In response to the ongoing economic crisis and in particular the debate around what Labour’s response to the budget deficit should Compass has published a briefing entitled ‘White Flag’ Labour? Fiscal policy for the UK’s next progressive Government.

‘White Flag’ Labour? has been written by Howard Reed and warns that if Labour accepts, in full and seemingly without question, the economic fallacies of “Osbornomics” it risks gifting the Tories an easy win at the 2015 election by allowing them completely to dictate the terms of the economic debate.

Furthermore, given the trouble that the Coalition’s deficit reduction programme has run into and the recent economic figures that confirm both jobs and economic activity are down it argues that it would seem ludicrous for Labour to jump on board the austerity bandwagon at just the point it seems to be coming off the rails.

In response to announcements made by the Labour Party in the media last week the briefing states that:

“ Ed Balls’ new strategy of accepting Coalition spending cuts as a fait accompli risks making it look like Labour has wholly accepted George Osborne’s fiscal strategy – demoralising Labour Party supporters who are fighting against them while allowing the Conservatives to dictate the terms of the economic debate ”

The briefing maintains that Labour’s ‘credibility gap’ on the economy comes not from its stance on the deficit but the fact that Labour were in Government during the economic crisis and that Labour have hardly given voters any reason to believe that they would manage the economy differently next time.

Looking beyond this Parliament the briefing reaffirms that an alternative progressive government – either a majority Labour government or Labour in coalition with the Lib Dems and/or other smaller parties – should deliver a clear ‘Plan B’ alternative to Coalition economic failure through a short-term fiscal stimulus to prevent a double-dip recession coupled with comprehensive reforms to the financial system, industrial policy, tax and benefit systems, and public spending.

Howard Reed is Director of Landman Economics and co-author of Plan B:a good economy for a good society. I contributed to that Plan B and rate Howard’s work highly. Plan B is available for download at http://compassonline.org.uk/publications/

Download the briefing here (PDF)

Let me begin with a tweet:

@ChukaUmunna: @Ed_Miliband and @edballsmp have made absolutely the right decision on @UKLabour‘s economic policies…

I guess it’s hardly surprising that a member of the shadow cabinet supports his party leader, so that’s not why I have quoted this tweet from Chuka Umunna. My real concern is something quite different, and that is that actually neither Ed Balls or Ed Miliband have said what Labour’s economic policy is. If they had we wouldn’t be seeing the conflicts we are this week.

I’ve already said – and it is as far as I’ll go in accommodating Ed Balls’ statement - that it’s reasonable that Labour cannot say now which cuts it will reverse in 2015. That’s obvious. I think Len McCluskey agreed with that. Anyone would.

And it’s also reasonable that Labour cannot say now precisely what agenda it will put forward in 2015. Again, since we cannot know and possibly even imagine what mess the Tories will have created by then that is again fair.

But what’s now very clearly going on is something that is much more significant than that. There is very obviously a coordinated effort to ensure Labour is forced to be a right wing party where singing the bankers’ tune and following the neoliberal line is the core of the party’s policy.

That is clearly the Guardian’s agenda - overtly driven by Patrick Wintour who has been writing aggressively anti-Ed Miliband commentary for some weeks now.

And there’s clearly been a coordinated attack by the right-wing of Labour, including Jim Murphy, Liam Byrne, Stephen Twigg and the Black Labour movement. This attack is well coordinated and well funded – some guess Mandelson is behind that; I wonder if Blair is.

The important point is all these people share a belief in common. I describe it in the Courageous State:

The economic crisis we are now facing is the legacy of Thatcher and Reagan because they introduced into government the neoliberal idea that whatever a politician does, however well-intentioned that action might be, they will always make matters worse in the economy. This is because government is never able, according to neoliberal thinking, to outperform the market, which will always, it says, allocate resources better and so increase human well-being more than government can.

That thinking is the reason why we have ended up with cowardly government. That is why in August 2011, when we had riots on streets of London we also had Conservative politicians on holiday, reluctant to return because they were quite sure that nothing they could do and no action they could take would make any difference to the outcome of the situation. What began as an economic idea has now swept across government as a whole: we have got a class of politicians who think that the only useful function for the power that they hold is to dismantle the state they have been elected to govern while transferring as many of its functions as possible to unelected businesses that have bankrolled their path to power.

A plan for #growth: close the tax gap; green quantitative easing; 25% of pension contributions invested in job creation. Go for it #Labour

I seem to be caught between the devil and the deep blue amongst Labour supporters this weekend. On Saturday I wrote a blog in which I explained what I thought Ed Balls was really trying to say in his speeches and comments over the weekend. That’s been widely quoted, seemingly favourably by some whilst others in the left really don’t like it.

Now let’s be clear, as some noted, if it took that much interpretation then the comment Ball’s made was not as good as it could have been seems to me to go without saying. I don’t have to defend Labour – I’m not a member of Labour or any other party for a start – so it’s quite fair for me to say that.

But equally I don’t think Balls meant Labour has embraced all the cuts just because it has recognised that like it or not they’re happening and that like it or not come 2015 we are still going to be in the economic doldrums as a direct result of Tory policy and will not therefore have the resources to immediately reverse all Tory policies and the harm they’ve caused. It may even be realistic to say in some cases that he would not wish to do reverse cuts – 2010 after all was not a perfect example of what government should look like and any realist would recognise that.

But that said, being pragmatic about the inheritance does not mean indifference (I hope) bout creating the mechanisms for tackling the cuts agenda so that real growth – in jobs, in pay, in benefits and in much else – can be restored. I’m hoping that the tax haven announcement was an indication that more on how to raise the revenues needed is coming - because if it isn’t then there will be real causes for concern because it is by saying how Labour will fund the vital services this country needs, and the pay of those supplying them, that give it the chance to be credible when saying it will change things.

Here, and I am unreserved in noting it, there is a good letter in the Guardian this morning that sets out a great deal of what needs to be done. It says:

It is investment in decently paid jobs that generates income, and thus the tax revenues to pay for credit or borrowed money, not the other way round. Instead of trying to out compete the government in some kind of masochistic virility test to see who can threaten the greatest austerity, an opposition party worthy of the name would be making a far stronger case that austerity isn’t working, and offering a genuine alternative.

A combination of more progressive taxation, a crack down on tax evasion and avoidance and, crucially, Green quantitative easing to deliver investment directly in the new jobs and infrastructure the UK urgently needs to make the transition to a more sustainable economy, would do far more to challenge the government than the Tory-lite policies set out by the shadow chancellor.

That’s by Caroline Lucas – and I completely endorse that thinking which is (unsurprisingly as Caroline and I have co-authored and as we’re both members of the Green New Deal group) quite similar to my own.

And she is clearly indicating what Labour have to do now.

Closing the tax gap of up to £120 billion is an essential part of this agenda. I have written endlessly on this point – and Labour has to embrace the idea that investing in HMRC is about revenue raising – not making spending commitments that are unfunded. If it can’t do that it has lost the plot.

And Labour has to do more. Green quantitative easing is possible. If we can spend £200 billion into the economy to save banks we can spend money in to create jobs. There is no reason why not. And remember, right now the government is actually borrowing at negative interest rates – that is how easy this is to fund.

Thirdly, real pension reform is essential. It is ludicrous that £37 billion a year is spent on pension tax reliefs when pension funds refuse to invest the £80 billion a year they get as a result in job creation. If just one quarter of pension fund money was put into job creation, matched by a similar sum from green quantitative easing we could transform investment in the UK and begin to turn this economy around.

Labour also needs to be straightforward and say that since 30% of all government debt is owned by the Bank of England - which is government owned – debt is not nearly as high as the Tories claim and the need for debt reduction not nearly as pressing as the Tories say and even the spending on interest is not nearly as important as they claim – as this debt can just be cancelled, so releasing funding for real projects.

More though than that, Labour has to say that when it is right it will borrow to invest – because investing is a sign of hope, and it does have hope for this country. That investment will create jobs, and will generate tax revenues, and will with the other policies noted, reverse the fortunes of the economy.

That’s what Labour has to do: the cuts agenda is a policy by a government that has given up hope and is without idea on how to restore the well-being of this country. Saying that is right, but to put all effort into opposing all cuts when the real issue is not the cuts but the failure of the government to lead economic policy in a way that will lead to recovery that impacts the lives of all in this country would be the mistake. I’m seriously hoping Labour will be saying that and will be focussing on how to deliver change that can then be discussed in detail. If not, well, I despair too. But I haven’t yet.

And Caroline Lucas in the meantime has taken the right position – and full marks to her for doing so.

Howard Reed is an economist who I respect a lot so when he writes a lengthy comment in this blog I think it worth giving I publicity. He wrote today of the Policy Network report on Labour’s election strategy published on Thursday:

I’ve just read the McClymont/Jackson Policy Network report and to be fair to them, I think it’s been reported very misleadingly in the Guardian (as happens so often nowadays, sadly!)

While it is true that the report does say that Labour can’t win the next election solely by relying on support from public sector workers (and I’d agree with that, given that only a minority of people work in the public sector, and even less after the ConDem cuts) the main focus of the report’s conclusions is that Labour needs to deliver a positive message about economic renewal and growth to win in 2015 – with well-worked out positives which present a clear alternative to the ConDems (e.g. more activist industrial policy). I think this is right – the ConDem appeal to voters is based on negativity and fear and Labour has won most convincingly in the past with a positive message of economic renewal (1945, 1966, 1997).

It seems to me, given the thrust of the report, that McClymont and Jackson would be highly sympathetic to many of the policy ideas for economic renewal presented in The Courageous State and also Compass’s Plan B, for example. So for me, the report isn’t that bad – certainly a lot better than the last Policy Network publication, In the Black Labour, which basically said Labour should abandon the economic argument to the Tory Party. However, it’s not a perfect report by any means. The main weaknesses in the McClymont/Jackson report, as far as I can see, are:

1) there is no way, realistically, to deliver social democratic outcomes without spending more than the Tories (or the ConDems, if they choose some kind of electoral pact) are going to want to do in 2015-20. Thus there isn’t much alternative to Labour being defined as a party that wants to “tax and spend”, at least to a higher degree than the Tories. But given the immense macro and microeconomic damage being caused to the UK by the cuts, I don’t see this as a problem in itself. Rather, as Richard says, “the only way to stimulate the private sector right now is for govt to spend”. That needs to be the key message on the economy – along with explanation of what the money will be spent on and how it will benefit ordinary people.

2) There is no mention of the environment in the report at all and I think this is a very serious omission. “Growth” will only be possible insofar as it respects environmental constraints and in particular, limits to natural resources and limits to carbon emissions. Without that, our economic model is entirely sunk.

Just my €0.02 on this anyhow!

I agree with Howard that the Guardian’s reporting of this report was not flattering and that it did contain more worthwhile elements than the Guardian suggested, but the most cursory glance at today’s letters page in the Guardian makes clear just how far adrift very many people think Labour is, including I suspect many who simply will not vote at the next general election as a positive way of suggesting no choice offered to them is a credible or acceptable. In particular I think it worth drawing attention to the letter from Chris Guiton, who has clearly read the pamphlet and says:

While McClymont and Jackson’s emphasis on an activist industrial strategy is to be commended, it’s interesting what’s not mentioned in their pamphlet. Where’s the discussion, for example, about genuine steps to curb the power of the City; the development of a fairer, more progressive tax system, tackling inequalities of wealth as well as income; or action to return the utilities to public control. The continued focus on the squeezed middle, and rejection of increased public spending, suggests a political perspective wedded firmly to New Labour managerialism and an austerity-lite economic policy. Labour’s problem is a failure to articulate an electoral argument to benefit the majority, low-income as well as middle-income.

I think that when this pamphlet is read in association with the previous Policy Network publication on ‘fiscal conservatism’ and also in the light of Ed Balls’ too enthusiastic recent defence of the City just how easy it is to misread Labour economic policy documents even when, as Howard notes, there are merits to some of the arguments in this document.

That leads to the inevitable conclusion that the problem is that Labour has still not developed a coherent short narrative of what it dan really deliver for the people of this country, starting with a commitment to create jobs. And let’s also be honest; so far have none of us critics done that convincingly enough, as yet, either.