To win in 2015, Ed Miliband not only has to set out a credible governing
prospectus; he must demonstrate he fully understands Labour’s past mistakes.
Mr Miliband has been coy about admissions of error on economic management,
naturally preferring to castigate Britain’s Coalition government for
overzealous austerity driving harsh cuts in the social fabric. Yet voters
will only listen to Labour if they sense it has learned from its past,
including the previous government’s complicity in the financial crash and
In fairness, the Labour leader told his party’s National Policy Forum in July
there would be no repeat of the lavish spending pumped into the public
sector after 1997. Social democracy would have to live within its means,
promising reforms of markets rather than a remorselessly expanding state.
There has been an admission that New Labour was too lax in its regulation of
the financial sector, terrain on which the opposition feels emboldened given
its determination to go beyond New Labour’s proximity to private sector
vested interests. Neither Mr Miliband, nor his shadow chancellor, Ed Balls,
have been willing to articulate a more balanced, measured critique of the
1997-2010 years, leaving the Coalition free to define Labour’s record as one
of failed “boom and bust”. George Osborne has constructed a new political
reality in British politics, in which Labour is entirely to blame for the
mess we are in.
The reluctance of Mr Brown’s former allies to admit fault is understandable.
Both Miliband and Balls were, after all, senior players in the UK Treasury
between 1997 and 2005. They served subsequently as Cabinet ministers with
collective responsibility for the government’s economic policy. Moreover,
they might reasonably conclude that voters are interested in their ideas for
the future, rather than excuses about the past.
But reticence about Labour’s record of economic stewardship will come back to
haunt the leadership, just as it did in the 1992 election. For one, voters
aren’t daft: they acknowledge that the crisis was largely manufactured
outside the UK. Nonetheless, the suspicion is that the British economy was
left unusually exposed. A moment of mea culpa is required demonstrating that
Labour is willing to “concede and move on”. The leadership’s inability to
talk about the past means the debate about the previous government’s
achievements has been conceded.
The result has been a politically and intellectually enfeebled opposition. The
Coalition has missed every single one of its fiscal targets and spending is
higher today than in 2010, but austerity has been politically advantageous
for the Conservative Party. Labour has not yet earned from voters what the
late political strategist Philip Gould would deem “permission to be heard”.
A forensic but nuanced critique of Labour’s record would acknowledge that it
wasn’t merely that New Labour fell in love with the City of London.
Regulation of the financial markets was too light touch, reflecting the
conversion of a centre-Left party to absolute faith in the self-correcting
properties of markets. Mr Brown eagerly proclaimed the end of boom and bust,
as if globalisation had permanently reshaped the rules of the economic game.
The 2008 crash was a stark reminder that in a world of integrated markets,
the UK is even more vulnerable to external shocks.
The accusation that Labour overspent after 1997 is more contentious. Public
spending as a proportion of national income rose incrementally from a
historic post-war low. The mood in the late Nineties among centrist voters
was for major investment in the public realm, particularly the NHS, which
was feared to be a basket case. The weakness in Labour’s strategy was the
refusal to build a surplus in the period of buoyant growth following the
2001 general election. Even then, the public sector deficit in 2007 was only
2.6 per cent of GDP, far outweighed by the collapse in output following the
The UK was nonetheless more exposed to the crisis because Britain lacked a
resilient tax base. The simplification of the tax system led to plummeting
revenues as the recession deepened. Corporation tax receipts tailed off as
the financial sector shrunk following the collapse of Lehman Brothers, from
£10.3 billion in 2007 to £4.5 billion by 2010. Consumption tax revenues from
petrol, cigarettes and alcohol were already in long-term decline as consumer
habits were changing. The UK public finances were especially vulnerable to
an economic downturn.
None of this is to endorse the verdict that Labour’s performance was somehow
ruinous. The post-1997 administration had the best track record of any
centre-Left government in British political history. Per capita GDP rose
faster than in other G7 economies. The boost to competition policy and
substantial investment in skills and human capital ensured UK productivity
improvements were sustained. In power, New Labour advanced social justice
alongside economic efficiency, improving school test results and hospital
waiting times while delivering big reductions in poverty, especially for
pensioners and children. One of the more extraordinary features of Mr
Miliband’s reign as Labour leader has been his reluctance to defend those
achievements more enthusiastically.
Another consequence of the failure to reckon with the past has been confusion
surrounding Labour’s political message since 2010. The acrimonious
personality clashes of the Blair-Brown years depicted in Damian MacBride’s
brutalist memoir, Power Trip, concealed serious intellectual disagreements.
The previous Labour government was irreparably divided about the lessons of
the 2008 crisis. For adherents of Mr Brown, the message was that in the wake
of the crash, the state was well and truly back as Keynesian lender and
employer of last resort. For Mr Blair’s acolytes, the crisis confirmed
voter’s confidence in an over-mighty state was evaporating.
Ed Miliband’s ideological instinct is to reassert the case for interventionist
government. His political antennae tell him this is not sustainable in an
era of rising public deficits and ballooning national debt. The leader knows
there can be no return to post-war ‘tax and spend’ social democracy, yet he
is trapped by antipathy to the New Labour project from spelling out a
non-statist alternative. He faces a fork in the road, but is reluctant to
choose: as a consequence, Labour palpably lacks a coherent governing vision
for an age of austerity. With nine months to go until a general election,
time is running out for Her Majesty’s opposition.
Patrick Diamond is a lecturer at Queen Mary, University of London and
former adviser to Tony Blair and Gordon Brown
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