What to make of this year’s Autumn Statement?
The Autumn Statement is important. It will attempt to frame the economic debate of the General Election campaign. It is likely the coalition will use the supposed success of austerity to pursue a small state agenda; to justify the fact that we are living in the most unequal society for over a century and to overlook the increasing dominance of the super-rich.
Labour and the left cannot allow this framing to continue. We need to frame the debate differently, concentrating on the scourge of the modern economy - growing inequality. And no more so than in the UK where we are experiencing the longest fall in real living standards since the 1870s. A new consensus is emerging that inequality is deeply damaging to growth - from the IMF, the US Federal Reserve Bank, Barack Obama, Professor Thomas Piketty, Davos, and Ed Milliband. Investment and green growth, a strong public sector, and policies for wage growth, including a stronger institutional framework for trade unions and collective bargaining, can challenge inequality and lead economies out of the threat of long-term stagnation and further crises.
We need to focus on our agenda, but we also need to challenge austerity. Osborne should admit that austerity has failed even on its own terms – as evidenced by the growth of UK debt by £100bn to £1.4tn. That GDP per head is still lower than its pre-crisis peak shows the weakness of the economy. It is widely recognised that it was only because austerity was eased after 2012 that growth was achieved again, and that both debt and deficit are not higher.
But while Osborne’s hypocrisy is staggering, we should avoid drifting into mainly attacking his failure to meet deficit and debt targets. That would be to accept the coalition framing. The British economy is fragile and unbalanced. The world situation, especially the Eurozone (dominated by fiscal conservatives), is deeply concerning. Rapid reduction of the deficit at this time is economic illiteracy, and eliminating debt makes as much sense as banning all mortgages would for households. At a time when interest rates are near zero and quantative easing is no longer possible, this is madness; and it greatly increases the danger of a return to recession.
We need to make the common-sense case for using fiscal stimulus to protect the economy when necessary; for tax increases and public investment to grow our infrastructure and economy, and for more equality so that welfare spending automatically reduces. Reducing the deficit through growth and rebalancing taxation as a long-term objective is fine - but only if the economy permits us to do so without drastically reducing living standards. This argument can be won, but only if it is made.
Because austerity was stealthily eased back over the last two years, many now underestimate the impact of the planned cuts over the next Parliament. £48bn of cuts will be so harsh that whole departments at national and local level will no longer be able to function. Welfare spending cuts far higher than the current Parliament will be devastating. The post-war welfare state as we know it will be wiped out. It will be a catastrophe.
Unfortunately Labour has too often accepted the coalition narrative, lacking confidence in winning the argument. And ironically, Labour's plans could be substantially different from its rhetoric. In its briefing, “In the Balance,” the Resolution Foundation analyses the broad fiscal plans of all three parties. They suggest that the Tories lie at one end of the spectrum with £37bn of cuts in the three years from 2016/17, whereas Labour lie at the other end. If Labour seeks balance (and exclude investment) at the end of the Parliament, they would require cuts of just £4bn. Of course it is difficult to draw definitive conclusions as the economic plans for all three parties are sketchy so far.
Regardless, it is clear that Labour is planning to balance the deficit in a single parliament, which is disappointing, arbitrary and unnecessary. If GDP growth was very strong this could make sense, but in current circumstances and more likely scenarios, such a target is likely to damage the economy. Far better to accept the arguments of so many mainstream economists: openly reject ideological austerity and instead argue that the fragility of the economy requires a common-sense approach; to prioritise growth in living standards and investment over false shibboleths like the deficit.