We can appeal to business without abandoning our principles – don’t mistake incompetence for a Labour value

In the run up to the election The Economist and The Financial Times, two institutions that were repeatedly critical of the Chancellor’s economic record, both backed Conservative-led governments. We can have our suspicions over the vested interests at play, but on the face of it their rationales were clear. The Financial Times said Ed Miliband had “rarely met a market he did not consider to be broken” and The Economist said he risked casting a “lasting pall over investment and enterprise”.

However, it would be both incorrect and defeatist to assume that the interventionist policy will always lead to overwhelming opposition from business. Regulation is not only essential to protect employees and consumers, but also for the efficient functioning of markets. Our relative lack of the bribery, fraud and malpractice that blight less well regulated economies is one of the UK’s biggest advantages.

As such, businesses will accept new regulations if they have confidence in authorities to properly identify market abuses and implement workable solutions. What cost Labour was not our interventionist policy platform, but the belief that we lacked the competence to pull it off.

There are two major reasons why:

1. Politically driven policy

As I have previously argued, the energy price freeze is the best example of a policy that put us on the wrong side of the business community. It demonstrated a complete lack of understanding of how the industry functioned, and may have led to higher energy bills in the run up to the election, as firms feared for future profits.

Things didn’t have to be this way, it’s perfectly possible to curtail the excessive profits of energy companies without terrifying other industries. Tony Blair won the 1997 promising a windfall tax on privatised utilities, and as recently as 2013 even Sir John Major backed a repeat, saying:

“The private sector is something the Conservative party support but when the private sector goes wrong or behaves badly I think it is entirely right to make changes and put it right. At the moment I do not see how it can be in any way acceptable that with energy prices rising broadly 4% in terms of costs that the price to the consumer should rise by the 9-10% that we are hearing.”

Labour’s blundering approach to energy regulation was not based on what would make the most effective market, but what would best fit with our narrative on the ‘cost of living crisis’. Energy prices affect nearly everyone and here was a way to highlight a significantly increased expense that, in contrast to the government, we would alleviate. Normally I am all in favour of political messaging being central to policy making, but not when the result is policies that can’t stand up to scrutiny. While it may have marginally increased Labour’s lead on ‘looking after people like me’ and similar, the 18 month slating we received from businesses damaged us on the far more important metric of economic competence.

The mansion tax is another case in point. Property could have been taxed in a much more progressive and effective manner by introducing further bands of council tax and revaluing properties. But Labour didn’t propose this because the money would have gone to local councils, not central government, and Ed Balls was determined to fund every one of our spending commitments. Again, I will not dispute the sense behind this ambition, but they should have found a way to reconcile it with sensible policy.

While the mansion tax was not strictly a business policy, it’s clearly very relevant to those higher earners who often represent the business community. Labour’s crude position again gave the impression that we hadn’t done the intellectual legwork required to be ready for government.

2. Anti-business rhetoric

Much has been made of how Ed Miliband’s “predators and producers” speech demonstrated his undue suspicion of business. However, few who followed the PPI miss-selling scandal, the proliferation of pension ‘liberation’ schemes, or the blacklisting of union activists, could doubt that there are predators out there. The first half of Sir John’s quote above recognises exactly that.

The problem was that none of the Shadow Cabinet, Ed included, were able to give a clear articulation of who the predators were. On several occasions I found myself defending the Party to business people by saying ‘why do you assume he means that you are the predators?’ With some explanation of the policies that constituted our approach it could have been part of a campaign for a progressive form of economic growth, where all sections of society benefit from successful businesses. Instead it became an empty soundbite bar the vague indication we were coming after business.

I can only assume Ed’s team thought that, post-financial crisis, opposition from business simply wouldn’t matter. If so it was a spectacular miscalculation for a parliamentary term where economic credibility has dominated political debate.

Unfortunately many have not learned lessons from the last five years. It is a commonly stated view that to reclaim the economic narrative Labour should forcefully make the case that ‘it wasn’t too many nurses that caused the financial crisis, but greedy bankers’. As well as it being a bad idea to refight an argument that was lost years ago, blaming the bankers begs the question of ‘which bankers’? Is it the research analysts, the stock brokers, the capital markets teams, the risk managers, or just the executives? What about the accountants who approved their balance sheets; the rating agencies that passed them as creditworthy; or the consumers who borrowed more than they could repay?

Unless the Party can provide adequate answers to these questions (and do so regularly, simply and persuasively), proclaiming ‘the bankers did it’ will perpetuate the perception that we don’t know what we’re talking about. Few things scare businesses more than reactionary fervour without the understanding to direct it properly.

To be clear, I do think there was (and to an extent there remains) a problematic culture within banks, risk management procedures at an entity level were clearly insufficient, and that key individuals made what proved to be disastrous decisions. But the actual proportion of bankers who were meaningfully responsible for the financial crisis is tiny, and none of even this basic level of nuance is captured in proclaiming ‘the bankers did it’. Blaming all bankers for the financial crisis sounds as stupid to the City as blaming all doctors for Mid-Staffs. When Tory politicians engage in this kind of rhetoric toward the public sector we are always happy to tout it as proof of their regressive intentions. We can hardly be surprised if businesses react the same way to us.

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The NHS is the Conservatives’ Achilles heel. Unless they meet all funding demands and make no structural changes they will be accused of destroying or privatising the public’s most supported institution. This is the reason they pledged the extra £8bn needed by the end of this parliament, and why before the 2010 election they promised no top down reorganisation. The leadership understands it has to be seen as whiter than white, not so they can ‘win’ the issue, but to limit their loses.

Business is Labour’s equivalent. This is partly due to cultural Conservatism and the financial circumstances of business ‘leaders’. But there is also the justified belief that when it comes to creating a positive environment for businesses, our hearts simply aren’t in it. As such, we only need provide a few excuses to fear us and confirmation bias will do the rest.

That said, I do not propose embracing anarcho-capitalism and abandoning all attempts at intervention. Employers aren’t locked in a perpetual zero-sum game with their workers, and winning their support does not require us to compromise our guiding moral values. Business well understands the need for regulation – we simply need to cut out the lazy anti-business rhetoric, and make sure our policies are considered and reasonable. Quite apart from the electoral incentives, it’s just the right thing to do.

KBF

The Bad, the Worse and the Ugly: Labour’s toxic relationship with business

Businesses back the Tories. This is obvious, so obvious that we rarely pause to consider whether it makes sense. But when you do think about it, Labour’s policy prospectus ought to be very attractive: Rate cuts for small businesses; higher, growth stimulating, government spending; less hostility to immigration; unequivocal support for Britain’s EU membership. In my view this adds up to a far better business offer than what is now being delivered by the Conservatives.

So it is worth looking at why the business community’s perception of Labour is overwhelmingly negative, especially for the large companies which drive the media narrative. Some of this is unavoidable (The Bad); and some is our fault, though difficult to change quickly (The Worse). Regrettably, there is also an element of simple incompetence (The Ugly).

The Bad

It would be easy to blame class solidarity. The executives of large companies are hardly representative of society, and like other members of the 1% they exhibit disproportionately Conservative views. That the people who would be paying the 50p top rate and the mansion tax object to their imposition is almost even less surprising than the Telegraph’s big-business-opposes-tax-on-big-business ‘story’.

A similar worldview will often pervade among less senior staff too. As a ‘big four’ professional, I rarely witness the office chat venture left of the newest of New Labour. Alternatively, observe the split between academic economists, who think austerity has been a horrendous failure; and those employed by financial institutions, who think it was essential.

The Worse

However, rather than bemoan the electorate’s ignorance, we should recognise the mistakes Labour has been making for years.

For a start, we don’t have nearly enough politicians with a business background, and we make no show of celebrating those who do. People tend to support parties that they see as representative of them (or ‘on their side’ in some broad sense) rather than examining manifestos and picking the policies they most like. The Conservatives are more than happy to tell businesses how appreciated they are, whereas many in our party treat wealth creation with contempt.

Jeremy Corbyn aside, the leadership candidates all accept the need to be seen as pro-business. Unfortunately, merely stating this aim will change little. Our innate suspicion of the profit motive has fostered an impression that whenever a choice needs to be made between business and anything the Labour Party actually cares about, business will always lose.

Even the four policies listed above have failed to dispel this concern, as only the rate cut is primarily associated with a commitment to successful businesses. In simple terms, when we trumpet our support for the EU people think ‘I suppose that policy will help my business’. When the Tories promise to cut corporation tax they think ‘of course, the Conservatives are still the party of enterprise’. Unfortunately there aren’t any obvious shortcuts. If we want to reset the image, we will need pro-business policies that aren’t just by-products of social-democratic principles.

The Ugly

Over the last five years problematic rhetoric went right to the top. Ed Miliband wanted to separate “predators and producers”, but no one seemed to know who the “predators” actually were. The effect was to make enemies of many businesses who should have had nothing to fear from a Labour government.

When we finally did decide which companies we disliked, our policy solutions were often similarly inadequate. For an example it is difficult to see past the energy price freeze. However well meaning, it was based on flawed analysis of profits; would have decreased competition and infrastructure investment; and probably lead to higher rather than lower energy bills – the exact opposite of its intention. Labour did move to remedy the latter problem, but having to revise the policy weeks before the election (and 18 months after it was first announced) only made us look more clueless.

Businesses are rarely delighted by new regulation, but they are considerably less enamoured when it’s driven by politicians (rather than an expert independent regulator) reacting to ill-informed public outcry. If our approach to the energy sector is seen as ‘shoot first and ask questions later’, how can other industries know the same won’t apply to them?

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I don’t offer any solutions here beyond the obvious: Adopt less antagonistic rhetoric; promote some business people; stop making incompetent policy… etc. Nor do I pretend that, even with the most business friendly policies, it would be easy for a Labour opposition to gain significant support. As well as their culturally Conservative leanings, businesses gravitate towards power. However, we should be wary of false dichotomies. Having a small amount of support is better than having none, and moderate criticism is better than the barrage of opposition we currently face.

It is also difficult to know just how useful business backing is in winning votes. But this is true of most things, and somehow these factors add up to decisive election results. Like it or not, a neoliberal consensus holds that what is good for big business is good for their workers and good for the economy as a whole. Given how far Labour is behind on this most important of metrics, we could use all the help we can get.

KBF

Calling Liz Kendall a ‘Tory’ damages the whole party, not just her campaign

Comrades, let me be clear – Liz Kendall is not a Tory. Not just in the literal sense, although being a Labour MP and voting against Conservative policies is usually considered fairly solid justification. But nor has she stumbled into the wrong party by mistake.

Contrary to the claims that she wants to “swallow the Conservative manifesto”, the list of Tory policies Kendall supports is pretty short. If we exclude those that were already Labour Party policy before the election, her accusers can only name the implication (denied by my sources in her campaign) that she wouldn’t oppose all new Free Schools; and that she supports lowering the benefit cap. Moreover the other two likely leadership contenders, Andy Burham and Yvette Cooper, have both refused to condemn the benefit cap change. If they won’t oppose regressive welfare reforms while running for Labour Party leader, then they never will.

Now consider the list of Tory policies Kendall hasn’t backed: Scrapping the Human Rights Act; automatically tendering NHS contracts; cutting £12bn from welfare; the current work programme; the enforced sell off of social housing; and the list goes on. Most notably she has come out against their appalling plans for trade unions more strongly than any other leadership candidate bar Jeremy Corbyn. In response she promises online balloting reforms that unions have wanted for years.

In any case, you shouldn’t have to agree with every policy position to acknowledge that, whatever flaws Liz Kendall may have, being a Conservative is not one of them. Yet I can’t open Facebook or Twitter without seeing her labelled an imposter, a Tory in the wrong colour rosette, a member of the Taliban, etc.

The moral disgust implicit within this accusation should not be underestimated. Tories are to the British left what scabs are to union organisers or communists to Senator McCarthy. Nothing drives us more than fighting what we see as their selfish, intolerant and harmful politics. Branding someone a Tory not only means they aren’t one of us, it means they are unpleasant and unethical, and that we’d rather not be in their presence.

If you call Liz Kendall a Tory you smear all those considering supporting her. But far worse, you insult every Labour-Conservative swing voter, voters we desperately need to reach out to.

What saddens me most is that there are sections of our Party where this is considered completely acceptable. These are spaces where any concession to the centre ground is deemed horrifying; any defence of our own centre-left politicians is treated with sneering contempt; and any attempt at electability (even if only a change of rhetoric) is considered a betrayal of Labour values. This viewpoint suggests that we should abandon not only swing voters, but the entire centre-left.

Even amongst more moderate members, I worry that the response to Liz Kendall’s leadership bid shows the election defeat has taught us nothing. You don’t need support the Conservative manifesto to think a proper debate about what Labour got wrong is essential. We have to ask the question of what the Tories offered that we didn’t that convinced enough voters to give them a majority. This can only be hindered by participants using a slur as a substitute for argument.

It is especially objectionable when used to campaign for other leadership candidates. Those backing Jeremy Corbyn, should remember that he is only on the ballot because MPs who’d never vote for him as leader thought the left deserved a voice in the election. Shutting down debate with abuse is deeply hypocritical way to respond (as well as something the unfailing polite Jeremy would never condone). However, there are at least significant policy differences between Corbyn and Kendall. Supporters of Andy Burnham and Yvette Cooper are kidding themselves if they think that their candidate is any more than marginally to her left.

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Of course, the real reason many object to Kendall so strongly is not her policy positions, but her rhetoric. She is taking an intentionally blunt approach about the scale of the electoral challenge we face and the uncomfortable changes that are required. Centrist-sounding mantras like the need to be “genuinely as passionate about wealth creation as we are about wealth distribution” may not be a typical Labour member’s cup of tea, but the last four decades have shown them to be broadly popular.

By calling Liz Kendall a Tory, we take values that much of the public consider self-evidently true and bequeath them exclusively to our opponents. It’s tantamount to saying: “If you believe in hard work – vote Conservative; If you think successful businesses produce the wealth that sustains public services – vote Conservative; If you believe that people shouldn’t be paid more on benefits than they would be in jobs – vote Conservative.” By all means advocate for what you believe, but please don’t do it like this.

KBF

Apologise for overspending? I’m afraid that’s only the start

In the aftermath of our election defeat much of the postmortem has centred why voters took such a dim view of Labour’s economic credentials. This debate is largely encompassed in the divide between two positions: Should we resolutely stick by the record of the last Labour government, or should we apologise for overspending and try to move on?

In some ways this isn’t even the difficult question. If we choose to fight our corner, the Tories will keep saying that “Labour can’t admit they got it wrong” and will continue to expound their exclusive right to economic competence. If we do admit to overspending, the Tories will say “even Labour politicians admit they’re incompetent”… and will continue to expound their exclusive right to economic competence. As such, apologising could only be the start. The much harder task will be getting people to stop talking about overspending when every other Newsnight features a smirking, new-model Michael Green reciting his mantra like Sajid Javid says “track record”.

Anyone who followed Lord Ashcroft Polls over the past six months will have read about focus group after focus group where people described Labour policies the same way – “I would love to believe it all but where’s the money coming from?” This is despite providing more detail over our budgetary plans than any opposition in history. The Budget Responsibility Lock from page one of Labour’s manifesto ensured that every spending pledge was fully funded by a tax rise or spending cut elsewhere. Compare this to the Conservatives, who are currently scrabbling to fund £28bn of extra spending pledges on top of £30bn of cuts. These were promises so ludicrous that they could only be made by a Conservative Party convinced that the Liberal Democrats would provide cover to dilute their manifesto. They’re now embroiled in back room rows over where to find the savings.

And yet the focus groups’ responses remained the same throughout the campaign. Here are more from the 20 and 27 April, right after the manifesto was published.  Despite Labour specifically identifying where the money was coming from, people simply did not believe we knew. Such is the damage to Labour’s brand.

For this reason, I am firmly in the ‘apologise’ camp. It doesn’t even matter whether we actually overspent or not. The majority of media and the public have decided we did, and until they have their pound of flesh nothing Labour says will be deemed credible. In fact, our policies aren’t only being disregarded, often they aren’t even being explained. During the election campaign Labour politicians regularly had to spend so much interview time dealing with questions on overspending that they weren’t able to make our positive case. Unless the next leader can scotch this issue, the Conservatives will continue to be seen as the only safe pair of hands and Labour will be locked out of office for decades, waiting for another Black Wednesday to reverse the parties’ fortunes.

It is understandable that the opposing view is primarily advanced by the likes of Kitty Ussher and Yvette Cooper, who played crucial roles in Gordon Brown’s economic management. It’s their record we would be trashing, somewhat unfairly, for the sake of political expediency. But the Labour Party does not exist to enhance the reputation of individual politicians, it exists to win elections and implement progressive policies. Anything that prevents this has to go.

Admitting that the last Labour government overspent will not restore our economic reputation by itself. As I have described, we will still have to move the conversation on. We’ll also need the policy platform to reassure a wary electorate that we can be trusted not to indulge our well-meaning though ultimately imprudent instincts. But it is essential if we are to be part of the conversation again.

The debate over government spending, both before the financial crisis and in the parliament that followed, was one Labour was never going to win. It was lost before even the 2010 election, and was lost for a political generation. After ten years of stable growth under a Labour government it will be time to bring out the revisionist analysis – but continuing the argument now is like howling into a gale.

KBF

Five years of lost cause: Why Ed Miliband couldn’t win the deficit argument

Labour came into the 2010 election facing nigh insurmountable barriers. Our reputation for economic competence had been shredded by the financial crisis; we were divided and exhausted, following years of bad headlines and bitter infighting; we faced a resurgent Conservative Party, finally rebranded by a charismatic leader; and political debate was framed by the Eurozone federal debt crisis which pushed Greece (a country with a smaller deficit than the UK) to the brink of bankruptcy. In this poisonous environment it should be no surprise that Cameron and Osborne et al were so successful in persuading people that the UK’s economy was just days from total meltdown. That severe and immediate spending cuts were essential to prevent us from ‘ending up like Greece – oh, and by the way, it’s all the previous government’s fault’.

Their critique is all the more effective because it worked on several levels of comprehension. The typical voter is not politically engaged, they simply have more important things happening in their lives. Perhaps they catch the occasional 30 seconds of a news coverage, or glance at the headlines every few days, but not a whole lot more. Many saw the massive deficit, the ‘letters of direction’ to civil servants, and a left-wing party always inclined to outspend their opponents, and understandably assumed that it must have been the post-financial crisis stimulus that has caused the debt ‘crisis’ (though probably not quite in these terms). Or maybe they believed, as the shadow cabinet now seems at pains to rebut, that the financial crisis itself was caused by overspending.

Were these the only Conservative lines they would have been easy to ridicule, and the public debate would have quickly moved on. However, when required, the Conservatives could rely on an entirely different claim, that Labour’s spending was too high before the financial crisis. This argument could (and probably does) fill several books, but its veracity is almost unimportant. Its primary purpose was to provide cover for Conservative themes of deficit, overspending, economic competence, long term plan etc. to run ad nauseum. If people drew the conclusions of the previous paragraph then all the better for Conservative HQ.

There was also the superficial plausibility of the Conservatives’ solution to contend with. If the government brings in less money than it spends, then to cut public spending sounds almost redundantly obvious. And therein lay our biggest problem. Of course the cuts were not actually necessary (at least, as soon and as severe as they were), but the reasoning behind them appears totally compelling to anyone without an economics degree or a Labour Party membership card. Moreover, the opposing (correct) argument requires advanced economic understanding to appreciate.

Ann Black, who would know as well as anyone, tells me that 90% of Labour members believe we lost the arguments on the causes of the financial crisis, and on how we should deal with the deficit, in the months after the 2010 election. It is certainly true that every coalition lackey who found themselves on TV was keen to blame Labour for the ‘mess’ the public finances were in. Some even went as far as to describe the cuts as ‘Labour cuts’ on the basis that our spending had necessitated them. My issue with this view, however, is that to say we lost the argument over this period implies that it was ever winnable.

I can only assume the Eds’ agreed with me. Instead of robustly defending the record they attempted to distance themselves from the previous government, presumably hoping that the 2015 election could be fought on the future vision. If so, they underestimated their opponents’ ability to control the media. Throughout the campaign shadow ministers were repeatedly asked whether the previous Labour government had overspent. In response they pursued the entirely transparent tactic of refusing to answer the question. The interviewee would admit responsibility for insufficient banking regulation and hope no one would notice that they’d not conceded fiscal incompetence or defended the (by now effectively indefensible) previous government’s spending. Of course, everyone did notice, and the question would then be repeated, only to receive the same answer. Worse still, when interviewers finally tired of this flatbatting they would move onto whether our future plans involved more or less debt than the Conservatives’ – which the unfortunate shadow minister was again forbidden from answering.

For what it’s worth, here is the correct answer: “Only if you base the debt calculation on growth projections we don’t think are credible given the severity of the planned Tory cuts. They will significantly reduce demand in the economy, hence produce lower growth, hence lower tax receipts, and hence debt will be higher than would have occurred if we assumed spending had no secondary effects. Exactly how much higher is impossible to say but it could well be our lesser savings counter-intuitively lead to lower debt. Even if they don’t, the cuts will be so harmful that avoiding them is worth a small amount of extra debt.”

This is simply too technical to cut through with more than a handful of swing voters. The only high profile election event featuring anything approaching this argument was Ed Miliband’s interview with Evan Davies, and he came off sounding unreasonable and evasive.

Those who bemoan our leadership’s unwillingness to challenge the Conservative economic narrative should consider how they would explain Keynesian economics to a sceptical audience in a twenty second slot on Question Time. Now suppose it’s followed by a cabinet minister proclaiming ‘you can’t borrow your way out of a debt crisis’ to rapturous applause. Work out how to simply, quickly, and persuasively respond to the accusation that Labour ‘maxed out the nation’s credit card’ or the likening of the national finances to a family budget. It just wasn’t possible. I don’t believe even Tony Blair could have won this argument.

Labour’s economic reputation does not have to be lost forever, indeed it must won back as soon as possible. Working out how we do this is the main reason I have started this blog. But as we comment from our armchairs we should bear in mind a simple truth: Just being correct is not enough – if you can’t sell an idea to the layperson, it’s worthless.

KBF