Where Do We Go From Here?

Because I think we’ve had enough party politics for one week, I’m going to look at a deeper question today. Taking as a given that the 2008 financial crisis and its aftermath have changed the rules of the game completely what can, and indeed should, left wing governments of the future aim to do? Ours is the age of huge budget deficits and low growth. It is impossible to redistribute wealth that is not there. Yet we live in a society which seems more iniquitous than ever. What is to be done?

Two people who have made a serious attempt to answer this question are Gavin Kelly and Nick Pearce, who have written an extensive essay on the subject for the Institute for Public Policy Research. Because normal people do not read long think tank pieces, I have summarised the essay below, and added my own annotations in [square brackets]. It does not paint a pretty picture.  

After the Coalition: What’s Left?

The government’s strategy for economic recovery is failing, yet the left has not put forward a serious alternative. If this continues, we are in for a prolonged period of stagnation, reminiscent of the 1970’s, and they were terrible [Rough translation; if we don’t do something then a new Margret Thatcher will come along and make the country even more unequal than it is now].

We no longer have the money to ameliorate social inequalities, and try as we might we cannot wish this reality away. Spending cuts are here to stay, regardless of who is in power. Incomes have not risen since 2003, and are not likely to in the foreseeable future. A new approach is needed, and it must go further than simply restoring growth.

In recent years, people in low skill jobs have received an ever decreasing share of GDP, and as a result their spending has not been able to drive the economy forward with extra demand [Low wage workers here are competing with even lower wage workers in the far east, notably the millions of extra Chinese people who have joined the global economy in the past thirty years. You can’t wish this away either].

People attempted to increase their living standards by borrowing money to pay for consumption [How many people do you know who ‘put it on the mortgage’], resulting in huge private debt levels and an unsustainable property boom. The only bit of the British economy which is really world class is the banking sector. Everything else has declined.

This messed up the tax system. The UK depends on taxing bankers and houses to fund itself. When the crash hit, this revenue decreased dangerously. That is why we have such a huge budget deficit. We need other parts of the economy to grow to make the tax system more stable.

We need to be much stricter about regulating financial and housing bubbles to prevent this happening again. We need to make banks lend to projects which build long term businesses, not short term housing bubbles [How? Nationalise all of them? The state already owns two banks, and they don’t seem to be helping]. The state should take the lead on this, setting up its own bank and spending tax revenue of projects which help the economy, like roads [and airports?].

We need to increase the wages of the low paid. This should be done by increasing the minimum wage [This could increase unemployment] and by making companies move in to higher skilled sectors [Again, how does a government do that?].

More women and older people should go to work. This means we need to widen access to child care [It doesn’t say how-I bet it’s expensive though]. We should encourage both parents to work, as we can no longer afford family tax credits. Raising incomes will be difficult, and not enough people are members of trade unions to rely on them to do it.

Now that we know what we’re aiming for, it is time to decide where to cut spending now. People on the left are ignoring this part at the moment [Agreed!]. Hardest of all will be the NHS. The cost of providing health care goes up faster than the economy grows. Even without cutting, the amount of health care the NHS provides will go down. We must get the best possible value for money. This will probably mean fewer hospitals [the idea that a left wing government will find it politically possible to close hospitals when even the coalition shy’s away from it shows you how hard this will be].

Defence spending must continue to fall [This is a shit idea. George Lansbury thought you could cut defence to spend more domestically. He was wrong then and it is wrong now]. In all areas of spending, there must be real focus on value for money [Yes. But no government sets out to waste money. It just happens. This is a chimera].

It is OK to borrow for growth producing infrastructure spending. It should be made easier for councils to do this by letting them use their assets as collateral [So could a council housing estate be repossessed? I don’t think so]. Road tolls should be introduced to pay for better transport.

Child benefit should be frozen, and higher rate pension tax relief cut [Vote winner there!] to pay for universal childcare. The goal of reducing child poverty should be abandoned. Some kind of social care system should be introduced.

The biggest nightmare is the aging population. People will claim pensions and health care for much longer in the future. That will squeeze all other budgets. We are not ready for this. To raise the money we should increase property taxes, introduce a financial transactions tax [Which will probably drive our only world class industry away unless the rest of the planet does it as well] and charge people national insurance after they retire.

This will not be enough. We will also have to raise VAT above 20% [The poor suffer proportionally more from VAT than the rich. This will be unpopular on the left].

Overall, what has been set out here is an attempt at outlining a left wing strategy, with both a goal and the steps necessary to achieve it. It shows the magnitude of the task that the left is facing, and that simply winning the next election is the easy bit. The hard work starts the day after.