sector wage freeze if it's a genuine alternative to mass redundancies.

(c) We genuinely can't predict what we'll be able to promise to reverse in three years' time: we expect to reverse the most damaging cuts, but promoting a recovery will need to be the first priority.
It's awkward, but it's better to be honest, and if we want to win in 2015 we simply have to be frank about the economy. It's difficult, but worth discussing - I hope that many of you will come to the meeting and tell us what you think!

Incidentally, a Beeston resident has put up a petition which some of you might want to consider supporting: he argues that there should be a review of the German economic model (with more emphasis on manufacturing, intervention and employer-union partnership) to see what we can learn in Britain. To read the text and consider signing, see http://epetitions.direct.gov.uk/petitions/27047

4. Local news

Community activist Richard Macrae is trying to get Neighbourhood Watch alerts to more people in Staplefoird North – if you email him on richardmacrae187@hotmail.com he'll add you to the group to get updates.

Best regards

Nick

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