The Labour Party has today announced a zero-based review of public spending, to be completed early in the next Parliament. It’s being presented in some circles as a renewal of the commitment to stick to something close to austerity after the election – which in some senses it is; in others it has been presented as an opportunity for the Left, because it allows the Party to conduct a debate about priorities. I’m going to be optimistic and take the latter view.
I’m happy to do that for two reasons. First, it seems to me that the language of Labour’s leadership – and of Ed Miliband in particular – is both more left-leaning and more populist than for some time. When we talk about cost-of-living crises, of regulating failing markets in energy, and of offering job guarantees, we’re moving a long way away from the market-based language of Blairism. We as a party are asking the fundamental questions about who benefits from economic activity and the language of Milibandism is optimistic; it speaks of a state that can intervene positively in the interest of the majority, and above all it’s popular – at a time of austerity that language resonates with the public.
And, second, I’m happy to see such a review because I am confident that it is possible to make a case for a strong, enabling state; and when you conduct a zero-based review that is exactly the question you are asking. What is the role of the state? What should it do? My main concern is that the review is not going to ask the big, longer-term questions; the team that Ed Balls has selected to lead the review looks very much like a team of insiders. It is a debate, though, in which we on the economic left – who want to see more public spending and more state intervention, need to make our case powerfully and forcefully.
And I think we can do that because on many of the big issues, we on the left are actually on the side of efficiency. There are numerous examples where we can point to ways of doing things that are inherently inefficient as well as wrong. We all know, for example, that the bedroom tax costs more than it raises. But more generally we can point out that the further we move away from the Beveridge principles of universality, the more expensive social security becomes, because it acquires complexity, it has to be policed and managed, and can all too easily generate perverse incentives. Running a social security system that appeases the Daily Mail is not just ungenerous; it’s inefficient and expensive and under-achieving. Beveridge knew that the universal principle was efficient as well as socially cohesive.
Or take the system of in-work benefits. Once again, it’s inefficient and expensive to operate – and the state is effectively subsidising poor employers. Raising the minimum wage to a living wage boosts the economy and means more tax revenue and less subsidy; in terms of a zero-based review it’s a no-brainer, as long as we carry that conclusion through into wider policy making.
Or take housing. The current broken housing market means that collectively we face a huge housing benefit bill that is essentially subsidising private landlords and incentivising housing shortages; a commitment to a huge programme of social housing creates jobs and tax revenues, while changing the game in the rental market. Workfare policies effectively subsidise poor employers, and its widespread use in the retail sector gives big chains an unfair competitive advantage against the smaller businesses we as a party celebrated on Small Business Saturday a couple of weeks ago. Local transport projects – especially those promoting walking and cycling – provide far better returns on investment than vanity projects like HS2 . And many of the things we need to do to develop a high-value economy – like training and supporting people through the changes in working patterns that innovation brings – are best done in partnership with the state.
And so it continues. The simple fact remains that we on the left of the economic debate – who want a dynamic and interventionist public sector – are fundamentally on the side of efficiency: much more than those who want to cut and privatise and outsource. There’s nothing socialist about waste; on the contrary, it’s a doctrine that requires us to think hard about how we use scarce resources. The fact is that we can all think of public spending where money is directed at the wrong people or things, or just wasted; the point of this review is that it offers the chance to show that, in contrast to the ideology that has dominated economic and political discourse for nearly forty years, government expenditure is often efficient expenditure, and not just because of the multiplier and stabiliser effects we learned about in our A-level economics.
In terms of the zero-based review, the question of course is about how open it will be. The launch document says many of the right things, about how austerity is driving up public debt and controlling it requires growth (although I tend to take the Paul Krugman view that just now deficit and debt are the least of our worries). The point though of course is that all the issues I’ve mentioned above need long-term strategic thinking and a commitment to make some pretty fundamental policy commitments; to talk about priorities and timescales. The Labour Party as a whole needs to ensure that the review is opened up so these points can be made.
In his Labour List piece, Mark Ferguson reminds us of Aneurin Bevan’s comment that the language of priorities is the religion of socialism. At one level, the debate around this review could be a way in which a confident economic left can energise economic debate, and stop the free-marketeers from setting the terms of debate. We now have a leadership comfortable with talking about state intervention to deal with the cost-of-living crisis, and of intervening in markets; we need to ensure that the fundamentally radical logic of those arguments – of shifting the focus of the debate from rentiers to wage-earners – is followed through.