Ed Miliband’s speech today is absolutely right to place the emphasis on living standards. The economy is central both to Britain’s recovery and Labour’s political strategy, and it is in their living standards that our people are feeling the impact of the failures of neoliberalism and austerity. The restoration of the 10p tax rate and imposition of a mansion tax represent a commitment to tax fairness and redistrubution which we need. The fact that it pays for a tax cut the Lib Dems oppose with a tax the Tories oppose is smart tactics. So far so good.
It is also right to focus on the cost of living. A cap on payday loans and bank charges are welcome as is the prevention of rail fare rip offs, but effective regulation of energy prices and public transport fares requires far wider controls, not to mention a return to public ownership (and what on earth is meant by “break the stranglehold of the big six energy suppliers“? Competition has shown itself to increase prices, not reduce them). But the biggest missing cost is housing — what about rent controls?
Ed is undoubtedly sincere and consistent too in his backing for a living wage. Which is why he should have gone further than his commitment today to “work with companies and workers to encourage a living wage across our country“. We need a statutory living wage, no ifs or buts. We believe in a state that steps in to protect people’s welfare, but we don’t need or want a state that subsidises poverty pay.
But the remaining elephant in the room is public spending and the deficit, on this we agree (up to a point) with Labour Uncut. The public does still think the deficit is somehow Labour’s fault, the result of Labour profligacy. That’s a lie but the reason we haven’t nailed it is because too many shadow cabinet members believe it too. I don’t think Ed Miliband believes it; and I don’t think Ed Balls did either when he made his Bloomberg speech. But it is a lie we need to nail if we are going to do the right thing for the British economy.
Public Sector debt is not the problem. It isn’t even a problem. It wasn’t under Gordon Brown, nor under Tony Blair. What was a problem is private sector debt. It is very clear in this graph, for which we are indebted to McKinseys.
Private sector debt, especially in the financial sector, did explode on Labour’s watch (though not only in Britain). New Labour did fail to recognise the problem and deal with it. The Tories and Lib Dems, the bankers and the regulators, the Germans and the Americans, they failed to recognise the problem and deal with it too. But in our own case, Gordon preferred to ride the bubble and pretend that rising living standards on the back of it was the result of “prudence”. To be fair to him, he did eventually realise the problem before most others did and rediscovered Keynes.
It was too late for Gordon, and Gideon is way behind. The two Eds may, however, get their chance. But it isn’t possible to solve the real (private) debt problem without economic devastation for Britain without incurring greater public sector debt in the short to medium term. The deficit can only be eliminated through growth. And the sooner we start saying that, the better.