Who is winning the economic argument?

David Cameron at the Export for Growth conference at London’s Imax Theatre

Since the coalition came to power in 2010 there has been a prominent and ongoing battle for public opinion over how best to deal with the three evils of a stagnating UK economy, the burden of the national debt and the negative value of state revenue minus public spending. The battle is being waged now but the ultimate accolades of right and wrong will only be decided with hindsight and may never be categorically proven whatsoever. It is commonplace in politics for wholesale differences in philosophy to translate into only slightly divergent policies when faced with the real-life limitations of power checked by unavoidable circumstances; however the differences in approach to the economy expounded by Labour and the Conservatives are highly significant.

Speaking at the Labour party conference Ed Balls, the Shadow Chancellor, highlighted once more the stimulus-based outlook that the Keynesian-thinking shadow cabinet tend towards, publicly pledging to commit the expected £3 billion windfall from the sale of the 4G phone spectrum into a 100,000 home affordable housing programme helping first time buyers and the ailing construction sector in a single move. This statement is emblematic of an opposition that believes public spending, employment initiatives and temporary tax reliefs can be used in a time of recession in order to provide the ‘jab in the arm’ they believe the slowing UK economy so badly needs.

This growth-centred approach has been consistently derided by the government, repeating the mantra that one cannot solve a debt crisis by borrowing more and whilst there is a weight of political opinion on both sides of the economic argument it may well be true that the majority of the public see Labour’s policy as something of a gamble, believing the Conservative austerity package to be tougher but safer. This could well be a mistake. As Miliband and Balls have suggested time and again the negative approach of cutting back spending whilst neglecting growth could be as much if not more of a gamble than their own more positive plan of action.

If Labour are correct and the government have cut too far, too fast there will be more people out of work who would otherwise be employed leading to less tax revenues and more spending on benefits for people who, due to cuts, wage freezes and the rising cost of living can no longer afford to make ends meet without state support. A recent report by the National Housing Federation published in The Guardian found that due to private rents rising faster than real wages “the number of working households forced to rely on housing benefit since the recession began in 2008 has doubled” leading to “a million earners being dependent on welfare to keep a roof over their heads by the next general election”. The shadow housing minister Jack Dromey cites this as a textbook example of where government cuts (£4 billion from Labour’s original affordable housing programme) have ultimately led to a higher burden on taxpayers making such policies inherently self-defeating.

The results of this argument will not simply determine who ends up holding the reins after the next General Election. The ramifications of mistaken economic policy are long-lasting and can be highly detrimental. Whilst overall unemployment was recently shown to have decreased, the number of young people unemployed for more than two years has risen from “38,552 to 103,294 – an increase of 168% in the past four years” according to a report by The Prince’s Trust charity published by the BBC on the 17th of October 2012, reinforcing anxieties over a ‘lost generation’ of potential tax-payers unable to contribute towards reducing the UK deficit. Whilst the government may direct commentators towards their Work Programme designed with the explicit intention of reducing long term unemployment, their ‘work or die’ ethic by which those claiming job seeker’s allowance can now have their benefit removed for up to three years for refusing or leaving work without “good reason” (announced by the Department for Work and Pensions on 22nd October 2012) may in the long term lead nowhere whilst austerity is king, confidence and profits are low, leaving employers wary of taking on new staff and the extra costs in terms of wages that this implies.

In the final analysis it is the opposing ideologies of the political parties, juxtaposed most saliently in their contrasting visions of what constitutes a successful state, which underlies their differing responses to the current crisis. Cameron speaks in corporate terms, promising to reform Britain into a nation that ‘can deliver’, that can play its part in the ‘global race’ and win out over its rivals. Under this lexicon, benefit cuts become ‘efficiencies’, employment law is ‘streamlined’ making it easier for companies to hire and fire at will. Britain is a failing business and Cameron is the CEO making all the tough decisions, doing what he must to make us competitive once again. Labour’s language is altogether less impressive, seeking always to mitigate against the human tragedies of widespread impoverishment, political alienation, endemic hopelessness and apathy in the young and old alike, compelling them to spend now at a time when they believe the country needs it most, temporarily increasing the public debt in the hope that the resulting positive consequences will make things easier down the line. The battle rages on.

Leave a Reply