Labour’s Economic Plans: What Went Wrong?

by James Meadway

17 December 2019

Jeremy Corbyn /Flickr

There’s no false consolation here: the result was bad, it could have been worse, and if we think about what might happen in the next few years, there is at least the possibility that it will get worse at the next election.

The left in Britain will need a clear-sighted and politically viable plan to prevent that happening and to rebuild; but looking at the very wide distribution of marginal seats, there is not only a slender path back not just to rebuilding, but to a working parliamentary majority. There is, in our cities and our larger towns, a clear, left majority amongst a new working class, seen most clearly not in the redundant ABC1/C2DE classifications, but in the age bias in voting patterns. But we are dealing also with the elemental forces of decline in longstanding Labour areas. The primary strategic challenge for us lies in working out how to build out from our strengths in the new working class, and outwards into more traditional Labour areas.

Part of developing a plan to rebuild and win is understanding where we went wrong this time. This will involve an honest assessment of decisions taken, particularly just before and then during the election campaign. Easy answers will do nothing for us, and certainly the idea that just shifting the party’s Brexit position would have clinched it – or even much improved the result – is plainly incorrect. We were losing leave-voting seats like Mansfield already in 2017, whilst by mid-2019 it was very clear that remain voters would shift elsewhere. By 2019, Brexit was a lose-lose for Labour – the critical thing we lacked was clarity, either way, which would allow us to then manage the losses and correct our way out of them. It was the lack of clarity on Brexit that did the most damage to Jeremy Corbyn personally, turning him from a principled campaigner into just another triangulating politician over the course of 2018 and (especially) 2019. More to the point, Brexit is now happening. Time to move on.

That aside, we need an honest account of what we got right, as well as what we got wrong. Some things we did get right: the extraordinary mobilisation via Momentum was one of them, and the far sharper use of data in their campaign really produced results. We would have lost more votes without them, simple as that. However, in my own narrow field – economic policy – a series of decisions were made that, to my dismay, showed that the good lessons applied in and learned from the 2017 campaign had been ditched. Unlike the Tories – who, under Boris Johnson, and despite my hopes after two years of their flapping and confusion, rapidly processed the lessons of their 2017 debacle and put in place a plan to win – we went into reverse. In an election where so many seats were so marginal, this made a difference; we had to get the campaign right, we had to get the policy strategy right, and we got them largely wrong. Especially once the decision was taken to head in a remainish direction, we had to make the anti-austerity offer stronger – not in the sense of bigger (it was clearly bigger), but in the sense of more credible to the specific set of voters we had to persuade in our direction.

To be very clear: this isn’t an argument about the content of the policy as such. The 2019 manifesto, on its own terms, is an outline plan for how to reshape our economy and turn it in a recognisably North European direction. It poses serious, economically credible answers to the problems we face; and, as we know, on their own terms, the policies it proposes are popular. This is the terrain of the economic argument in Labour and for the wider left now, and I would expect any future leadership contest to take place within the space that has been carefully staked out. There are strikingly few new or good ideas on the centre or right of the party in any case, and there is little merit in trying to turn the clock back to 2015 or 1997; the world has changed, and this manifesto addresses that. Moreover, if Boris Johnson’s statements since winning are to be believed, his government will be more economically interventionist – along the lines of their 2017 manifesto – than recent Tory governments, with the intent of shoring up their majority by appealing to their new northern seats. The political terrain will have shifted by 2024, and arguments now less significant – around data and technology, I would guess – will have come to the fore. We will need to shift emphasis and introduce new elements.

Rather, my argument here is about the failure of political and communications strategy around the policy. I want to pick up here on some of the key problems. I am writing this as carefully as I can, for a wider party and movement audience, and I want to avoid direct recrimination. I like and admire both Jeremy Corbyn and John McDonnell, and the courage and selflessness they have shown through four difficult years is an example for us all. John – typically, and it is a measure of his fundamental decency – has offered to take the fall, and no leading politician can entirely escape blame. But it should be clear from the following that much of the advice being given to senior Labour politicians on economic policy had gone awry over the last year and then fell apart during the election campaign.

First, this:

The economy is a zero-sum game.

This is the starting point. Understanding this was critical to the success of the 2017 manifesto. Failing to understand it was critical to the failure of 2019. The economy has grown, weakly, since 2008. Real wages have not and public services have disintegrated. An economy that behaves like this, in which some people get richer but most very visibly do not, is one in which the broad promise of growth has broken down. Many people perceive the economy to be, broadly speaking, a racket in which a minority at the top are doing well at the expense of others, and they are, broadly speaking, quite correct.

To see the economy like this is to see it as a zero-sum game whose brutal logic is this: I can only do better if somebody else does worse. If I want to be better off, someone else must be worse off. There are, of course, plenty of ‘Keynesians’ out there who might see that improving the functioning of the economy – through investment and so on – can produce gains for everybody, and that the question is the distribution of the gains from this growth. But for significant numbers of people, and particularly for those people who have found themselves on the wrong side of a zero-sum game for a long period of time, such arguments don’t work. Note that austerity reinforces these arguments: the worse things get, the harder it can seem to imagine things getting better. (I made a barebones version of this argument in a piece I wrote back before Jeremy was first elected.)

The political logic that follows from this is equally simple: to talk about winners, you first have to talk about losers. You will get a licence to describe the new world you want to build if you first describe, to be blunt, how it will be paid for. That is why, in 2017, we very early on took the decision to come straight out and say who would pay increased taxes under Labour. We defined this as the top 5% – those earning over £80,000 a year – because this was a figure sufficiently far out of the reach of most people as to safely exclude them from ever having to pay it, but it also matched our longer term desire to create a fairer tax system. By breaking with the Blairite logic – which is absolutely terrified of talking about tax rises, particularly on the better-off  – we adopted instead a populist logic. This had the additional benefit of allowing us to credibly claim that most people (95% of people) would not pay any more income tax, standard rate VAT, or national insurance contributions – but this was only a second-order benefit, intended to reinforce the overall message. In conditions where most people’s wages have fallen at some point in the last decade, it’s an extremely hard sell to tell them that Labour will definitely make them poorer still via tax rises. Combined with being upfront about corporation tax rises, we had given ourselves a clear, simple answer to the ‘who will pay for it?’ question, and one that I think we successfully pushed through.

(Note that there is an obvious and awful right-wing version of the zero-sum game. Who loses? Migrants. Minorities. We hit them so you win. Brexit encoded a version of this: who loses? The EU, by £350m a week. Now the NHS wins. Hurrah.)

Now this is a gloss on a longer term problem. Millions of people have lost faith in the capacity of the political system to deliver anything for them. This cynicism was there even before the last decade or so of austerity reinforced it; it was there when New Labour failed to address the widening regional inequalities, and failed to rebuild the institutions that can offer people some pride about where they live, some optimism about the future, and a sense of being in control of their own destinies. It is this cynicism that reinforces the zero-sum game in people’s heads, and unpicking it will take a long, hard struggle.

But nonetheless this is the problem we have to confront. In 2017, we took it head-on. In 2019, it was fluffed. The 95/5% tax split was still retained as policy, but instead of being used as a way to grant credibility to the programme, it became yet another questionable promise for many – we focused on the ‘no tax rises’ part, instead of pinning down the losers early on. Vague talk about targeting ‘billionaires’ did not cut it – you need hard-nosed policy for this message to stick. If we’d wanted to do it properly this time, we could have led off with the (very necessary, very robust, widely-supported) policy to equalise capital gains taxes and income taxes, and framed it as a ‘tax on unearned wealth’, throwing in some juicy examples to boot. Instead of starting the campaign by addressing the logic of the zero-sum game, Labour launched the campaign with a huge spending promise – the £400bn investment plan – which then became the central message. Under present circumstances, these things are not credible enough. We were talking to the already converted, not addressing the deeply, deeply sceptical audience we needed to.

It’s understandable that this happens. We all want to talk about the nice things and the caring things, and those of us in policy have lots of nice ideas about how we can make the world a better place which we want to talk in detail about. It’s the natural urge of the left to want to do this – and it helped kill us. Those who argued to lead with a spending announcement, rather than a tax announcement, undermined the rest of the campaign.

We allowed the fiscal argument to run away from us.

Lynton Crosby apparently claims that you “can’t fatten a pig on market day”. He’s a terrible person but his views about animal husbandry are correct. The groundwork for the 2017 manifesto had been laid a year before, with John McDonnell’s early 2016 announcement of the fiscal credibility rule. This was based on a 2014 paper by Simon Portes and Simon Wren-Lewis: it is impeccably mainstream in its logic, but robust and – critically – could give us enough spending space to reverse cuts and spend a great deal of investment money. My own thinking here was that any future government committed to economic transformation would need solid foundations to stand on and some way of organising its overall programme; and, moreover, that by committing ourselves to a rule in opposition very early on, it would force us and those around us to organise and prioritise our own thinking on the economy – which it did.

We ended up with an argument focused on tax rises for the rich to pay for current spending, and some additional capital spending we kept carefully locked up inside the fiscal rule. We could credibly promise additional spending on nurses and care workers and so on, and we could make some big promises on capital spending (investment in infrastructure, buildings, research). We thought with an election some distance away, we could make the case, slowly and carefully, for borrowing to invest. This works against the logic of the zero-sum game, since borrowing (especially at negative real interest rates!) can look cost-free. But inside of a clearly defined fiscal rule, we thought it could make sense: and indeed it is striking how far the political argument here has shifted, with the Tories now offering £100bn of capital spending funded by borrowing.

Labour’s core message, locked in place more than a year before the election, was then reinforced by ‘fully costing’ the 2017 manifesto: in other words, making sure that every spending promise was matched by a tax increase. This, again, is the zero-sum logic at work: there can be no credible funding increases without stating clearly the tax increases. The only place we allowed some movement on this was capital spending, but we relatively underplayed this nationally – choosing instead to target capital spending on a regional and local basis. We even significantly overperformed against our own fiscal rules: the 2017 manifesto was so tightly-costed that we had about £21bn of current spending left to spare. We, effectively, left money on the table – we thought that underpromising and overdelivering (if we ever got into office) would be a better bet than doing the reverse.

The decision was taken to change one of the planks of this rule for the 2019 election, allowing far more borrowing to take place. The argument on how fiscal rules should operate has shifted in economic policy land, with the party’s new rule adopting the suggested best practice from a Resolution Foundation paper published earlier in the year. It is perfectly reasonable to shift: clearly the ‘borrow to invest’ argument had been won, and the dire economic straits of much of the country – a direct result of a lack of investment – has now been widely recognised. But to try to do so in an election campaign was a mistake, similar to the one Ed Balls made prior to the 2015 election: technical changes like this appear to a cynical electorate as a sort of One Weird Trick to magic up money out of nowhere. The zero-sum game works hard against it. The late announcement of Waspi tax justice merely reinforced an existing problem in this case.

We did not prioritise properly.

By loosening the fiscal rules, we ended up with a long, long list of spending promises. By then not pinning down the losers early on, we undermined the credibility of those spending promises. This could have been manageable, but we compounded both errors by failing to prioritise. It was simply not clear what a Corbyn-led Labour government would do first, if elected, out of its big list of promises. (This matters even more if there is a perceived chance of a coalition government. Voters need to know what your lot might choose to push for in negotiations.) The great merit of having a relatively tight fiscal rule, and fully costing current spending, is that we had to zero in on what we thought was electorally important. The 2017 manifesto presented a universalist vision of public services (ie free at the point of use, and free for all) with relatively focused spending commitments, like free tuition (and spending room to spare, in case we needed it in government). We had to prioritise.

Truth be told, the media did some of the work for us back then: when the manifesto leaked, the Telegraph and the right-wing press more generally leapt gleefully on the bigger promises we were making, on ending tuition fees and nationalisation, in the belief that these would be unpopular. In fact, they turned out to be (as we knew already) very popular and, combined with the message on ending austerity, added up to a bold and attractive political programme. They made our messaging easier: they created a focus for us.

That didn’t happen this time. Much of the 2017 material was, by 2019, old news. So the manifesto contained plenty of new promises, but absolutely no guide as to what were the really important ones. It lacked a focus, and the campaign as a whole did not get one until late in the day. This is very directly a messaging problem: you can have a big manifesto, but you need to tell people what the most important parts of it are. We didn’t; instead there was a veritable policy bonanza throughout the campaign. I would guess this happened because, in the absence of a single clear message, it was a good way to cut through the media fluff – policy announcements get you airtime – but each additional announcement worked to undermine the overall credibility of the package.

We did get one very neat policy announcement out early on with significant cut-through on the media: free broadband landed perfectly, in the sense of occupying all the broadcast space on the day it came out, and dominated media conversations over the weekend into the week. It also arrived with some guidance as to how to pay for it (tech companies via unitary corporation taxes). But in the context of previously failing to establish the losers, it fell somewhat victim to the zero-sum game: it just was not very clear to people how it would be paid for. Had the ground been cleared by naming some losers a few weeks before, it would have worked.

When we did prioritise, we picked the wrong things…

Privatisation was a mistake, of course. Water, gas, electricity, the trains and Royal Mail should all be under public ownership. I think that, and so do a great majority of the British public – including a majority of Conservative voters. But does anyone, beyond a small number of the truly committed, genuinely believe that bringing these institutions into public ownership is a priority for a new government? Sure, it’s all popular, but very, very few people will ever say they are a priority. Putting the NHS back in its feet. More money for education. Social care sorted. Some big, forward-looking offers around jobs and rights at work. All of them are high up on the list of things to do for me and millions of other Labour voters. Nationalisation doesn’t come close.

And yet, there it was, with significant amounts of prior policy time and effort being spent on trying to get it right in the two years before the 2019 election. The papers we now have on how to bring various bits of the economy back into public ownership are serious and detailed – ideal if you are in government and have to implement the policy. But not such a priority if you are not in government, and effort spent on developing the policy is not effort spent towards getting you into a position to implement it. Some of this was a response to attacks on the policy, which we knew the nationalisation programme would be subject to, but, again, the best response to political attacks is not to ramp up the policy detail. It’s to respond politically – a point I will come back to. We lost sight of the political challenge and disappeared down the rabbit-hole of policy. The post-2017 election rhetoric of ‘a government-in-waiting’ probably didn’t help here, and neither did the belief that Theresa May’s government was on the verge of imminent collapse.

But even so, when, late in the day, John McDonnell quite correctly chose to make a speech on what Labour would do in government in its first 100 days, he ended up with some good solid announcements on the eye-catching February Budget to end austerity, some fairly process-heavy stuff (moving bits of the Treasury around, etc) which at least illustrated a point, and, to my mild consternation, a commitment to starting to bring various privatised utilities back into public ownership. Okay, we’ll do it at some point – but it should not be a first 100 days priority. Personally, I would have suggested building out the details of the February Budget more – £10/hour living wage, reversing Universal Credit cuts, and a 5% public sector pay rise would be more than enough to be getting on with, and then throw in some emergency NHS funding, and tax rises for the top 5% too to reinforce the credibility. Had this speech been made right at the start of the campaign, it would have helped greatly.

…and when we didn’t prioritise, we picked the wrong things.

There was at least one occasion where a desire to right wrongs directly undermined the wider package, when proper prioritisation would have removed the problem. Scrapping the Marriage Allowance slipped in to the 2017 manifesto as a hangover from 2015, to my chagrin: I argued against including it at the time, probably not as hard as I should have done, because it is a frankly rubbish policy… except scrapping it also means taking £250 a year away from basic rate taxpayers (and only basic rate taxpayers) via income tax, which somewhat chews away at your ‘poorest 95% will have no income tax rises’ message. You can get round the problem – technically, it is a relief scrapped, not a tax rise, and there’s a perfectly good in-principle argument against the Marriage Allowance – but I spent the 2017 campaign praying it wouldn’t get picked up on. By some miracle, it (more or less) didn’t; this time, we weren’t so lucky. Given the scale of spending commitments being made elsewhere, scrapping it would scarcely have mattered. The commitment could, and should, have been dropped to preserve the central message.

Something similar happened at Labour conference. I realise Corbyn’s speech got completely done over by the Supreme Court ruling on prorogation, and I personally liked the big announcement on pharmaceutical companies that he made. But the focus of that conference – particularly if Labour were going to lean in a remainish direction – had to be on bread-and-butter ending austerity issues. Universal Credit is detested by great numbers of Labour (or former Labour) voters and scrapping it should have been right up on the list of priority messages. It would have been a good focus for the leader’s speech; conference can (and should!) discuss and agree visionary new policies – the sort of thing that lays out a clear programme for the future, starts to reframe the debate, and wins over younger workers – but the Labour leader needs to get down to brass tacks with an election due.

We did too much detail where we didn’t need it, and not enough where we did.

We had detailed plans for nationalisation – important, but not something that should be made a top priority. Yet we neglected to provide the sort of granular, down-to-earth detail on the big promises that could turn them into something real for people. £400bn is meaningless for most people – it’s just a big number. By all means go big, but go big in numbers that seem tangible – take big commitments on jobs and translate them into on-the-ground commitments. The regional manifestos, turning big capital investment commitments into on-the-ground spending, were basically spot-on but unfortunately arrived too late in the day – and arguably were still too birds-eye-view to drive the message home at a constituency level, not least in conditions of some cynicism about Labour’s capacity to deliver, which was not dealt with earlier in the campaign. Delivering those sort of granular commitments would require detailed work, early on; but instead of focusing on the political detail needed to win, too much effort was put into the policy detail required for after you have won. Ironically, this replicates the mistake the Tories made in 2017: getting caught up in policy detail, and forgetting the politics – the ‘dementia tax’ having resulted from taking the policy-first approach.

There’s a second-order point here. I think we ended up trying to develop reams and reams of policy detail out of a fear of being attacked by some quarters, and a desire to create an intellectually robust case: we were worried about what the Financial Times might say, or some other policy think-tanks. These audiences do matter – what they say filters elsewhere – and I know people are open to arguments and discussion, and to have those discussions can ultimately lead to better policy. But what wins elections in the end is the politics, not the policy, and we lost sight of the former by worrying too much about the latter. We spent too long trying to bolt down details for audiences that were probably always going to attack us, and not long enough thinking about who we really need to speak to. Take the Institute of Fiscal Studies: after 2017’s performance, I didn’t think there was much hope of getting past them unscathed and indeed they were scathing – later backing off. A great deal of effort was clearly spent bolting down details in the manifesto, but this expenditure of effort on fine detail did not stave off criticisms on the big-picture issues of who would pay, and whether the whole programme was feasible.

We didn’t reframe the debate.

Finally, this may always have been a tough call even on economic policy. With the Tories promising to end austerity (and backing it up with spending), simply trying to outbid them on spending alone was always going to be difficult. People mostly think about politics in black-and-white terms, so the difference between a £20bn and a £26bn NHS spending increase disappears into a grey blur, whilst the difference between a small spending increase and no spending increase appears very sharply defined. We had to win an argument about quality, not quantity. If the Tories were going to verbally commit to ending austerity, we had to at least match them, and then take the argument elsewhere. One part of that is spending promises in areas they don’t touch (like tuition fees). The other part would be to simply get out into areas they find difficult to speak about: my preferences were climate change, turned into on-the-ground commitments to jobs and investment, and the ‘ownership agenda’, turned, via the Inclusive Ownership Fund, into hard commitments to deliver cash to otherwise hard-to-reach voters in the private sector. That would have meant raising the cap on payments – something I always argued for – to sufficiently large numbers that people notice (like £1,000 or £2,000), and finding a language to talk about it. That, in turn, would have required significant preparation earlier in the year.

But more than this: if the election was fundamentally about democracy and the regions (Brexit acting as a proxy for both), we needed a clear offer on both. ‘Democratic regional water boards’ isn’t quite where that argument is at: we needed something more tangible. Some of the offers around moving bits of the Treasury to the north of England – although process-oriented – got some of the way there. But we needed more: we needed to look like we were taking the concerns of the north of England – indeed all those places outside of London – seriously, with promises of investment people could see happening. The regional manifestos could have done some of the work here, but arrived too late to do so. Community Wealth Building was put together in Preston in response to direct local needs. Something like this could have been rolled out properly across the country. Drop the wonkish language and it can start to make sense.

This last point on overall framing and political direction is fundamental. This new Boris Johnson government is, I suspect, going to implement something quite similar to the Tories’ 2017 manifesto: something close to European Christian Democracy, if we’re lucky, something closer to Fidesz or the Law and Justice Party if we are not, but significantly more interventionist than we have been used to either way. The components are all there around the work already being done in the Department for Business and Industrial Strategy; the government has committed to fairly substantial investment spending, whilst Johnson has suggested that with EU state aid rules no longer applying, they will have more scope to intervene in the economy (probably in terrible ways with things like freeports). And, learning a lesson from David Cameron and George Osborne, they will no doubt continue to attempt to protect certain parts of public spending (health, most obviously; reversing education cuts as the other one), whilst failing to reverse austerity elsewhere. One impact of leaving the EU, at least in the immediate aftermath of exiting, and whilst the transition period still applies, may well be a short economic boom, as business investment held back due to uncertainty comes forward (the extent of this will largely depend on how far Johnson closes down the no-deal risk at the end of next year).

So the economic arguments may well shift away from the terrain we are used to. We will still need to fight Tory cuts, every step of the way; and we will need to fight for rights at work, and basic human dignity, and against the racist attacks. We need an opposition that can hold the Tories to account every step of the way. But the basic argument that all we need to do is increase spending – an argument that, post-2017, all wings of the Labour party can sign up to – will no longer quite cut it. Nor will an argument that industrial strategy defines our economic policy be enough.

We will need to pick different terrain, working with the desire for democracy and sovereignty that lurks behind the demand to ‘take back control’, but taking it in genuinely anti-establishment directions. The emerging politics of data – which we have seen the first glimmerings of – are one part of that, as are the politics of climate change, not least with the UK hosting COP talks later this year. Correctly handled, the ownership agenda has much to offer here, if it doesn’t just fold into ‘nationalisation, but better’. And we need serious proposals for devolution inside England, alongside detailed proposals for how we would do any capital spending better. There will be arguments over trade deals that we will now need to get stuck into, taking our cue from the success of the anti-TTIP campaign. Maybe, too, in conditions of (short lived) economic growth, the zero-sum game will lose its edge, for a bit, giving us more freedom of manoeuvre.

Some of the politics we need will take us outside of our social democratic comfort zone, particularly if we want to sharpen the anti-establishment edge that served us so well in 2017. Whoever wins the forthcoming leadership contest will need to contend with some challenging, fundamental questions for the left; I hope the various contenders can demonstrate their capacity to deal with them.

James Meadway is a Novara Media columnist and a former advisor to John McDonnell.


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