As the last Labour chancellor to address the party’s annual conference, Alistair Darling had plenty to be downbeat about. This time 15 years ago, the global financial system was in meltdown, Britain was heading for its deepest recession since the second world war, and Labour was bracing for electoral defeat.
This year, after ending more than a decade in the political wilderness in July’s election landslide, Rachel Reeves ought to be taking the conference stage in Liverpool on Monday with a spring in her step as Darling’s first Labour successor.
Any sense of a party mood on the banks of the Mersey have, however, been hosed down by the chancellor with warnings of a “painful” budget due next month; packed with tax rises, welfare cuts and spending restraint, courtesy of a dire economic inheritance left by the Conservatives.
But while there is no doubting that Britain’s economy is far from buzzing, Reeves is facing accusations of having overcooked the message of the doom and gloom – to the point the downbeat Treasury tune is more than just putting a dampener on the conference karaoke.
Consumer confidence has taken a knock since Reeves took an axe to winter fuel payments and warned of a tough budget to come, after discovering a £22bn “hole” in the public finances she says was “covered up” by the Conservatives. Businesses and investors, too, are picking up on the foreboding. Alongside damaging media stories about freebies and internal battles, some worry Labour is set for a bout of fear and loathing in Liverpool.
“It’s going to be interesting to see the mood,” says one source close to the party. “It’ll be far more anxious and apprehensive than you would have expected just after the election, and that’s crazy.”
Reeves will use her conference speech on Monday to set the tone for next month’s budget. But while she is under pressure to lighten up a bit, the overriding message the chancellor wants to get across is twofold: Labour can be trusted with the public finances, and the Tories can’t.
To do so, Reeves is likely to keep up the message that tough choices still need to be made, while sticking to self-imposed fiscal rules set by her predecessor, Jeremy Hunt, dictating that debt as a share of GDP must fall in the fifth year of forecasts produced by the Office for Budget Responsibility.
But while the rules didn’t stop the Tories promising billions of pounds in national insurance tax cuts, which most experts reckoned were wildly unaffordable, Labour has talked about holding to a higher standard; for political reasons, as much as economic ones.
First, the economics. Britain’s public finances are indeed in a tight position. After the failure to boost economic growth in the past decade, and as public spending demands rise to meet the needs of an ageing population, the Treasury is under strain.
The national debt has reached 100% of national income, higher than at any point since the 1960s, and significantly higher than when Labour last left office in 2010. As ably demonstrated by Liz Truss, politicians can’t ignore this entirely.
Second, the politics. Talk of “iron” fiscal discipline was useful for quashing Tory attacks before the election. In the aftermath, Reeves is now hoping to do what George Osborne did to Labour in 2010: to permanently link the opposition with the idea of economic incompetence.
However, it is increasingly clear Labour is putting too much weight on these arguments. Few people need yet another reminder about the mess left by the Tories – there are enough daily reminders already, from an overwhelmed NHS to pothole-ridden roads. Voters would rather Labour got on with the job of fixing things, even if this means paying more tax.
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In terms of the economics, Labour probably has more wriggle room than Reeves is letting on. Inflation is normalising and the Bank of England has started to cut interest rates. Austerity policies are out of fashion, even in the economics mainstream, while financial markets would welcome borrowing for the correct growth-enhancing measures.
Most economists agree the fiscal rules are not fit for purpose. Danny Sriskandarajah, the chief executive of the New Economics Foundation, says the public are being misled: “You wouldn’t wait until a patient has recovered before you treat them – it’s just as misguided to wait until our economy is thriving before we invest in it. And this investment will more than pay for itself.”
Despite the financial crisis 15 years ago, Darling also knew choking off investment would make matters worse. Back then, there was a real risk of a repeat of the 1930s, when a recession caused by the 1929 Wall Street crash led to the Great Depression.
In his final conference speech as chancellor, Darling attacked the Tories for wanting to “step back, not step in”. Although he did propose tighter spending settlements, borrowing was increased, while there were higher taxes for the richest in society; including the 50p income tax band on earnings above £150,000, with the aim to protect frontline services.
The smart money is on Reeves taking a similar approach despite all the talk of doom and gloom. The fiscal rules are expected to be tweaked, allowing for up to £20bn more borrowing, while the chancellor is preparing to raise taxes on capital gains, pensions and inheritance – targeting mainly wealthier individuals.
However, she is also operating with a hand tied behind her back, thanks to promises not to raise income tax, VAT or national insurance.
Pressure is going on the chancellor to go further. To kickstart a decade of national renewal, Labour’s first conference in power for 15 years is the right moment to pivot away from the dour messages of gloom.