Gordon Brown's speech this week, as he launched the Labour Party
conference economic policy document, was the clearest indication yet that
Labour has decided that its top political priority is to shed its image as a
"tax and spend" party.
"Labour is not against wealth, nor will
we seek to penalise it," said Brown. "Not only do we not tax for its
own sake, we only tax if it increases the opportunities for individuals or for
the community as a whole.
"On spending, we recognise that public
services exist for one purpose – to enhance people's opportunities and
prosperity. Wherever spending has become divorced from this purpose, it is
wasteful and inefficient and we should cut it or eliminate it."
Brown's speech was short on detail and,
typically, very careful. He did not promise that a Labour government would not
put up taxes; he did not even say that Labour would not increase direct taxes.
As far as public spending commitments are concerned, "there are
none": Labour will not decide how much it wants to spend on what until the
Commission on Social Justice, the non-party body set up by John Smith last
year, has published its conclusions and the party has reviewed them.
Nevertheless, two things are pretty clear.
First, Labour will not be fighting the next general election on anything like
last year's shadow budget, with its promises of increases in pensions and child
benefits paid for by the abolition of the ceiling on National Insurance
contributions and a 50p top rate of tax on earnings above £30,000 a year.
If Labour does go for tax increases, they
will generally not be income tax increases; to the extent that they are, they
will apply only to the very rich. And, insofar as the tax and welfare systems
are used for redistribution, it will be justified less in terms of achieving
greater equality of outcomes than of encouraging greater equality of
opportunity.
Second, Labour will not be fighting the next
election on anything like the platform for Keynesian reflation advanced by
Bryan Gould, Peter Main and others on the soft left of the party. For Brown and
the Labour leadership, public spending is not a good thing that encourages the
growth of demand in the economy: it has to be kept firmly under control and cut
where possible.
If Brown's speech left any room for doubt on
this point, there is none in the document that it launched. Its familiar
analysis of the failure of Britain to invest in industry and training and
equally familiar proposals for "supply-side" measures to rectify this
failure are accompanied by a straightforward rejection of the idea that
Keynesian demand management is the key to turning round the British economy: "Now that we live in an increasingly
global economy, care must be taken to ensure that an injection of resources
does not simply lead to more imports – and therefore more output in competitor
countries – but increases in output and jobs here.
"The key stimulus to investment is, of
course, the prospect of growing demand. To pretend that supply-side measures
alone are sufficient to secure the level of investment that Britain needs is to
neglect this basic fact. But to pretend that the management of demand alone
can sustain high levels of employment over the long term is to misunderstand
the current predicament of the British economy, which has an ever worsening
deficit despite the longest recession since the war. Without creating extra
capacity, expanding demand will in due course bring an even worse balance of
payments and increasing inflation."
Needless to say, the Labour left is less than
pleased at what it sees as Brown's kow-towing to the Tories on tax and
macroeconomic policy – and they could turn out to be right.
But much of Brown's "new approach"
makes sense. On tax, it would be madness for Labour to risk losing another
election by promising increased taxes on middle incomes. Even if the possibility
is discounted that, by the time of the next election, economic recovery might
just have given the Tories enough room to cut income tax, there are
plenty of ways of raising indirect taxes, if needs be, without making the tax
system more regressive.
More importantly, on macroeconomics, Brown is
quite right to dismiss the possibility that plucky little Britain could go it
alone with some version of the one-nation Keynesianism that underpinned the
Alternative Economic Strategy of the early 1980s. The globalisation and
increased mobility of capital really do make it impossible for a medium-sized
nation-state, even one without a massive balance of payments deficit,
significantly to boost demand without dire consequences. The last time it was
tried, in France in the early eighties, it failed ignominiously – and there is
every reason to believe that Britain in the late nineties would fare even
worse.
The problem is that, as things stand, this
leaves Labour with nothing more than its supply-side measures to distinguish
itself from the government, and training and tax breaks for investment do not
add up to an election-winning macroeconomic policy package, however often the
mantra is repeated and however important the skills base and the tax regime
are for attracting capital and jobs to Britain.
Just about the only way out is for Labour to
go beyond the limits of the nation-state and to look to the European Community
as the agent of an alternative macroeconomics that goes beyond the supply-side.
Yet the EC merits only the briefest of mentions in Labour's Economic
Approach, and then only as a possible forum for co-operation among
nation-states. Brown still has his work cut out if he is to offer a convincing
alternative.
