Opinion: Labour’s problem

There’s been nothing dramatic about this conference season apart from a few gaffes, but under the surface, I think the Labour conference was significant.

While I enjoyed the Lib Dem conference, I don’t think the journalists did. Whenever I passed a well-known TV presenter, they had a face like thunder. They were looking for factionalism and controversy, but all they found was Lib Dems facing up to a difficult situation with determination and loyalty. That makes dull TV, so they must have been tearing their hair out.

The Tory conference was more entertaining.

Theresa May’s remark about cats, and the more recent problems of Liam Fox, are uncomfortable for the Tory party, but they aren’t a fundamental problem for Cameron. A couple of months ago, some were suggesting May as a possible future leadership contender, and Fox too. To varying degrees, both are weakened, and that will ease pressure on Cameron’s right flank.

Of course, a public spat between the Home Secretary and the Justice Secretary is hardly good news for the Tories, but it doesn’t undermine their core message: that you can’t fix a deficit with a bigger deficit. Much more serious for the Tories, and for us, is the slow motion car crash that is the Euro.

With the US economy faltering despite its Keynesian stimulus, it’s not surprising the UK has had anaemic growth, but if the Euro collapse does lead to a repeat of the Great Recession, the Coalition may get the blame. However, this will only happen if there is a credible opposition.

Labour’s problem was less a poor speech by Ed Miliband, or the jeering at Tony Blair’s name, but an underlying problem. After a decade of healthy growth, the western world is facing a decade of retrenchment. No-one believes we can return to the days when a Labour government ran a deficit in a boom, and could throw money at public services like confetti.
So if Labour cannot credibly go into the next election promising more spending, what can they promise? If it’s more efficiency in the way our taxes are spent, will anyone believe them?

If they’d been out of power a decade, their members (and the unions) might have accepted the idea of a new “iron chancellor”. But would that work? Look at what the last Labour “iron chancellor” ended up doing.

Their conference was a chance for Labour to start to answer that question. But Ed Miliband’s attempt, arguing for a government that picks ‘good’ and ‘bad’ companies, only reminds us of past government failure to interfere in business. Would a Labour government succeed in using policy to encourage innovative wealth creators, or would this be another disastrous attempt to ‘pick winners’?

What Labour desperately needs is to distance itself from the mistakes that contributed to the current deficit. Blaming the bankers isn’t enough. Deep down, even the most ardent Labour supporter must know that it wasn’t just the banks fault: that Labour overspent, and that much of the pain we’ll suffer is down to a false assumption that the boom would go on forever, so they could carry on overspending forever.

Labour don’t seem to have a problem with the ‘sorry’ word. They’ve apologised for Iraq, for not regulating the bankers, they’ve even apologised for Tony Blair. But they seem incapable of admitting, even to themselves, that they overspent. And until they do, how can anyone believe they wouldn’t do so again?

My guess is this can only begin to happen if Labour ditch Ed Balls, but I can’t see that happening any time soon.

Another politician would realise he was in a hole, and stop digging. But Ed Balls’ political credibility is so tied to that of Gordon Brown, and to running a deficit in a boom, he can’t help himself.

Every time Ed Balls argues for a cut in VAT, calling it a “plan for growth”, many voters must be thinking: ‘Do Labour think we’re stupid? After their overspending got us into this mess, how dare they claim increasing the deficit will get us out of it?’

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  • There are some valid points here, but Labour would win the next election if the polling holds. What has been striking is how little difference party conferences made to polling rates. Milliband stll has a charisma problem but even with this his party have managed to poll more than the Tories for a year now, while the Lib Dems face oblivion.

  • Good point and well said. Ed Balls is an absolute liability to Labour, whether its his disastrous policies whilst in the Brown Treasury days or his notorious bully boy tactics in the Brown/Blair battles. Possible alternatives like Chuka Ummuna need to stay well clear of any policies with Balls name on it. Its a given that Balls will be behind the scenes back-biting with any future possibly replacements of his role.

  • Old Codger Chris 13th Oct '11 - 3:11pm

    Labour have until 2015 to dig themselves out of their electoral hole but whether they can do so may depend more on the coalition’s record than anything else. Changes of government usually have more to do with disillusion towards the current mob than enthusiasm for the alternative.

    But the Tories and Lib Dems must be careful of overdoing the “everything bad is due to the mess we inherited” refrain – as Harold Wilson discovered way back in 1970, despite handing the Tories an economy in better shape than the one they had bequeathed him six years earlier. And Ted Heath’s image then was scarcely any better than Ed’s today.

  • Labour’s fault is not so much over-spending (after all the national debt went down not up between 1997 and 2008 i..e they ran more surpluses than deficits) but it’s embrace of the dogma’s of neo-liberalism – privatisation, deregulation, reliance on financial capitalism, casualisation of the labour market etc.

    The interesting questions are whether Milliband is genuinely trying to break with the neo-liberal consensus which has wrecked this country over the last 30 years, whether he can put together a credible policy platform to replace it and what that might do to his electoral prospects. Quite possible of course that he is right but won’t be able to get elected on a platform that challenges so many of the orthodoxies of the last thirty years. All the coalition seems to offer is Blairism without the toothy grin. It’s becoming difficult to believe that this is going to lead to anything other than a worsening in every economic and social indicator for some years to come.

  • “the slow motion car crash that is the Euro.”

    “the Euro collapse”

    The euro is much stronger now against the pound than it was when it first came into existence and it’s holding its current value. Please stop reporting from the fantasy world of the loony right.

  • Bill le Breton 13th Oct '11 - 7:04pm

    George you suggest that “… the Coalition may get the blame (for further economic stagnation). However, this will only happen if there is a credible opposition.”

    Of course this opposition doesn’t have to come from Labour, it could come from the right.

    We are 17 months into a 60 month Parliament … that leaves 43 more months of economic pain for a very large proportion of the people of this country. I am not sure that the Westminster Village has quite appreciated how distressed people are about their present very real and hard felt insecurity.

    During this week I have encountered two people in total distress about their lives. One works at four or five part time jobs – and doesn’t know how their family can pay the council tax – even a frozen council tax – and the utility bills.

    The other is an entrepreneur who has worked for years to build a business and is working 16 hour days to find new sources of income as one after another of her clients and customers fall away, through cuts, retrenchment and bankruptcy.

    Neither has ever been politically active, they may not even have voted in 2010. I would guess that one will vote Labour in 2015 no matter what and the other UKIP because of the message we can guess that they will use in their campaign.

    I am not being defeatist. I am basing this thinking on the expectation that economic policy in the UK, the US, Europe and Japan will remain more alarmed at the possibility of inflation rising above 2% (or 0% in Japan) than on growth remaining subdued.

    The anemia is self-induced, misguided and very dangerous.

  • Stuart Mitchell 13th Oct '11 - 7:26pm

    This is just the usual rewriting of recent economic history we’ve been seeing from the coalition since May 2010.

    Fact 1: For most of the last Labour government – including the election campaign of 2005 – the Lib Dems were complaining that Labour were not spending *enough*. It’s a bit rich now for Lib Dems to pretend that never happened and demand apologies from Labour for spending too much!

    Fact 2: Even the Tories were committed to matching Labour’s spending right up to November 2008 – a full eleven and a half years after Labour came to office. Even then they only diluted their pledge very slightly.

    Of course it is a good electoral strategy for Lib Dems to come out with this kind of nonsense, because the polls make it very clear that the public can’t actually remember the 11 years of uninterrupted growth and declining national debt before the crisis of 2008. But it is a historical fact that for the vast majority of Labour’s time in office, there was a national consensus on the level of public spending of a kind we’d never seen before, and will probably never see again.

  • @Stuart Mitchell
    Well said.

    @George Kendell
    “Every time Ed Balls argues for a cut in VAT, calling it a “plan for growth”, many voters must be thinking: ‘Do Labour think we’re stupid? ”

    VAT is a dreadful tax, being regressive across all income deciles. As a tax on consumption, the rise from 17.5% to 20%, it is likely to lead to 200,000 job losses in the private sector (by conservative estimates). I stupidly believed those big adverts the Lib Dems put up about the Tory VAT bombshell during the election without looking into it further. I consider myself stupid for trusting the Lib Dems.

    When I see the party of Keynes attacking Keynes I know that is is no longer the same party. I only wish you had made this clear before those election promises to cut at a slower pace than the other two parties and the claim that your election promises were fully funded (a claim that contradicts the reasons given by the Lib Dems for tripling tuition fees). The fact that you campaigned on having fully costed plans and then capitulated on tuition fees on the basis of the deficit just, to my mind, demonstrates either gross economic/financial incompetence or a lack of integrity. I suspect both are probably true.

  • Stuart is right. If I had a pound for every time between 1997 and 2008 that a LibDem spokesman called for more spending on pensions / transport / schools / overseas aid / the NHS / housing and a whole multitude of other worthy causes, then I would be a rich man!

    As for Ed Balls, he said that the coalition’s austerity measures would be damaging for growth and he was right. Nick Clegg said the same thing before the election and he was right too.

  • @Packster
    In that article you linked to it states: “Even back as far as 2001 we were planning to cut the deficit by hundreds of millions of pounds a year. ”

    There wasn’t a deficit in 2001. indeed, Brown had substantially reduced the national debt with a large surplus between 1997-2001.

  • Andrew Suffield 13th Oct '11 - 10:21pm

    The euro is much stronger now against the pound than it was when it first came into existence and it’s holding its current value

    Those statements were more careless than erroneous. There is a “eurozone crisis” – the treaties that underpin the Euro have tied together the economies of the various nations involved. So far, the total damage caused by the ones who screwed up is less than the amount which the more responsible ones are able to spend on cleaning it up. But that was the safety margin and it’s mostly used up now. If nothing else goes wrong, the Euro itself will be fine. Another crisis might break it. But this is beside the point: the economies of several of our major trading partners are in a death spiral and they aren’t going to recover any time soon, no matter how much cash Germany has in its reserves. We’re losing money because we can’t trade with the failed nations as much as we used to, and this will not improve. That’s the real issue for us.

  • @Steve
    You are correct that there wasn’t a budget deficit in 2001 and there was some reduction in the national debt between 1997 and 2001, however the deficits in 2002 and 2003 completely wipe out this reduction. And as Mark Pack has already pointed out, the Lib Dems published an alternative budget each year which would have meant a smaller deficit in each of the year from 2002 until the present day (and a large surplus in 2001).

    @Stuart Mitchell
    I suspect the reason why the public can’t remember the ” 11 years of uninterrupted growth and declining national debt before the crisis of 2008.” was because with the exception of 1997-2001, the national debt was growing not declining as the economy booms prior to the 2008 bust.

  • Stuart Mitchell 13th Oct '11 - 11:10pm

    Mark: I’ve looked at the 2005 Lib Dem manifesto costings and my Fact 1 remains very much a fact. The Lib Dems were proposing to increase public spending by around £5.5bn pa by 2009-10, it’s there in black and white. And even this assumes that their planned “savings” would have been achieved (which of course they wouldn’t have been). So when I said that the Lib Dems wanted to spend more, in what sense was I wrong? The Lib Dems DID want to spend more, so it’s ludicrous that George should be wanting Labout to apologise for spending too much.

    As for your point about the deficit (which of course is NOT what I was referring to – I was referring to spending, directly in response to the OP), it’s quite frankly astonishing that the man who costed the Lib Dems’ 2001 and 2005 manifestoes was under the impression that Labour in 2001 were running a deficit when of course they were running a surplus.

  • Stuart Mitchell 13th Oct '11 - 11:20pm

    Mark: The surpluses of 1997-2001 were not wiped out until the crisis struck in 2008. Looking at the period 1997-early 2008, the debt declined.

  • Stuart Mitchell 13th Oct '11 - 11:39pm

    Mark: George referred to spending and so did I, nobody is trying to mislead.

    But let’s be absolutely crystal clear about this marvellous “larger surplus or smaller deficit” you keep referring to. The Lib Dems were planning to increase spending (by at least £5.4bn by 2009-10) and this was to be financed by a tax increase of £6.2bn.

    I don’t subscribe to this idea of saying things that are not true because the “phrasing” sounds better than the truth. Where would such an attitude end?

  • @Mark Inskip
    “You are correct that there wasn’t a budget deficit in 2001 and there was some reduction in the national debt between 1997 and 2001, however the deficits in 2002 and 2003 completely wipe out this reduction.”

    That’s simply not true. If it were, then how come the national debt was lower in 2008 than 1997?

    @George Kendall
    VAT is regressive (albeit very mildly) across all income deciles using the ONS figures and the strict definition of tax progressivity. The IFS changed their ‘definition’ of progressivity in coming to the conclusion that VAT is’progressive’, which is hardly surprising considering their long history of finding ‘results’ that favour their obsession with indirect taxes.

    @Mark Pack
    OK, so if the Lib Dem’s fiscal resonsibility had gone to plan the way the 2001 & 2005 manifestos had stated (unlikely, given the track record of political parties and manifestos) then 8bn*4 + 5bn*5 = 57bn savings = 3% of GDP

    So, with the wonderful financial competence of the Lib Dem’s our national debt, as of 2010, would have been 73.5% rather than 76.5% of GDP (compared with less than 40% when the financial crisis struck) – that’s assuming that GDP growth wouldn’t have been hit by the reduction in spending.

    So, the contribution of the City of London (in blowing the credit/housing bubble) and politicians for believing the bubble was a bag of magic beans that would continue indefinitely = 33% of GDP
    Contribution of Labour’s irresponsibility with public spending/taxation mis-match (compared with Lib Dems wishful figures) = 3% of GDP

    In truth, governments and political parties across the western world are responsible for this mess for believing the lies of the corporate financial elite. The Lib Dems really are no different, even if Vince Cable mumbled something about house prices in ~2003 (quite frankly, you’d have had to have been on a different planet not to notice the credit/house-price bubble by that stage).

  • @George Kendall
    “The debt went down as a percentage of GDP, because we were in a worldwide boom, and GDP was growing.”

    With a growing population, ever increasing demands on healthcare and a competitive knowledge based economy the only sensible way to discuss levels of public spending is in relation to GDP. Otherwise you can prove anything you like.

    “I don’t like the term neo-liberal. I agree with Wikipedia’s description of it: “the term is not associated with any definite ideology and is usually used accusingly and derogatorily against others”. Sometimes, it seems to be a way of describing anyone who believes we shouldn’t spend the next generation’s money to finance a better life for ourselves.”

    And it seems to me that people who make this argument are strangely relaxed about impoverishing the next generation now. Youth unemployment is at it’s highest for 17 years, hundreds of thousands of children are predicted to slip into poverty over the next decade. We have zero growth, rising unemployment and will most likely miss our deficit reduction target. Given we were told last autumn by Osborne we would have 2% growth and falling unemployment the fundamental political fact is that the coalition’s plan is not working.

  • To all the Labour apologists above – is it not, the case that Keynes argues for running a surplus during good times to pay down debt? And is it not he case that Brown & Balls failed to do this during the period 2001-8? And is it also not the case that they cosied up to the City and failed to regulate the banks sufficiently, prefering to waste spend money they got from increased tax revenues on their pet projects rather than pay down debt? And is it also not the case that they permitted massive increases in future interest payments using the highly suspect PFI schemes?

  • At no point in Ed Milliband’s speech did he say anything that could be described as picking winners. Nor did he say that there are such things as good or bad companies. What he did say is that there is good practice in capitalism and bad practice and that government has a role in setting rules that promote good practice and discourage bad practice. What he also did, which was a hostage to fortune, was give particular examples. This is the hostage being used in your article to argue that your antipathy to labour and in particular Gordon Brown is sufficient proof to allow you to dismiss everything that the liberal democrats argued to be true before the election. It may not have been a slickly delivered speech and Ed Milliband may not be a great orator but the speech itself was a good one in content. It is said to have been poor, as in this article, based on misrepresentation of its content and personal criticism of the individual who delivered it.

    This ad hominem by proxy dismissal of Ed Balls as somehow being a contiguous individual with Gordon Brown may be good tribal politics but bears little relationship with truth. Nor does the characterisation of Gordon Brown as some demon figure who individually destroyed the economy, he was widely ridiculed for a slip of the tongue in absurdly saying that he saved the world, the opposite; that he individually destroyed the economy, is equally absurd. The absence of growth in the economy has led to a position where the structural deficit is estimated, using OBR models by the FT, to have increased by £12billion or 25%. This is as a direct result of the coalition’s deficit reduction program and the ideological slashing of public services it is used to justify.

  • JRC – or, as in the case of Labour and Fred Goodwin’s knighthood, Government can promote bad practice and discourage good practice.

  • Stuart Mitchell 14th Oct '11 - 7:13pm

    George: “So we are agreed that the Lib Dems were arguing for a lower deficit, but higher spending?”

    Absolutely not! “Arguing for” would mean somebody like Charles Kennedy standing up and saying, “look, this deficit is much too high – it is Lib Dem policy to bring it down”. Correct me if I’m wrong, but no such event happened.

    All you actually have is a minuscule “contingency surplus” (look it up) from an obscure Lib Dem document which had itself been rewritten at the last minute due to the faulty assumptions underlying it (see http://www.ft.com/cms/s/0/ee1beb78-a84f-11d9-87a9-00000e2511c8.html#axzz1amDN4L24 ) . It’s absurd to use this as the basis for a Lib Dem anti-deficit policy which in fact never existed.

    Note also that those Lib Dem figures rely on EXACTLY the same pie-in-the-sky assumptions (big efficiency savings, an assumption of continuing growth) which you specifically criticise Labour for in your article.

    “When I talk about Labour’s overspending rather than Labour’s deficit spending”

    ..it’s because you are confusing two different things. “Spending” does not mean the same as “deficit”, and “deficit” does not mean the same as “national debt”. They are all distinct things. (We were even told yesterday that “deficit” is the new word for “surplus”, which still boggles my mind 24 hours later.)

    Just out of interest, if the Lib Dems HAD won the 2005 election and increased both spending and taxation, how exactly would that have put us in a better position come 2008?

  • Stuart Mitchell 14th Oct '11 - 7:24pm

    “while the deficit went down as a proportion of GDP between those years…”

    George, there is no while about it – % of GDP is the standard way of measuring national debt. You also spend that entire paragraph using the word “deficit” when in fact what you are talking about is “national debt”.

  • @AndrewR

    George is right, although I would like to add Keynes would also advocate running a surplus to slow economic growth. The effect of governments running a deficit rather than surplus during boom years is that the economy expands further to meet demand that is artificially high, causing inefficient resource allocation, and a lifeline for unsustainable businesses.

    When the bust finally comes, these businesses collapse at the same time, demand slumps, unemployment soars, and we’re left paying for things we could now buy for less.

    As a university student, I’m deeply concerned about my generation and those younger than me being impoverished, but this country needs to realise that the path to wealth does not lie through tax and spend or borrowing to “invest” in public services.

    Not even a country can run deficits forever but that is what one would try to do if it tried to borrow for every child’s education or every patients surgery. These costs must be met out of revenue, but not at the expense of raising taxes and damaging the continual reinvestment of profits that promotes sustained economic growth.

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