The Guardian view on Labour’s fiscal policy: mayhem, muddle, but the right call in the end
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Version 0 of 1. As ridiculous as John McDonnell’s economic policy may appear in the wake of his about-turn on George Osborne’s fiscal charter, and it certainly looks pretty shambolic, it is important to acknowledge just how ridiculous is the proposal that the shadow chancellor is wrestling with. Mr Osborne wishes to enshrine a wrong-headed symbol in statute, for no purpose beyond creating havoc on the Labour benches. He promises surpluses for ever using the law, but nobody will be going to jail when they don’t arrive. Even if the economy hummed to the point where the government was in the black, does anybody seriously imagine that Conservative MPs would sit passively for years on end when tax rates were higher than they needed to be? Does anybody dispute the arithmetic which demonstrates that a 2% GDP deficit will eventually result in a perfectly manageable public debt ratio of 40% GDP, just so long as nominal national income can be persuaded to grow at around 5% annually, as it generally did before Mr Osborne was in charge? Does anybody contest, either, that there are productivity-boosting investments which it is worth a government borrowing for, or indeed that the great lesson of the last few years is that it is important for the economic authorities to retain discretion to deal with nasty unknown unknowns? No, nobody serious disputes any of this, which is why the chancellor is – exactly as Mr McDonnell stated quite clearly in his conference speech – inviting Labour to play “a silly game”. Unfortunately, there has been silliness, too, in the shadow chancellor’s response. His headstrong original urge was to treat the game with the disdain it deserved, by signalling that he would vote for the law – denying Mr Osborne the pleasure of teasing him for not doing so – while reserving the right to rip up the charter and write his own fiscal rules if and when he came to power. That was implicit in his big speech in Brighton, when he hinted at the importance of borrowing for investment, something that the Osborne legislation expressly, and stupidly, precludes. Unfortunately, Mr McDonnell could not resist simultaneously trying to win himself and the Labour party some badly needed trust on the public finances, by applying a little spin. He stated that he, just like Mr Osborne, would run surpluses, without being explicit that his own surpluses would only cover day-to-day public spending, and not government capital projects. Parts of the press reported, and he didn’t discourage them, that Mr McDonnell would be as tough as the Tories on balancing the books, only that he would do so by taxing the rich. This might have been a defensible pose for the media if he had been able to stick to it, but – and this is no small snag – he had failed to spot that it was a line which wouldn’t hold. For the substantive Labour plan continued to involve, just as it had under Ed Miliband, borrowing – within careful limits – appreciably more than the Tories. One of the reasons why the Miliband leadership proved so fatefully inelegant is that he would never spit this out. Alarmed at Labour’s spendthrift image in focus groups, he inserted “fiscal locks” into his manifesto, and left it to the Institute for Fiscal Studies to explain his plans to borrow more. The voters never got to hear the “invest and grow” pitch, and were left not merely mistrustful but muddled as well. Mr McDonnell had a chance to draw a line under the Miliband years, but by supporting the charter for a fortnight before finally voting against it this week he has simply thickened the haze. If Mr Miliband looked like a rabbit in the headlights when the Tories attacked on borrowing, Mr McDonnell stands charged with lurching around in the beams like a drunk, walking away from the Conservative car, before having second thoughts, staggering back and saying: “Do you want to have a go, then?” The numerous Labour MPs who bitterly and sometimes unthinkingly oppose both him and Jeremy Corbyn will not quickly let him forget it. The shadow chancellor now faces quite a task in rescuing a silver lining from the cloud of confusion he has created. There really should be one in there somewhere. After all, the new policy of voting against the charter is the right thing to do. Had Labour backed it, the Tories would have said that this ruled it illegitimate for them to oppose every subsequent expenditure cut. It would have faced immediate problems with the SNP, and a longer-term problem, too, in convincing anybody that it was an anti-austerity party. To have voted for one thing while believing another would have been a silly game. |