The scale of the economic problems facing us is enormous and we have a government with a failed economic policy and hoping for the best. Labour needs to build more credibility on spending to make progress with the electorate. Meanwhile, the One Nation theme can be developed to provide an important counter to the coalition’s economic policies.

The UK economy has been going nowhere for the past year. The coalition’s economic policy has failed. Its commitment to harsh austerity dented confidence at the crucial moment. As a result, we have not even sacrificed growth to reduce our deficits; instead we have higher deficits and no growth. It is easy to imagine many more years of low or no growth, with continued high deficits and spending cuts year on year. With the Conservatives and Liberal Democrats flailing around looking for growth plans, it is clear the country needs an alternative.

Polling suggests that Labour has more work to do to convince people it has a credible alternative approach and the risk is that people will stick with the certainty of current economic policy. A further political risk is that the global economy picks up substantially and the UK economy with it. That would be good for the UK but growth would be despite the chancellor’s policies and not because of them. Arguing that George Osborne took too many risks but got away with it will not be effective if it is Labour’s main economic campaign message.

We do not know what the economic picture will look like in a couple of years, so our current task is to link a message of economic credibility with our values.

Labour has embraced the One Nation theme as a good way of expressing our values. It is similar to Tony Blair’s ‘stakeholder society’ label in that we sense we know what it means, even before it is defined. Blair did not seem to have worked out in detail what he might have meant, however, and when Will Hutton and others did so for him he dropped the idea. One Nation is, in contrast, a more substantial project. We must be clear what it means for economic policy. Jon Cruddas, in the ebook One Nation Labour – debating the future, writes that ‘The inclusion of all and the recognition of the worth and contribution of each is the meaning of One Nation’. That is a good place to start.

Most people, while believing that spending cuts are necessary, believe too that they are not being fairly implemented. The mantra ‘we are all in this together’ is used by Democrats in the US and is really a One Nation refrain. When used by Osborne and David Cameron it rings hollow. Our shadow cabinet members need to devise tax and spending priorities that will be clearly seen as fair. That will not be easy. As has been argued in The Purple Papers, the scale of the problem is such that we cannot avoid spending cuts affecting those we wish most to support. But starting a conversation with the electorate about the difficult choices the country faces and how our values will make a difference is a necessary part of being credible on economic policy.

To prosper in today’s market economy you need capital, including human capital. In a One Nation economy the debts of past generations should not hold back the potential of the next. A One Nation economic policy will seek to help the capital-poor, and by doing so boost investment in people’s future. That means education and training will be a high priority for spending with additional training encouraged by tax credits, even linked to debt restructuring in a modern-day jubilee. Labour recently announced plans for a jobs guarantee, which could be made a totemic One Nation economic policy. This can link in with a wider theme of investment, encompassing investment in infrastructure, around which there is much cross-party agreement but as yet little vision for bold action.

Many on the left believe that we need to borrow and spend more to stimulate the economy. But it may be too late for that. Now we cannot be sure if more borrowing, for tax cuts for example, will have the desired effect. More necessary is a decade-long commitment to spending on infrastructure and other investments that is credible and predictable. A new fiscal rule could be introduced to safeguard capital spending so that business knows it will continue and bond investors can predict the extra borrowing that might result. More capital spending by government will still mean less current spending; going for growth is not a way of avoiding those hard choices.

We have to be credible on spending and convince voters that we will spend wisely. I have argued before for an ‘effective spending guarantee’, under which new spending beyond coalition plans is audited and cut off if it does not do what we said it would. At the same time, we need to reform the way our public services work. They should be seen as held in trust for the (One) Nation with those who run them being trustees, responsible for spending the beneficiaries’ money (our money) effectively and wisely. That means increasing responsibility and accountability. This approach is attractive because it says spending will be kept focused and under control.

The UK faces severe economic challenges. These go beyond needing growth. We need an economy in which everyone participates and which is productive and competitive. The further the country moved from One Nation values, the more distorted the economy became. Repairing it will take time, but we can begin the task now, in opposition, by making clear what a One Nation economic policy could look like.

This article was first published by Progress on 31 January 2013.