Opinion: We don’t need Labour’s Plan B – we need a Lib Dem Plan C

Senior economists have expressed alarm at the Coalition Government’s economic strategy – coinciding with the publication of gloomy figures, criticism came from sources as varied as the likes of David Blanchflower, to Sunday’s warning over the direction of travel from a wide array of experts in the Observer. As we ponder the need for alternatives to the Coalition’s policies, a Plan B, let’s recap how Plan A came about.

The Conservative party have always equated this crisis with the government’s budget deficit. Their economic narrative, unchanged since well before the election, has been clear; public profligacy under Labour left us with an unmanageable deficit which, unless we eliminated it completely within this Parliament, would see bond traders pull their support and leave the UK as high and dry in the international markets as Greece or Portugal.

Labour meanwhile has done what opposition parties are wont to do; far from acknowledging that they fell asleep at the wheel, they opposed every spending cut, sweeping under the carpet their own plans which committed them to nearly as many spending cuts as the Coalition. In calling for a Plan B, Labour appears curiously silent as to what that means.

The Liberal Democrats, as befits a party occupying the central political ground, navigated a middle way; our manifesto acknowledged the need to address the deficit in a way that didn’t jeopardise the fragile recovery from the financial and meltdown we’d just suffered.

It’s become a cliché to say this, but it bears repeating nonetheless – having failed to win the General Election, we weren’t able to implement that plan in full; being in Coalition, we had to compromise around a plan both partners could agree to. So Plan A, as laid out in the Coalition Agreement, was a hybrid approach, reflecting Tory and Lib Dem priorities – which I reiterate because, whether it’s right or wrong, our party’s fate is tied up with what happens to the Gross Domestic Product and other headline economic measures over the next four years.

So we are where we are; no sabre-rattling bond traders threatening a Greek tragedy, but at what price? GDP creeps along the bottom of the barrel, well below trend and lagging behind our more dynamic European neighbours; un(der)employment remains significant, with most of the jobs created in the last year being part-time and low-paid; inflation remains high for now, with the prospect of significant deflation once the oil price abates still haunting policy-makers; private-sector investment remains at an historic low; and throughout this an increasingly wealthy elite continues to take a bigger and bigger slice of the pie as pay, share options and profit.In other words, our economic problems go far, far deeper than the government’s deficit; were we to eliminate the deficit overnight we’d still have an unbalanced, dysfunctional economy prone to further crashes.

So what we need isn’t talk of a Plan B, which to date amounts to wishful anti-cuts rhetoric and talk of a raising a small amount through higher taxes – this would leave the underlying economic structure intact, inviting yet more unequal and precarious growth. The doctrine of ‘expansionary fiscal contraction’ says that government getting out of the way automatically leads to growth – but places no importance on where that growth comes from, and fails to acknowledge that productive enterprise is a joint initiative between private institutions supported by a strong public realm.

So what we need is a Plan C, a coherent vision of what a liberal democratic economy would look like and a roadmap as to how to get there.

Of course none of us have ready-made answers, but we can argue for certain broad principles: that deficit reduction is merely a means to an end where our economy grows equitably and sustainably; that this end is jeopardised if we suck the economy dry of confidence, of Keynes’ animal spirits; that public spending cuts won’t automatically stimulate private investment without activist policy to foster it; and finally, that unless we move towards a greener, more investment-based economic model, balanced government budgets and low interest rates alone won’t prevent us sliding deeper into the mire.

So let’s debate what our Plan C looks like – starting at the Social Liberal Forum Conference on June 18th.

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23 Comments

  • JustAnotherVoter 8th Jun '11 - 11:33am

    We need to start ignoring the doom mongers. Employment is creeping up. The nominal GDP quarterly growth rate in Q1 came in at 2.2% – one of the strongest prints in decades: the snow was indeed a blip. Let’s wait a while, eh?

  • Plan C = shift taxation from work to wealth

    There’s your “ready-made” Liberal answer!

    The question is whether there’s a Lib Dem minister with the sense to articulate it?

  • A key point is the timing of Plan C. If you’re discussing it for the next parliament, presumably 2015 onwards, then I think it’s reasonable to have this discussion. However, I don’t think it’s wise to be thinking of it in this parliament in which we have an agreed plan of action. A change of plan will cause a collapse in confidence in the bond markets and the investment that is coming in. Our Lib Dem plan to re-investment money from cuts into other areas of the economy was to my mind the most sensible option and it’s shame that the Conservatives didn’t want to take this fully on board. But we all agreed the policy, and so we need to abide by it.

  • I should have said from some of the cuts – not all of it.

  • Matthew Huntbach 8th Jun '11 - 1:33pm


    The Liberal Democrats, as befits a party occupying the central political ground, navigated a middle way; our manifesto acknowledged the need to address the deficit in a way that didn’t jeopardise the fragile recovery from the financial and meltdown we’d just suffered.

    Yes, and if there is a growing consensus which says we were right to have taken this position – as there is – we should not be afraid to say so. We are seeing the Tory apologists (in our own party, as well as in the usual Tory supporters club in the media) telling us we should not do that, because it would make us look “not serious” or whatever, but stuff them. If people who originally did not think we were right then now think we were right, that’s a reason for us to celebrate and make a big thing about it. Just because we are in the coalition does not mean we should shut up and pretend we did not say what we said in the general election campaign, particularly when there is growing evidence it was the right thing to say. We can also add “If more people had voted for us, this way forward which is now more widely agreed to be the right one, would have been pursued in the first place”. And we shouldn’t give a damn whether that embarrasses our senior coalition partners.

  • Matthew Huntbach 8th Jun '11 - 1:50pm

    Mirror Man

    Plan C = shift taxation from work to wealth

    There’s your “ready-made” Liberal answer!

    The question is whether there’s a Lib Dem minister with the sense to articulate it?

    Yes, this is a line I have been arguing myself for a long time. But we should not underestimate the political difficulty of pursuing it. You can be absolutely sure there would be huge howls of anguish from the usual sources if we tried it. Indeed, there WERE huge howls of anguish from the usual sources when a tiny little bit of it was tentatively put forward as the “mansion tax”. I am sorry to say there were also howls of anguish about it coming from some Liberal Democrats, which was a shame, but I hope they were just being realists about the anguish this would cause to those who have supposed their house is a money tree rather than really thinking it is right that one’s house should be a money tree. Anyone who thinks it is right that a house should be a money tree should realise that what waters that money tree and makes it grow and bear fruit is the blood, sweat and tears of those who do not have sufficient housing and in many cases never will.

    Now people have seen the horror of Tory cuts, of what is necessary if those who own money-tree houses do not suppose their fruit should be taxed in the way honestly earnt money is taxed, it may be a little easier to pursue this option. Yes, it’s a tough option, but so are the cuts a tough option. We are always told we are in a situation where tough options must be chosen, so why not a little way down that alternative tough option to the Tory cuts tough option?

    The real uselessness of Labour can now be seen, as Prateek puts it in his paragraph three. This is a big reason why our country is in a mess, because Labour adopts this attitude of destructive opposition when in opposition rather than constructive building of a left alternative. It hopes to get back into power by the mere swing of the electoral pendulum, that is why so much of it opposed AV because it does not want to live life outside that pendulum where it might actually be forced to think and act constructively. Because Labour does nothing to construct a workable left alternative when it is in opposition, when it gets into government it has nothing to offer apart from doing what the Tories were before with a little bit of fiddling to make it look as if they are making a difference. We had 18 years of that under Blair and Brown.

    It would be very hard to do this on our own even if we were not in the coalition, but with Labour effectively saying “me too” to Tory policies by being too scared to talk about the real alternative, it is a frightening task. However, if it is not done, we WILL have Tory government forever, whether it is labelled “Tory”, “Coalition” or “Labour”.

  • @ JustAnotherVoter

    “The nominal GDP quarterly growth rate in Q1 came in at 2.2% – one of the strongest prints in decades”

    Well it wasn’t bad but I would hardly call it one of the strongest one in decades.

    http://www.guardian.co.uk/business/interactive/2008/oct/22/creditcrunch-recession

  • Emsworthian 8th Jun '11 - 3:07pm

    Sorry we haven’t a clue would be a more appropriate response from England’s political classes
    right now. Plan ABCD all amounts to same (downwards) trajectory as we struggle to find stuff to sell to the
    world after decades of property fuelled wealth and binge spending on imports. The economy is still massively
    unbalanced and hugely dependent on public deficit financing, money borrowed on financial markets and
    part of sovereign debt. The fixed national overheads in relation to the value of output and thus the capacity to fund public services are plainly too high. Our diminishing working population is faced with working even harder for less just to keep the ever expanding pensioner sector going. A bold redistribution to unlock the massive amount of equity sunk in property could merit closer inspection.

  • dean axford 8th Jun '11 - 4:38pm

    The Sheer Cost of (entirely imaginary) ‘Royalty’

    Today Republic UK , of which I am a member, provided information on the cost of the Windsor family and assorted hangers – on.

    200 Million pounds per year.

    If us Liberal Democrats are really serious about fairness, meritocracy and equality then surely we cannot continue to allow the role of Head of State to be inherited. Being ‘born to rule’ is entirely a rediculous proposition as with the vast inherited wealth and splendour and the , even worse notion, of being “appointed by God!” , a common argument not long ago.

    An elected president and elected houses (both) with a system of election which really reflects the public will is long overdue and must be demanded of the dominant Tory’s who’s tendency has always been to retain this family in their collective delusions of superiority.

    I recommend joining Republic UK to show your support.

  • David Allen 8th Jun '11 - 4:48pm

    “A key point is the timing of Plan C. …….. I don’t think it’s wise to be thinking of it in this parliament in which we have an agreed plan of action. …we all agreed the policy, and so we need to abide by it.”

    Isn’t there a money-saving opportunity here? If we as a party have nothing distinctive to say to the electorate until 2015, how about we close down the Campaigns Department, cancel all publicity, and subcontract the job of presenting our case to Lord Ashcroft?

  • JustAnotherVoter 8th Jun '11 - 5:08pm

    @John. Check the stats. Last two times we had a higher quarterly NGDP growth rates were 1997 and 2001.

    @Prateek: “try paying the nominal price of a loaf of bread next time”

    Um, are you being ironic here?

  • Microeconomic reform would seem to be a good idea. Very high energy prices would seem likely to be harmful.

    We are ignoring the first, and imposing the second, so I do not feel too hopeful.

  • @JustAnotherVoter

    “@John. Check the stats. Last two times we had a higher quarterly NGDP growth rates were 1997 and 2001.”

    Err, we had higher GDP growth in Q2 and Q3 of 2010 and on many other occasion over the last decade. Have a look at the link.

  • JustAnotherVoter 8th Jun '11 - 8:29pm

    @John, the link you gave shows changes in real GDP, not nominal GDP.

    If you need to think about why nominal GDP matters more: think what would happen if we could overnight double all prices and all income (wages). There would be no immediate effect on real GDP the day after, but nominal GDP would double. As a result, the real value of debts would halve; mortgage payments as a proportion of household income would halve, massively increasing disposable income.

    Indebted businesses would see the same effect; as would the government – most debts are nominal.

  • Nigel Quinton 10th Jun '11 - 9:02am

    The part of the plan that is missing at the moment is the promotion of sustainable growth. I know some will argue that Vince and Chris are making progress with the Green Investment Bank, but the pace is far too slow. Instead of faffing around causing misery in the NHS and education sectors with Tory led reforms nobody wants (or voted for ‘cos the Tory manifesto was a policy free zone) this government should be focussed properly on the real issue facing us which is how do we build a low carbon economy quicker than the competition.

    Cameron says he wants the Greenest Government Ever – much of what we had in our manifesto is in the Coalition Agreement – but the level of priority being put on this by the cabinet is pitifully low. This is the obvious candidate for the issue for the Lib Dems to champion once we have stopped Lansley’s NHS reforms.

  • Matthew Huntbach 10th Jun '11 - 2:09pm

    dean axford

    If us Liberal Democrats are really serious about fairness, meritocracy and equality then surely we cannot continue to allow the role of Head of State to be inherited. Being ‘born to rule’ is entirely a rediculous proposition as with the vast inherited wealth and splendour and the , even worse notion, of being “appointed by God!” , a common argument not long ago.

    So long as it’s purely decorative, I’m happy with the arrangements for Head of State as we have them. The King/Queen is really just like a decorative seal which is used to stamp government, the fact that it is made out of flesh and blood rather than metal doesn’t really matter so long as it is used purely in that way.

    I don’t like the idea of an elected Head of State for the same reason I don’t like the idea of elected executive mayors or police commissioners. I’m very much opposed to the idea of power being in the hands of one person, for good liberal reasons I believe it must always be shared, so executive power must always be held collegially. So another reason for supporting the monarchy is that with a King/Queen there, it acts as a barrier against monarchical power being wielded by someone who claims the right to do so on the basis of being elected to it.

    The idea that the PM has to defer to a symbol which is above politics and reminds us of our history seems to me to be a good one. Come on now, didn’t we all enjoy Tony Blair and the rest having to defer to HM? Well, I did, and it was seeing that appallingly self-centred man being forced to do so that reconciled me to our monarchy. Far better that than President Blair.

    I’m also really not that bothered by old-fashioned titles when power has shifted towards the City money bags. The old fashioned titles do remind us of a time when those in power did have some formal duty to our country, rather than those who are really in power now in these globalised days who don’t give a damn for this country and its people, that is why they think it fine to threaten and up sticks and establish their tax base elsewhere if we don’t treat them royally.

    The USA is just about the most unequal country in the developed world, in terms of both wealth and social mobility, but because it does not have monarchical and aristocratic titles, its people have been fooled into thinking otherwise. This ought to be enough to demonstrate that abolition of the monarchy is an irrelevant side-show. Even if you don’t think as I do in terms of being happy keeping the monarchy, it would be a waste of time to abolish it because it would not achieve anything really to resolve the growing inequality we experience in our country due to the power of globalised wealth.

  • Kevin Colwill 12th Jun '11 - 10:30am

    Be careful what you wish for… for example, I see many more self-employed people in my community but I actually think most would be more accurately described as low cost contract labour that enjoy no employment rights.

    If you insist on keeping the Orange Book at least try to give it some new chapters written from the perspective of the worker. If you genuinely believe creating a mass of minimum wage jobs with minimum terms and conditions jobs and no promotion prospects represents economic nirvana – more fool you!

  • “If you insist on keeping the Orange Book at least try to give it some new chapters written from the perspective of the worker. If you genuinely believe creating a mass of minimum wage jobs with minimum terms and conditions jobs and no promotion prospects represents economic nirvana – more fool you!”

    They do. But you see, they don’t believe that they are the ones going to be doing those jobs for peanuts, the hard graft for very little money is for the masses, they see themselves as the ‘elite’ and believe they are entitled to those people’s labour for very little money.

    There is a huge difference between the Lib Dem party members and the Lib Dem voters. The Lib Dem voters are the socially liberal centre left, especially young people. The very people the Lib Dems have slapped in the face, they’re going to seriously pay for it at the General Election.

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