Labour Must Make the Case for Public Spending

If Labour is to challenge the Tory vision of society, it must challenge the Tory vision of the economy – and that begins by tackling the dominant idea that the market is efficient while public spending is wasteful.

The 2008 Financial Crisis saw the Conservatives perform a fact distortion of undeniable brilliance. The global collapse of the stock market – driven by the greed and profligacy of deregulated financial sectors – was contorted with incredible dexterity into the consequence of a Labour government overspending on one small island in the Atlantic. Forget US sub-prime mortgages and million-pound bankers’ bonuses: the real culprit was grants to local libraries and British nurses receiving pay rises in line with inflation.

Labour have long struggled with an undeserved reputation for fiscal irresponsibility. The image dates back as far as Wilson’s devaluation of the pound in 1967, but it was compounded by the economic turmoil of the ’70s, when ‘tax-and-spend’ policies were blamed for the ballooning inflation and high unemployment that culminated in the Winter of Discontent. 

Accordingly, after the election of Tony Blair as Labour leader in 1994, his Shadow Chancellor Gordon Brown began a focused campaign to re-brand Labour as the party of economic prudence. For the most part, Brown managed a balancing act, keeping Tory-supporting papers on-side while increasing tax credits for the poorest and raising overall spending on a rickety public service sector that was beginning to fall apart at the seams after years of underinvestment.

Then came 2008. Brown acted fast, and was globally lauded as the man who saved the world economy from collapse – but it wasn’t enough to win the subsequent election. In came Cameron, Osborne and a narrative disappearing act: the global financial disaster was in fact a result of Labour incompetence. Austerity became the word of the day, and recovery predictably ground to a halt

But Osborne never believed that reducing the country’s outgoings would help lift us out of the crisis. The recession was a cover for a radical overhaul of the state, reducing public spending and pivoting further towards the private sector. By comparing the nationwide economy to a household budget where a family might cut outgoings in order to reduce their debts, Osborne created a metaphor that most people could understand; the fact that it made no macro-economic sense was irrelevant. 

Fast-forward to 2020, and the coronavirus pandemic has prompted a sea-change. Out of the window went the rhetoric of ‘belt-tightening’ as a solution to economic decline. The Conservatives are now the loud proponents of the need for government investment in the economy to prevent its collapse. Who would have predicted, back in 2010, that within 10 years a Tory occupant of Number 11 would not only be subsidising the wages of 10 million workers, but also 50% of the costs of their meals out? 

And how are we paying for this? The chancellery appears to have found the magic money tree hiding in the garden of Number 11, after all. Public spending is back on the agenda, with Sunak even considering a dramatic overhaul of capital gains tax to pay for it, which is likely to require a greater contribution from the wealthiest in society. 

Outside their comfort zone, though, the Conservatives’ new commitment to compassionate spending is shaky. Having convinced the public that government investment to prop up a floundering economy is essential, Johnson and Sunak’s natural small-state instincts are starting to kick in.

Last week’s spending review, with its freeze on public sector wages and Local Housing Allowance, has been labelled by some ‘austerity in disguise’. Only a month before, the proposed Job Support Scheme, a half-measure intended to replace the more generous furlough package, saw Johnson’s government face a full-scale Northern revolt coupled with heavy criticism from businesses, unions and workers.

Then there was the refusal to fund meals for children over the half-term holidays, triggering another outpouring of national anger. Amid the reluctance, dithering and screeching U-turns, public opinion in support of government spending is riding high, with towns and cities across the former ‘Red Wall’ particularly worried about how to keep local businesses and households afloat.

There can be no better time for Labour to step into the breach. Ten years of austerity has left our health, social care and education sectors in tatters, and the pandemic has shone a bright light on the extent of the decay. Now is the time to recognise that the state plays a vital role in a healthy and flourishing society – and advocate for its extension.

We each pay taxes so that our government has the funds to deliver on its promise to provide us with quality healthcare, the best education for our children, and a baseline of economic security. The right-wing framing of the state as simply ‘interference’ in the market is therefore not only to fundamentally misunderstand its role, but to collectively shoot ourselves in the foot – before finding there are no hospital beds nor medical staff to help us sew up the wound. 

Circumstances have created a perfect storm of despair, but as the creators of the NHS and the welfare state, a beneficent and supportive government is Labour’s home turf. By contrast, Rishi Sunak is now backed into a corner of his own making, forced to champion a cause on which he cannot hope to follow through. Labour must capitalise on this unique opportunity to re-shape the economic narrative of the next decade and perhaps beyond, and in doing so, close the door on austerity for good.