SPEECH BY PAT MCFADDEN MP, SHADOW SECRETARY OF STATE FOR BUSINESS TO THE FABIAN SOCIETY
VENUE: ENGINEERING EMPLOYERS FEDERATION, BROADWAY HOUSE, TOTHILL STREET, LONDON SW1H 9NQ
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This morning I want to share a few reflections on what I believe to be the critical question facing the country – how to shape the economy of the future. And I want
to warn against two options facing us – an echo of Thatcherism on the one hand
and denial on the other – neither of which I believe are the right road to take.
I don’t accuse the new government of Thatcherism in terms of social policy or being completely unchanged since the 1980s. Clearly, they have moved on in some areas. But there is an echo of Thatcherism in some of the policy measures announced and in the Government’s sense of its own role in the economy.
Their deficit reduction plan has no view about how these measures impact upon the private sector, upon growth or on the critical role Government has to play in securing the jobs and industries of the future.
This isn’t a question of dry economics. It’s about people’s chances in
life. It’s about their sense of whether work and effort is rewarded. It’s about whether all parts of the country share in the economic future or just some. And it’s about whether we have a society in which people can have confidence about the future.
The economic argument since the election has been mostly framed by a narrative set out on a daily basis by the Government.
Their main point is an accusation that Labour was profligate and economically incompetent in Government. That by our actions we made the recession worse, not better. And that we left a huge problem for the incoming Government, requiring them to take drastic action.
It is claimed that the Government’s actions are born out of necessity, not choice. They don’t really want to be making these cuts or imposing these taxes. They simply have to. And this argument is used to absolve the Government of all responsibility for their decisions. Everything from the VAT rise to the cancellation of new schools is blamed on the previous Labour Government.
And finally, it is said that, however harsh the medicine, it is necessary for economic recovery. Without it, recovery would be endangered and if you oppose the measures
taken, by definition you’re not living in the real world.
I want to take issue with this argument point by point.
The first point is how parochial this view is. It is as though recession only took
place in Britain, not across the world. Yet in most of the world in 2008 and
2009 countries were coping with a banking collapse, with the drying up of
credit, with failing businesses and rising unemployment. And for an open trading economy like Britain’s our ability to recovery from the recession depends not only on our
own actions but on what is happening in the rest of the world.
The Labour Government did not forget about or abandon
economic competence when in office. We presided over a long period of prosperity which saw GDP per capita rise faster in the UK than in any other country in the G7 between 1997 and 2009 – even after you take into account the global financial crisis.
We transformed cash starved public services where children
were being taught in portakabins and patients being treated in corridors. We cut NHS waiting times. We cut child poverty and we introduced
a much better balance between work and family life.
And when tough times came we made a deliberate decision to
act to stop recession turning into depression. We worked with other nations to do so. As Paul Krugman has remarked, in 2008
and 2009 it looked as though the world had learned from history. And although
there was undoubtedly human and economic pain during the recession, the action
In this recession, unemployment was about half a million
lower than expected. In the early
1990s recession 2.9 million people were claiming unemployment benefits. Today it is around half that number.
In this recession repossessions ran at just over half the
rate of the early 1990s.
And business failures were also around half the rate of the
recession of the 1990s.
The Labour Government acted quickly to get aid to
industry. Not every scheme worked
perfectly but the aim was clear – to do what we could to get the country
Time to Pay – flexible help from the tax authorities to
businesses helped – 200,000 businesses involving £5 billion in business tax
An Enterprise Guarantee Scheme was launched to get help to
small businesses struggling to get credit – and the new Government has decided
to keep it.
Labour politicians keep being asked by the Conservatives and
Lib Dems when we are going to apologise to the country for what we did during
the recession. But we must not
allow them to trash our economic record.
We are not going to apologise for acting to stop people losing their
homes, for helping to keep unemployment down or for adopting a flexible and
sensible attitude on tax to struggling businesses.
The global downturn took its toll on Britain’s economy and
the public finances. Tax revenues
fell, benefit payments rose and a fiscal stimulus was needed to stop recession
turning into depression. This was
not a loss of control of the public finances. It was a choice we made because we were a Government
determined not to roll over in the face of the deepest worldwide recession
since the war.
And this point about choice is very important. It is not true that Governments lose
all power of decision making in tough economic times. Yes there are very difficult outside pressures but as
history and international examples show, how to respond is matter of choice, a
matter of judgement.
We made our choice, and the actions taken by the Labour
Government helped steer us through very tough economic times.
The new Government on the other hand has chosen to put Britain at the head of a new drive for
austerity. It has chosen to cut
faster and cut deeper than we would.
And it has done so with no accompanying plan for growth or for
We know from the Treasury’s own figures their plans will
destroy jobs in the public and private sectors. And yet they make huge assumptions about the private sector
stepping up to the plate and creating millions of jobs with no plan for how it
is to be done.
This is faith based economics, with the Conservatives in the
role of the High Priest and the Lib Dems displaying the zeal of the
convert. It imposes enormous pain
on the country and takes a huge risk with our future.
It cannot be blamed on the Labour government because it is
based on judgements and choices which the Conservatives and Lib Dems have
And therefore they must take the responsibility for the pain
that those choices will inflict.
And we heard yesterday that the OBR accepts the Budget will
lead to 160,000 extra public sector job losses by 2014 and that the near term
outlook for GDP is not as good as it was before the Budget. These are consequences of the new
Government’s decisions. They
cannot be pinned on the Labour Government.
But even if one believes the actions taken by the Labour
Government were right, what about the deficit?
Of course deficits cannot be run for ever, but it is absurd
to justify the austerity programme launched in the UK by suggesting we are in
the same position as Greece.
We have transparent national accounts. Our ratio of debt to GDP is much
lower. And we are a far bigger
In the period before the election the yields on our debt
were getting lower, not higher.
And as the first report of the OBR confirmed, borrowing,
although still high, was falling and that report also said that our plans would
meet the aim we had set out of halving the deficit within four years.
Labour’s plan involved tax measures such as the 50p rate and
the National Insurance increase, it involved a plan for growth, and it also
Although some new Ministers parade this information as
though it were some hidden secret plan, in my former department we set out
£900m worth of cuts in the Pre Budget Report in December 2009.
On top of that the Government planned to save some £4bn from
public sector pay and pensions.
And savings of £350m in DCSF and £360m in the Department of
Justice were announced from things like NDPBs and reforming legal aid.
So it is simply untrue to say we did not acknowledge the
issue, did not set out any plans for cuts or put in place any programme to deal
with the deficit.
Of course we would not have gone about tackling the deficit in
the same way as the Tories and Lib Dems.
The balance between cutting spending and taxation measures would have
been different. We would have
inflicted much less pain on families and communities and tried to protect
essential services. It would have
been done in a very different way on a different timescale with very different
priorities. And you would not have
had an instant IFS response showing us implementing regressive measures.
But it is also true to say that had we won the general
election there would still have been difficult decisions to come.
Unless we absorb that I believe there is a danger of being
tuned out by the electorate. By
contrast, acknowledging it increases the chance of our fight against what the
government is doing being heard.
“Fight the cuts” is a tempting slogan in Opposition, and
there are indeed some that must be fought. But if that is all we are saying the conclusion will be
drawn that we are wishing the problem away.
As the pain of Government cuts bites, public opposition to
them will grow, but people will still want to know what we would do differently
– and they won’t believe us if our answer is just that we could make it all go
In fact, that is the position the Tories and the Lib Dems
would prefer us to adopt. They
want Labour to retreat to its comfort zone and allow them to say that they
alone are capable of facing up to Britain’s problems.
We must not play the role the Conservatives and Lib Dems are
seeking to allocate us. I do not
believe for a minute that they are the only people capable of addressing
Britain’s problems and we must not abdicate the ground that allows them to make
And it is important that our current debate about the future
faces up to this.
Out of the current situation we must fashion the new. And that must be an economy with
aspiration at its core, ambitious for its industries, open in its nature and
with opportunity for its people.
Of course it is right to acknowledge where we went wrong in
Government. After all, as one wise
local member said to me, if we had all the right answers, how come we
And all of us could pick decisions or positions adopted that
damaged us or we disagreed with – though we would not all pick the same things.
But the bigger point is that going through each difficult
decision taken in Government and telling people it was all a mistake or even
contrary to our values is in the end not leadership. Leadership is and always must be about the future. And our economic story is the foundation
of this future, everything from tax and spend to skills and trade.
We could be in Opposition for one term or a lot longer. There is no God given right for Labour
to govern, no electoral pendulum that necessarily swings back our way. Sure, the Government will take
unpopular decisions. But always,
an electorate will want to be sure the alternative is up to the task and one
that they can believe in.
So while the echoes of Thatcherism that the VAT increase,
freezing Child benefit and the Government’s stance on the economy represents is
the wrong road for the country, so too would denial be the wrong road for us.
And I hope that the discussion taking place in our own ranks
now can become more of a debate about the future and less of a debate about the
past, more about how Labour would govern in today’s and tomorrow’s economic
times, more about how we would have a future economy where every part of the
country could achieve its aspirations, not just some and less about what people
say they were against a year or five years ago.
There is an alternative to both the echo of Thatcherism and to
denial and that alternative is a compelling vision of the economy of the future
where not only the ends are willed but the means are used.
The crucial question the Coalition seems incapable or
unwilling to address is where is the growth of the future going to come
from? What role does Government
have to play in securing such growth?
This is the vital task facing our country. And Labour must grasp this issue
because we are a party of wealth creation as well as a party of wealth
We know from the OBR’s documents, the coalition Government
is making truly heroic assumptions about the private sector investment that
will pour forth while they pull back the state.
I am an optimist about our future but rarely in recent
decades have we seen the levels of private sector investment that the
government are now relying on over the next few years.
And yet at the same time as making these huge assumptions
they have set out no concept of the Government’s role in trying to make this
investment happen beyond cutting spending and getting out of the way.
This is a massive gamble with our future. Deficit reduction
and growth are not at opposite ends of the spectrum. One reinforces the other. And of course a deficit reduction plan that does little to
encourage an overall increase in economic activity runs the risk of imposing
huge pain for little economic benefit.
I acknowledge that at times in Government, we were too
hesitant about an active industry policy.
Scarred by failed interventions in the 1970s, determined to avoid
accusations of “picking winners” we held back from developing a strong enough
idea about what we should do to try to build Britain’s capability in key areas
of the future.
But in the later part of our Government that changed, a
change born of a recognition of the challenge Britain faced as we recover from
the global downturn.
In today’s world we need to mobilise business, education,
our communities and government to secure the country’s prosperity.
We sought through a combination of tax policy, planning
reform, trade policy, skills and research and a number of other measures to
drive forward UK capability in the industries and jobs of tomorrow.
We brought together the Universities, Science and Business –
a change which I am glad the new Government has not sought to undo.
We developed a plan for the digital economy. A low carbon
industrial strategy. We opened negotiations with wind turbine
manufacturers to try to get them to make the next generation of enormous new
turbines here in the UK.
We sought to make the UK a hub for low carbon transport,
securing Toyota’s first European built hybrid and Nissan’s first mass produced
We switched emphasis in skills policy to creating technician
level apprentices and even in the teeth of the recession found money to plan an
extra 20,000 Higher Education places next year.
We put Government money into nuclear manufacturing research,
space and satellites and we backed new technologies like printed electronics
We worked on improving supply chains to help SMEs meet key
We identified the need for enormous infrastructure
investment and established Infrastructure UK to co-ordinate it.
In short, we saw it as essential that Government played its
part in creating not only the right business and industry environment but also
in helping underpin the UK’s capability in key technologies and employment growth
areas of the future.
To say we were late to the game would be a criticism I would
accept. But to dismiss these
policies in terms better suited to what was happening in the 1970s, to decry it
as vote buying or waving a chequebook around is, I believe both mistaken and
There is an essential role for Government in a modern
industrial economy. It is about
creating capability, ensuring the right infrastructure is there, ensuring the
right skills are there, the right planning environment, the right research
excellence and having the will to make it happen.
And yes, that will require Government funding in some
cases. Markets may produce good
outcomes in the round but they won’t always get every decision right.
The new Government have talked a lot about what they won’t
do in these areas but have said next to nothing about what they will do.
They seem to ignore the role of growth in getting the
deficit down and the government’s role in rebalancing the economy.
We can see that in the decision not to give Sheffield
Forgemasters a loan of £80m which would have had the potential to give the UK a
huge advantage in the international civil nuclear supply chain. This was never about aid to one
company. It was about ensuring
that UK industry as a whole was well placed to win both domestic and export
orders in a growing field.
That was one bad decision, but the broader danger is that in
making far steeper cuts than are needed and in instinctively rejecting what we
were doing either for reasons of ideology or the old “not invented here”
syndrome, they could make a much bigger mistake.
And so ripping up planning reforms designed to get over
Britain’s long term problem of major projects taking years to get started has
the potential to build more delay into the process.
And removing £3 billion in tax support for manufacturing by
cutting capital allowances for investment is hardly going to help with
rebalancing the economy.
Going back on the coalition agreement and abolishing RDAs isn’t
good for business or growth either.
There are serious questions about this policy which have gone
What funds will there be for this multiplicity of local
enterprise partnerships that the government wants to see? Is the new growth fund they have
announced in addition to RDA budgets or simply instead of them and therefore a
reduction in overall support for regional economies?
And amid all the talk about dumping strategies and getting
rid of quangos, how do we avoid a hiatus of local decision making while the
government reorganises and starts again with many more bodies chasing far less
And on bank lending, an absolutely crucial issue for
business and for future growth, if the accusation is that the banks ran rings
round the last government then what proposals do the Government have which will
actually guarantee an increase in lending to businesses?
The point in all of this is that there is a huge risk that
the Government tears up the roots
of future growth and jobs by turning away from the state’s important and active
role in the modern economy.
Looking to a future when financial services is likely to be
responsible for a lower proportion of our GDP than in the past, it is even more important now that government seeks to make the UK a success
in the digital economy, in modern manufacturing and in the transition to low
That the state will have to tighten its belt is an
inevitability. That it turns away
from its role in shaping the industrial future most certainly is not.
Whether the Government wants to call this industrial
activism or not isn’t the point.
It is the task itself that is important.
If our Government neglects the role of growth in reducing
the deficit, Britain will endure much more pain than is necessary. And that pain will be inflicted in a
way that could mean Britain misses out on huge opportunities to build something
better, stronger and more sustainable out of the current situation.
That would be a tragic mistake.
On the other hand, for Labour this represents an opportunity
because if the Government is going to vacate this ground it will fall to us to
set out a compelling vision of the kind of economy we can be in the future, to
make the talk of rebalancing the economy real, to inspire people with the
opportunities this can bring to every part of the country and to speak up for
using the power of government to make it happen.
If they won’t do it, we should. The choice before us is not simply an echo of Thatcherism on
the one hand or denial on the other.
It’s forging a better economy with more opportunity and more balanced
growth that makes Britain stronger in the future – and that is something worth