Needed: a new language for tax and spend

Alan Johnson MP’s interview with Progress covered a lot of topics, including the future of trades unionism, but it was his comment about public spending that attracted my attention.

Let’s look at what was actually said in the Progress piece:

Asked whether Labour should commit to stick to the government’s spending limits for its first two years in office – as it did in 1997 – Johnson says it is ‘difficult to think what else you can do’. ‘We can’t get away from the fact that the fiscal deficit has got to come down,’ he argues.

Johnson is a sophisticated political thinker, even if I don’t always agree with his conclusions. But throwaway remarks like this, and he isn’t alone in saying it, are unhelpful, because we have to challenge conventional thinking about public spending and, in particular, public borrowing to fund investment.

The oft-quoted example of Labour accepting the Tory spending plans for 2 years after 1997 to establish its credentials (remember prudence?) doesn’t work for me. The Tories as much as admitted that Kenneth Clarke’s proposed spending cuts were designed to make it look as if his tax cut promises for the election were affordable: they wouldn’t have stuck to the spending limits if they had won. Especially in relation to housing, accepting the Tory budgets set Labour on a bad course and a failure to build affordable homes that was not really overcome until 2008.

The position in 2015 will be very different from 1997. By 2015 it is likely that output will hardly be any higher than 2008, we may have had the triple dip, and the economy will still be running seriously under-capacity. Most people will be poorer and some people will be a huge amount poorer, especially those who were the poorest to start with. Services across the board will have been decimated and needs will have increased significantly. The housing crisis will have intensified even more, with homelessness rising rapidly and rents becoming increasingly unaffordable along with energy costs, travel costs and other basics.

To have policies fit for the circumstances Labour will need a radical new approach to tax and spend. Contrary to what Alan Johnson said, it is relatively easy ‘to think of what else you could do’. Ed Miliband’s notion of ‘pre-distribution’ caused some mirth (helpful explanations here) but is a vital concept in rebalancing public spending to limit the cost to the taxpayer of market failures. For example, the idea of the ‘Living Wage’ resonates with people and is being taken up by a wide range of progressive employers, cutting the cost of income support. The super-rich and mega-corporations have to pay their taxes and some new taxes (eg on the super-heated central London property market) will be justified. The banks carry on regardless and are still not paying for the profit-driven recklessness that caused the collapse. Income and wealth inequality is greater than it has been for decades.

In housing, far from being ‘out of control’ the housing benefit bill is the direct consequence of policy decisions (eg not building social housing, dumping homeless people in the private rented sector) and the financial crisis (unaffordable home ownership leading to ‘generation rent’). Building social rented housing and limiting private rent increases would help bring it down. Housing investment pretty much pays for itself through increased taxes and reduced unemployment. Better accounting practice across departments would allow investment in housing to be measured through savings in health and other budgets. And, as we have argued before, changes to Treasury conventions, to bring the UK in line with international practice, could enable the public corporate sector to borrow prudentially and be much more productive.

There are many more ideas around. But we are still a long way from a General Election and the point where the Labour Opposition has to make promises and detail its tax and spending plans. In housing we already have some bankable commitments, notably the promise to fund 125,000 extra affordable homes (of which 40,000 would be social rent) through the bankers bonus tax and the sale of G4 licences. But at this stage it is vital to challenge conventional views of public spending and the one-dimensional logic that the deficit can only be reduced through cuts in public services: it can equally well be reduced by a mix of policies on pre-distribution, reduced tax avoidance, targeted tax rises, and the promotion of growth and investment.

Just like challenging the dominance of the ‘scrounger’ narrative, this is another area where using the right language consistently will reap political benefits.

Courtesy of @stevehilditch and @labourhousing via Red Brick