Labour’s Future Economic Policy: ‘it’s not all about the spending’

Last night John McDonnell gave the third speech in the ‘New Economics’ series that has been pulled together to explore and develop economic policies that the Labour Party will propose going forward. It was very carefully crafted with something for everyone. McDonnell’s speech to the annual Labour conference gathering in September left one sketch writer commenting that ‘inside every iconoclast there is a survivalist pragmatist waiting to get out’, and last night’s was an even more powerful demonstration of that.

For those on the left, there was a clear statement that ‘the Labour Party is an anti-austerity party’, keen to look at models of ownership, including a greater place for co-operatives and developing ‘a Right to Own’. For those closer to the centre of the political spectrum, there were also signs for optimism. McDonnell acknowledged the deficit and recognised the Labour Party’s major problem is convincing voters it can be trusted with the economy and that to win this battle will be the ‘fight in a generation’. He mentioned a review by Seema Malhotra, Shadow Chief Secretary to the Treasury, into tax reliefs and how they impact on business investment and whether the taxpayer is getting value for money. So, for Labour moderates approaching McDonnell’s speech with an open mind, there was much to applaud.

There was, however, one glaring moment towards the end of the speech which might have triggered a loss of that goodwill. McDonnell appeared to imply that it was (New) Labour’s approach to the economy – ‘a political settlement in which the private sector and its major vested interests would remain largely untouched, but public spending would be maintained’ – effectively caused the crash. Independent economic commentators are very much agreed that the events of 2008 and beyond were a global phenomenon and that no one government or political party was to blame. Even the then Prime Minister Gordon Brown was considered to have steered the economy as well as could have been expected given the worldwide nature of the crash.

The Labour Party’s reputation for economic competence would be much easier to salvage had the party defended its economic record in office rather than hope the matter would go away, which allowed the Conservative mantra of Labour profligacy to take hold. While the attempt to appeal to both sides of the party will be genuinely welcome in many quarters, it will be undermined if McDonnell (and Corbyn) cannot let go of their vitriol for New Labour/ Blair/ Brown – whatever their precise bone of contention may be. And consequently, they will fail to take people with them who they need to be taking on this journey to find (dare I say it) ‘the third way’.

When it comes to choosing a government, one of the key areas that voters focus on is economic policy. In a nutshell, do they trust you with their money? And on that question, Labour has a lot of ground to make up. I am a self-confessed politico, but one that often finds myself frustrated when looking at the policies and outcomes our political system produces. One aspect of that frustration is often the short-termist nature of politics. Our politicians all too often seem to be pre-occupied by (a) the legacy they will leave behind and (b) winning the next election. To that end the rhetoric is often wonderful (from all politicians), they promise much but deliver little.  McDonnell’s real challenge will be to pull this all together into a coherent policy offering and not just sound like he can talk to both sides thereby keeping everyone happy. At this stage, there are few policies but lots of reviews going on. It all sounds good in theory but the practice of making it work will be an entirely different story. And despite McDonnell’s previous protestations that the Institute for Fiscal Studies (IFS) will be all over any policy proposals put forward by the Labour Party, The Guardian’s John Crace pointed out ‘the IFS has yet to find any economic policy from any of the main political parties that it reckons is either workable, affordable and not the work of a certifiable fantasist’.