Pack & Tall Debate… What’s the Lib Dem economic narrative now?

In the week of the Chancellor’s autumn statement, LibDemVoice co-editors Mark Pack and Stephen Tall debate what it all means for the Lib Dems…

Stephen Tall: So we now all know the painful financial reality. With growth forecasts revised down by the Chancellor in his autumn statement, austerity is here to stay.

Both Lib Dems and Tories had hoped and expected that three years of painful cutbacks would be followed by a year or two of pre-election giveaways — the Lib Dems would press for a balanced mix of increased public spending on areas that had suffered most, together with more tax-cuts for the low-paid, while the Tories would focus on their tax-cutting priorities like inheritance tax and fuel duty. Both Coalition parties would have popular measures they could sell to the electorate, and which reinforced our respectively distinct identities. And both would be able to say to voters, ‘If Labour had been in power you’d still be looking at a couple more years cuts. We took the tough decisions early, now we’re all feeling the benefit’.

But all these calculations have now been turned on their head. When Danny Alexander was asked on Newsnight on Tuesday if the Liberal Democrats would go into the next election promising nearly £30bn more austerity, he replied: “I’m afraid so.” So where does this leave the party? Have we now signed-up by default to fighting the next election on a platform of more cuts until 2017? If so, does this in effect commit the Coalition parties to fighting on a united programme — albeit with different candidates and different manifestos — in 2015 against Labour?

Mark Pack: Predicting where the economy will be in six months time let alone three, four or five years is a highly uncertain business. It is not just the government’s economic forecasts that keep on changing, so too do independent (eg, OBR) and international (eg, OECD) ones. Labour too has been changing – it was forecasting 3.25% growth this year and when quizzed about this not even Ed Balls was willing to say Labour would have achieved that.

So it is not wise to put too much weight on current intentions for what will be done in 2015, save for what it tells us about political and economic instincts. One is that Danny Alexander wants to see the Liberal Democrats firmly committed to tough financial responsibility. That is not the same as signing up to Conservative policies – unless of course you take the absurd view that all tax cuts or increases are the same as if changing the top tax rate is no different from changing the bottom one. The same fiscal targets can be achieved in politically very different ways.

The second is that the assumption in senior Liberal Democrat circles is that Labour will eventually take up a similar position about financial responsibility, so that Alexander’s views do not end up being compatible with only a deal with the Tories in another hung Parliament. If that does not happen, then there will be very lively debate in the party.

Stephen Tall: In fact, the party is in no different a position than we would’ve been if we were a majority governing party right now (rather than the junior coalition partner), as our 2010 manifesto did not commit us to eliminating the deficit within the lifetime of one parliament. Sticking to that would’ve made post-2015 cuts inevitable if we were to balance the budget; the problem is simply more acute now because of the sluggish state of the western economy and the Eurozone’s problems.

And you’re right of course that Labour is in exactly the same position – indeed, Alistair Darling’s pre-election plans were for the cuts to last until 2017 – and today sees the launch of ‘In the black Labour’, a group of party activists determined to regain for their party the economic trust which they’ve so catastrophically forfeited. They make a crucial point, one which applies just as much to the Lib Dems as the other progressive force within British politics: “Labour must put fiscal sustainability at the absolute core of its policy agenda, to ensure low interest rates and steady economic growth. Not just for electoral reasons, but because fiscal stability is vital in securing social justice”.

That is precisely the argument the Lib Dems must continue to make (while Labour continues to dither) between now and the 2015 election. It’s crucial to Lib Dem success that we can demonstrate our ability to be financially responsible while making the political choices that show we’re very different from the Tories – our emphasis on taking the poorest out of tax is a case in point.

Mark Pack: Even within the Liberal Democrats, little credit is usually given to the very different approach to tax that the Liberal Democrats have achieved in coalition from what the Conservatives wanted – because so many of the changes happened quickly last summer (capital gains tax increases, pension tax breaks for the richest cut and so on) and because some of the most important things are those which have been stopped (marriage tax breaks, for example). It would therefore be unwise to assume that there will automatically be political credit to be won over taxes but there most certainly is a great opportunity there, as long as the party sorts out its views on wealth taxes.

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30 Comments

  • “With growth forecasts revised down by the Chancellor in his autumn statement, austerity is here to stay.”

    Correction:

    With austerity forecasts revised upwards, growth forecasts have been revised down.

    “The second is that the assumption in senior Liberal Democrat circles is that Labour will eventually take up a similar position about financial responsibility, so that Alexander’s views do not end up being compatible with only a deal with the Tories in another hung Parliament. If that does not happen, then there will be very lively debate in the party.”

    Labour aren’t going to fight the next election on the same policies as the Lib Dems – it would be electroal suicide – especially when many voters will associate the continuing economic gloom with the policies of the coalition. It would also be suicidal for them to start talking about a coalition with the Lib Dems.

    “In fact, the party is in no different a position than we would’ve been if we were a majority governing party right now (rather than the junior coalition partner), as our 2010 manifesto did not commit us to eliminating the deficit within the lifetime of one parliament. Sticking to that would’ve made post-2015 cuts inevitable if we were to balance the budget; the problem is simply more acute now because of the sluggish state of the western economy and the Eurozone’s problems.”

    What a cop out. Your increased rate of austerity has led to the economy slowing down and as a result, you’re not going to be able to eliminate the deficit as fast as the previously unrealistic estimates – this is exactly what many of the world’s leading economists predicted would happen. Do you accept responsibility? No, you’re just blaming it on the Euro.

    “indeed, Alistair Darling’s pre-election plans were for the cuts to last until 2017 ”

    That was a realistic target that could have been achieved by maintaining growth in the economy. You’re target has been extended by two years after a year and a half in government. If it keeps expanding at that rate, the target will be 2021-2022 by the time we reach 2022.

    The question is, when will you accept that the plan isn’t working? From the above discussion it’s quite clear that the answer is never, as long as you can blame it on someone else. Gordon Brown looked ridiculous when he continually blamed the UK’s economic performance on the world economy. Is see you’ve learnt well from him – in looking ridiculous by blaming the UK’s economic performance on the world economy.

  • Sorry, that should say:

    If it keeps expanding at that rate, the target will be 2021-2022 by the time we reach 2015.

  • And ‘Your target’

  • Bill le Breton 2nd Dec '11 - 10:30am

    The real action to restore economic well-being has to be through monetary policy. A relatively small piece of co-ordinated monetary intervention this week has seen major stock markets rise by nearly 5%. Yet we allow monetary policy to be conducted by undemocratic and unaccountable bodies like the BoE, BoJ, the Fed and the ECB intent on suppressing inflation to a fraction of a per cent.

    Focusing on fiscal austerity, especially without a complementary stimulating monetary policy, has always been inept. Who is surprised that the cuts led to increased and not decreased borrowing?

    If that kind of globally co-ordinated monetary stimulus is not possible (politically), then, the years of austerity will place huge strains on international relations through xenophobia and trade wars and on internal relations through adverse inter-community relations and the destruction of the social fabric.

    On the big issues of the last seven days we have been on the wrong side, time and time again.

    Alexander talking the message of austerity, while Osborne announces infrastructure projects.

    Siding with the large land-bank rich house builders against those who are elected to get local planning right.

    A Liberal Democrat announcing a council houses sales campaign while ignoring improvement grants.

    Silence as the Coalition Government turns its back on our responsibilities as fellow Europeans to volunteer funds in support of our partners.

    Bashing the poorest public servants and those who do jobs that few who do the bashing could do, without expressing any empathy for their dilemma as carers and human beings.

    It is too easy when in power to become government ‘managers’ rather than Liberal Democrats.

    There is a widespread sense of injustice articulated as a strong sense that ‘we are not all in it together’ and ‘those who got us into this are not the ones getting us out of it’.

    Unless we can create a movement around these emotions others will and the likes of the BNP and especially UKIP will exploit the situation.

  • I think we do of course need a distinct economic narrative but perhaps we should (and it may be in our advantage to) be honest in 2015 and say that unless we’re the largest party (!) the broad fiscal direction will be determined by Labour or the Conservatives. Beyond moderating anything too insane, our own policies – across all departments – will have to act alongside or within those constraints.

    But I too assume “Labour will eventually take up a similar position about financial responsibility”.

  • It is too easy when in power to become government ‘managers’ rather than Liberal Democrats.

    Congratulations Bill – for months Ive been trying to think of a simple phrase to describe where the party is going wrong.

  • paul barker 2nd Dec '11 - 1:13pm

    Its not just The Economy which is unpredictable. Both Labour & Conservatives have an ongoing problem with rapid falls in membership. The Tories can substitute money for members but Labour dont have that luxury having made as big a mess of their own finances as they did of Britains.
    Both our main rivals could be a lot weaker by 2015.

  • Perhaps I’m missing the big picture, but why as a party which cares about the environment, and wants to stop penalising the unemployed for getting a job, are we supporting a Government which (i) cuts the real value of tax credits for low-paid workers in order to (ii) maintain the real value of benefits for the unemployed and (iii) keep fuel duty down?

    I get the message about higher fuel duty being bad for businesses, but I thought the whole point about green taxes is that they offset other taxes, so that their overall burden on businesses is neutral.

  • Ruth Bright 2nd Dec '11 - 4:51pm

    Who cares if Labour “is in exactly the same position [as the Lib Dems]” ie committed to a cuts package that lasts until 2017? Labour is not a democratic party – ours (supposedly) is. Danny Alexander had no right to commit the party to policies beyond 2015.

    When asked today on the Daily Politics what authority Danny Alexander had to commit the Liberal Democrats to anything after the next General Election the best Tom Brake could come up with was that “his [Alexander’s]authority is that clearly he is a very important minister in that department”.

    How can we expect the public to detect a boundary between the Lib Dems and the coalition when some of our MPs see no such boundary? What else could a minister commit us to after 2015 on the grounds that he or she is “very important”?

  • @Simon McGrath

    You are clearly happy to cut the deficit too quickly, thus putting us further into recession and prolonging the period it will take to reduce the deficit.

  • Robin Martlew 2nd Dec '11 - 5:55pm

    Am I the only one who believes that we have got it all back to front? Meeting a lack of spending with cuts in earning power will surely lead to further cuts in spending! The idea that private finance will somehow be generated when confidence is continuing to be eroded doesn’t make sense to me. To whom does it make sense? Is it not possible to bring some radical thinking to bear rather than relying on the conventional economic wisdom which got us here? That surely is for the Labor and Tory parties, neither of whom show any sign of originality.
    There are ideas that could alter the strangle hold that the high priests of the banking industry would of course deplore. There are ideas that could put the public sector at the centre of a stable, and even growth economy. There are ideas that could make money accessible without the risk of inflation or the threat of bankruptcy .There are ideas that could put people in charge of a flexible economy instead of money!
    Sadly we appear to have ceased to be a radical party and these ideas don’t even figure in our forward thinking!
    I am well aware that radical ideas court misunderstanding and even ridicule, so how do we generate the ability to develop such ideas while we remain harnessed as partners in a coalition which relies on us? Especially when out leading spokespersons are clearly committed to the conventions of a political alliance?

  • Tony Dawson 2nd Dec '11 - 7:01pm

    @bill le breton:

    “It is too easy when in power to become government ‘managers’ rather than Liberal Democrats.”

    The Officer Party can dominate national, as well as local government . 🙁

  • You have to tackle the banks and take a good hard look at Tax. The other point is that you have to ask yourself what kind of society you actually want.. The current narrative is based on the ideas that got us here. it certainly isn’t going to get us out of the mess in an extra two years, or ten years or deliver the society a lot of us want to live in. This isn’t a recession it’s a depression, complete with toppling governments, social unrest and unelected glorified fiscal dictatorships on European soil. Virtually everything being done at the moment will actually lead to bigger problems. Some parts of the country have not recovered since the 1980s and are being hit hardest again now. Borrowing is up, revenue is down. The method being used here and imposed on other countries has never worked anywhere ever.

  • Simon Bamonte 3rd Dec '11 - 12:27am

    How can we find a sort of economic narrative when most of the time our reply is simply “Labour would be worse!” I shake my head in despair if that is all we have left to defend ourselves and the Osborne/Alexander economic slow-motion train wreck happening before our eyes.

    @Glenn, I agree completely. The supposed neo-liberal Thatcherite-Blairite consensus is collapsing all around us & we are being forced to accept that lowering demand, rising unemployment and greater inflation is the answer. We are told we simply cannot tax the rich because they will “go elsewhere”. Nice to know they have more loyalty to their wealth than their patriotic duty to their country. Supposedly all these cuts are the only answer and as long as we keep the “markets” and the bond holders happy, everything will work out fine in the end. Now I was supportive of Coalition from the start, but the way the Cleggites admitted, after joining the coalition, that they changed their mind on the speed of deficit reduction before polling day but never told us was our first, biggest mistake. This is one of, if not *the* most wrong-headed thing we did. We held the balance of power in these negotiations: without us, the Tories did not have a very workable majority and were not guaranteed to outright win another election. And I’ve mentioned before that a majority of the UK voted for a slower, less deep reduction in the deficit if you combine Labour’s share of the votes with our votes (which we can only assume were received based on what we campaigned for and wrote in our manifesto). Only 36% of the UK voted for a party which advocated immediate & very deep cuts! Over 50% of the voters chose parties which advocated the opposite. The austerity at all costs “plan A” is hurting very badly and a majority of the UK simply did not give the Tories a mandate on this or many other policies such as the top-down reform of the NHS when we were promised the opposite!

    It’s depressing really, because many people warned what would happen if we pulled the rug out from public spending when, really, we were nowhere near a Greece or Italy position. Clegg said so, as did Cable and Alexander right up until the announcement of the Coalition. Clegg went out warning of rioting if a Tory government with a small majority won the election! It saddens me to no end that our party has become in a position where we are not only bleeding our core support (over 60% of 2010 Lib Dem voters identify as left-of-centre) but bleeding the country dry as well. If we keep this up until 2015 or – dear god – 2017, we will be able to fit all our MPs in a taxi cab.

    Honestly I think we need a new leader and a re-negotiation of the Coalition agreement. Something has to give because the road we are on is leading to disaster.

  • David Allen 3rd Dec '11 - 12:33am

    Yes, it’s about narrative. That’s what the Tories have mastered – it’s the only thing they have mastered.

    We are the only people with a rational plan. (OK, it failed, and we’ve torn it up and started again – but just keep that quiet!)

    Those evil Labour people would deliberately increase borrowing, which is crazy. Whereas what we have done is to implement policies which seem to have reduced our tax take, so we end up short of money, so we have to um er temporarily get hold of some wonga from somewhere – Borrowing? oh no! Quite different! Perish the thought!

    Our opponents have no policies. They are awful people who would make terrible economic mistakes (that’s what we accuse them of on Monday, Wednesday and Friday) and who would also do exactly the same as we are doing so they are hypocrites to oppose us (that’s what we say on Tuesday, Thursday and Saturday). They are hopelessly confused. Or at least, we’d love you to think so!

  • Robin Martlew 3rd Dec '11 - 9:28am

    There is a widespread sense of injustice articulated as a strong sense that ‘we are not all in it together’ and ‘those who got us into this are not the ones getting us out of it’.

    Unless we can create a movement around these emotions others will and the likes of the BNP and especially UKIP will exploit the situation.

    I believe Bill is right, but is this the forum from which such a movement will arise? We need at least a dedicated forum in which to discuss the many ideas that so many of these comments raise, but it needs some direction which I fear only a formal structure such as a debate can produce! I think we need a meeting or at the very least an agenda to keep us moving in a coordinated direction.
    So far as I can see, most of these discussions dissipate into inefectual nothingnesses with loads of dissillusioned contributors wondering what went wrong, or failed to go right!
    Sorry! But I am not tecnical enough to know how to construct a dedicated forum, and I suppose we need a somewhat clearer idea of what criteria we should be discusing. Being an awkward sod I am sure I shall find even that difficult!

  • many thanks to Bill Le Breton & Ruth Bright for saying it as it is.

  • ….. and all the time “the rich get richer and the poor get (relatively) a lot poorer”, at least most people appear to believe this is what is happening. That is not a good backdrop or outcome for fighting a General Election – unless you happen to be a true-blue Tory.

  • Matthew Huntbach 3rd Dec '11 - 11:12pm


    Both Lib Dems and Tories had hoped and expected that three years of painful cutbacks would be followed by a year or two of pre-election giveaways

    It’s bad enough when the press write “the Lib Dems” when they mean Nick Clegg and his immediate advisors, but can we please have better from those who ought to know better? Just because the leader naively assumed Tory policies would work once he found himslef Deputy to a Tory PM does not mean the wider party did. Indeed, we went into the election saying they wouldn’t, saying instead they would lead to, well, what they have led to.

    Do you have ANY evidence that members of the party AS A WHOLE or even its Parliamentarians AS A WHOLE “hoped and expected that three years of painful cutbacks would be followed by a year or two of pre-election giveaways”? I certainly never assumed this position.

  • richard in norway 4th Dec '11 - 2:35pm

    Liberal eye

    You are quite right about Steve keen, his ideas are a step in the right direction and he seems to me to be following in the footsteps of that great liberal, Keynes. At the moment all political parties in the UK and elsewhere are trapped in the market knows best philosophy which means that policies are dictated by the market, who is the market? Well it ain’t me and probably not any of you either. I was amused by a comment that the 5% rise in stock prices following the swaps announcement proved that it was the right policy. It only proves that it is the right policy for those that move markets, it could be a disaster for us but the market does not care. Furthermore the market only cares about the short term, the next day,week,month or six months but no further than that. Hell most of the time the market players are only thinking in terms of the next tick. Does anyone really think this is a good way to run the world? The fact is that as long as all parties follow this market philosophy their policies must be the same, if we want different policies we need a different philosophy

  • Bill le Breton 5th Dec '11 - 12:57pm

    Richard, it was me who amused you with my reference to the stock market rising 7% in a week in which there was a co-ordinated global move to provide (a meagre) monetary stimulus.

    You may be right about the folly of being fixated on markets, but when debating with neo-liberals and neo-cons it is useful to point them to positive market reactions to policies with which they do not agree.

    I have followed Keen’s work for a couple of years now. He too thinks that there will eventually have to be a Great Jubilee and I feel sure he is right. Fiscal reductions will not work from these levels of especially private indebtedness. It is a drastic solution and one which is likely to be postponed for so long that it will not prevent huge and illiberal tendencies emerging in the populations of indebted countries that are trying or being forced by others such as Germany to cut there way out of trouble.

    The concentration of so much attention on fiscal policy whilst ignoring the fact that relatively significant reductions in the supply of money make deflation inevitable is a great concern.

    In another post you suggest that the PSBR is funded by the creation of money by banks, but of course if the central bank immediately sells gilts to finance these that increased supply of money is immediately destroyed as the accounts of those buying the gilts are debited. That is of course what the Bank of England and other CBs do and have been doing so for so long that politicians have forgotten that CBs don’t have to wholly fund the PSBR and just create the money.

    Governments can pay for services and infrastructure financed by cheques drawn on their accounts at (for the UK) the Bank of England, thus, increasing the money supply. The demand for what supplies those services and makes that infrastructure sustains or increases Aggregate Demand or, expressed another way, Nominal Gross Domestic Product.

    If markets are informed in advance that the Government will do this (type of financing of the PSBR) until NGDP rises to the level it would have been if normal trend growth in NGDP had occurred since its major decline in 2008, then (if you believe the market monetarists) aggregate demand will move quickly to that level.

    At that re-established trend level the deficit reduces quickly as tax revenues rise.

    The balance between the inflationary and real constituents of NGDP improves and the Central Bank, working with Government (through the way it finances the PSBR), can keep NGDP on its long term trend track. Say, 2.5% growth and 2% inflation.

    Following this course may just make it possible to avoid the Great Jubilee, the Great Reset and the Great Haircut.
    Liberals are ‘blind’ to this approach because it smacks of Freedman and the Monetarists, but to me it is a very Liberal economic approach. We have wasted two years and lost many, many life chances by ignoring it.

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