What I would like to hear from Mr Darling
As we all await Mr Darling’s action-packed pre-budget report the focus is on cuts and taxes. Depending on their political orientation and the briefing they have received, newspapers can choose whether to highlight an attack on city bonuses, constraints on public spending or general increases in taxation.
The overall thrust of the package seems right; spending constraint but imposed gradually so as not to choke off recovery, tax increases weighted towards those who can most afford them. Indeed, it is interesting to speculate how different a Conservative pre-budget report would have been in these circumstances.
But there are some other messages I would like to hear from Mr Darling. And, to be honest, I’m not holding my breath.
Apparently the Chancellor will say that health, education and policing will be protected from cuts and may even have small increases in funding over the next three years. I understand the politics of this. It is in line with the Government’s commitment to guaranteed entitlements in these services. But it may not be the best policy. As SOLACE and CIPFA warned this morning, the consequence is that other local government services take the brunt of the cuts in social spending. It could be non-statutory provision like youth services, public space, sport, leisure and culture that get squeezed. This in turn could lead to a deterioration in the public sphere, just as happened in many places in the early 80s. In terms of social impact it would be much better to force productivity gains in schools, hospital and police services (where, after years of budget increases, there is plenty of scope) than cuts that will weaken the social fabric.
SOLACE and CIPFA also warn this morning that as the state pulls back, citizens themselves – individually and collectively – will have to plug the gap. This isn’t necessarily a bad thing. There is scope for many services to become more co-productive, by which I mean that their outcome is seen to be created by the combined efforts of state and citizen. But an imposed cuts package is the worst context in which to generate a constructive public debate about reconfiguring services. We should be having a national and local conversation about how citizen engagement can help protect service outcomes even while budgets are being cut. How much emphasis will we see today on the need for a richer public engagement about the choices we now face?
This links to the wider need for a story of social mobilisation. I have written before about the message Stein Ringen gave here at the RSA about Labour’s failure to mobilise public sector workers or the general public behind goals like eradicating child poverty. Labour aspirations were noble but too often they felt like things Government was doing to people rather than with them. I also wrote last week about how well people often respond when they face a shared crisis.
It is not easy for either Mr Darling or Mr Brown, but there needs to be a sense today of the Government seeking to get people behind the mission of safeguarding society while reducing debt. The measure of a Government’s worth is not just whether it can have good ideas or pull new policies out of a hat but whether it can engage and mobilise the population.
The cabinet’s big gamble
Here, for what it’s worth, are my thoughts about this bizarre unfolding day of politics. First, expect the unexpected. Over the last two years no one predicted the huge swings of the political pendulum. Brown’s position was so strong in his first few months he nearly called an early election. He then went into free fall before starting to pull things back last autumn as the Conservative response to the credit crunch faltered. Then, in the last few weeks, in the wake of McBride and MPs’ expenses, Brown has taken Labour to new depths of support.
The last 24 hours are a microcosm of these wild swings. Listening to the radio last night after James Purnell’s resignation, the pundits were close to consensus that the game was up for the Prime Minister. But now with Miliband, Darling and Johnson safely ensconced in the big three jobs there is an emerging view that the Prime Minister may survive. Number Ten has a slew of major policy announcements on the stocks. Downing Street believes that if Brown can maintain sufficient momentum to get through the next few days his chances of making it to the general election are pretty good. But if this sounds like prediction, ignore it – the one thing we have learnt over the last two years is that political pundits are less reliable than horse racing tipsters.
My second point assumes Gordon Brown survives. He will then be able to rely on the total commitment and loyalty of his cabinet. Unlike almost everyone else, I try to take a charitable view of politicians. So, I assume that those ministers who have long had private criticisms of the Brown set-up have stayed in Government because they have changed their mind for strong substantive reasons. To be propping up a Prime Minister simply from inertia, fear or career calculation would be hard to defend. This implies the Cabinet must now be made up of people whose genuine political judgement it is that Grown Brown can defy the odds and come through next year, presumably by a combination of visionary new policy, economic recovery and drawing the dividing lines with the Conservatives.
Everyone in Labour ranks – including James Purnell – will hope those who have stayed have got it right, and given the swings of the last two years it is not inconceivable. But if they are wrong there will be nowhere to hide. After the Purnell resignation no one can say they didn’t have a choice.
So, on the one hand we have the possibility of another swing of the pendulum and the greatest political come back in modern Parliamentary history. On the other hand, if Gordon does stay and lose badly, Labour members could turn against the whole of its current leadership class. Few of the people then emerging as the architects of the post Blair-Brown Labour Party will be names widely recognised today.
Four budget talking points
A new dividing line?
One reason Labour lost in the eighties was that the Conservatives won over the aspirational working class and lower middle class. Labour was perceived to be the party only of the poor and the public sector. Today Alistair Darling tried to draw the line in a different place: between the middle class and the rich, hoping the Conservatives will stumble into the trap of being portrayed as only representing the interests of the latter. David Cameron’s initial response that cutting the 50p tax rate won’t be a priority for an incoming Conservative Government suggests he will avoid that trap (but look out for a backlash from Tory traditionalists who may want to insist that the Conservatives make this, at least, an aspiration for their first term).
Growth: Short and medium term
The Government’s medium term growth forecast (3.5% from 2011 onwards), for which Labour will not have to answer at the next election, is very optimistic; its 2010 forecast of 1.25% (for which it will) may be more realistic. Alastair Darling will hope he will be able to report next spring the economy is hitting or even exceeding the 2010 target. And if Labour scrapes a victory at the election and then misses the more ambitious target for 2011 it will have until 2014 or 2015 to change the script.
Efficiency savings and cuts
Already the IFS and others are questioning whether the £5 billion in efficiency savings for next year can be achieved without service cuts in areas like health and education. I suspect not. However, Labour won’t necessarily be too worried about this. Even if people are suspicious about Labour on cuts it won’t automatically make them warmer towards the Conservatives.
1991 or 1996?
I wrote a blog a few weeks ago asking whether today feels more like 1991 (before a Government re-election) or 1996 (before an Opposition landslide) . Commenting on the budget a Government insider reminded me of this saying;
‘By next year we will be just emerging from recession; roughly the same point in the cycle as 1992. Most people’s focus will be on day to day living standards – we need to have a powerful case to make then’
Things to bear in mind on Budget Day
It’s difficult to see how the Government gets a good story out of today’s budget, especially coming on the same day as new, presumably grim, unemployment figures. The question for the press is which of the three lines of attack they choose: ‘borrowing out of control’, ‘public spending to be slashed’ or ‘tax bombshell’.
There will no doubt be some items the Government hopes will get positive coverage, possibly green measures, like the ‘scrappage’ scheme (‘green’ because new cars are generally more fuel efficient and environmentally friendly than old ones) or the electric car subsidy we heard about the other day. But the headlines will still be overwhelmingly bad.
In all the analysis it’s worth remembering that, in the end, so much depends on something which is neither easily predictable nor largely in the Government’s hands; namely how quickly growth returns (globally and nationally) and how strongly when it does. The opposition parties may disagree with Alistair Darling’s projections today, but the crucial unknown is how quick and how strong the recovery will be.
If there is a slow, sluggish recovery, we really do face a period of austerity pincered between high unemployment, high and rising real tax rates, and deteriorating public services. In a stronger, faster, recovery, whilst the ‘proceeds of growth’ might not be available for tax cuts or real spending increases, it would be a matter for economic and political judgement as to how quickly we paid off the aggregate public debt (which unlike the UK’s current account deficit is not outlandish). In this sense, the question for Darling’s budget is less ‘what does it mean?’, and more ‘will it work’? And, of course, nobody really knows the answer to that.
As interesting as the detail of the budget will be the tone of the Conservative reaction. Given that David Cameron and George Osborne pretty much know the figures, they have had time to work on their response, so it will tell us a lot about their political strategy. It isn’t as simple as this, but the big dilemma may be whether they go on full out attack and in doing so run the risk that they exaggerate how much difference an incoming Conservative Government could make in its first years, or adopt a more measured tone, writing off Labour but managing the expectations that can be placed on a Cameron administration.
Linking both these points Conservative strategists must feel ambivalent about economic recovery. On the one hand, if it starts to come through in the next twelve months, it could lift Labour (don’t forget the Tories need something approaching an electoral landslide to win an overall majority of seats). On the other hand, the best case scenario for the Conservatives is to take control just as things are picking up, enabling them to blame Labour for the recession while the new Government takes credit for the recovery – something which, arguably, Labour achieved post 1997.
Alistair Darling at the RSA
The Chancellor spoke to a packed Benjamin Franklin room here yesterday.
You can download the mp3 of his lecture, Peter Riddell’s response and the Q&A (13 MB) from our lectures audio page.
Meanwhile, Benedict Brogan and Peter Riddell are (as always) worth reading. They both see it as a significant moment in Mr Darling’s time at the Exchequer.
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