The long-awaited spending review was a depressing day for our public services. The announcement put the detail to the cuts to 2015-16 spending that were promised in the budget in March. For Labour, there were no real surprises and we had finally invested some time and thinking beforehand into building our economic credibility. The challenge comes in working out how to claw our way out of the frame for debate that the chancellor has set.

The world of public finances is a misty, obscure world. For example, of the £11.5bn total figure announced for cuts, £1.5bn had already been announced and some spending had been reclassified between departments. As far as capital spending is concerned, the (gross) figures will be around £50bn a year, which allowed the chief secretary today to trumpet £100bn of investment over two years. Moreover, while cutting £11.5bn (or £8.4bn if we use the Institute for Fiscal Studies figure) will be significant for services, in terms of the impact on public sector debt it is limited and further cuts, or tax increases, are going to be needed if the government’s fiscal strategy is continued beyond 2016. This is the legacy of George Osborne’s economic policy.

There remains a sense that the serious decisions about public spending have yet to be made. The incremental nature of the cuts so far means the government has been getting away with initiating some serious damage to society with relatively little debate. The state is being reduced by stealth. Changes to social security are a case in point; by the time of the election the effects will be more apparent to the nation as a whole but now there is an unreal nature to a Westminster debate which is divorced from the increasingly grim reality experienced by those on low incomes. Many major political decisions about spending priorities within departments have yet to come and these will test a government not known for its backbone against strong public opposition. The temptation to sell assets for quick gain, repeating mistakes of the 1980s and 1990s, rather than look at alternatives such as leasing out services or improving public sector management, will be strong.

What is missing, as is beginning to be appreciated, is a clear idea about what government is for and how spending should work. It is one thing to string together a narrative about a series of cuts, but another to think afresh. The financial crisis had a huge impact on the economy and public finances, akin to a war. During wartime, the pressure is on to deliver and that stimulates innovative thinking. The coalition is not clear what government should be delivering. To continue with a military theme, consider for example the cuts to the defence budget. Escaping relatively unscathed in this review, the overall cuts nevertheless are not consistent with the national interest or the international role to which this country still aspires.

Meanwhile, the government has missed yet another opportunity to change the rules of the economic game by boosting infrastructure investment. The Office for National Statistics has today revised its estimates and announced that, while a ‘double-dip’ recession never happened last year, GDP fell almost one per cent more in the recession than we thought. That means output is still almost four per cent below the pre-recession peak. Continuous flat or low growth will undermine the productive potential of the economy. The government’s announcement of capital spending now, four years ahead, is a small positive step because it signals intent to business. The government could have followed IMF advice and brought forward £10bn of investment spending now, but really it should have committed to a decade of high investment and education spending, backed with an extensive job guarantee. That would give businesses, including overseas investors, confidence that the UK would be an attractive place in which to invest.

Labour has made some useful gains in recent weeks towards rebuilding its economic credibility. Here are two challenges which lie ahead:

•    Significantly boost credibility on spending with the public
Not simply the level of spending or even where we would prioritise spending, but how we would spend. Voters must be confident we will be better than the coalition in spending money wisely.

•    Prepare for upside economic surprises
It is easy to be pessimistic about the economy and there are many reasons to be. Nevertheless, expectations are low enough for us to speculate whether we may see an upturn in forecasts over the next few months. Osborne has been hoping for this and so far the economy has refused to deliver, stalling since the general election. Yet should growth pick up, so would tax revenues, and with spending cuts already banked that could leave the chancellor with room for more deficit reduction and, maybe, a tax cut. This is when Labour will need a fully fledged One Nation economic policy, for better times as well as bad.

The world of public finances is a misty, obscure world. For example, of the £11.5bn total figure announced for cuts, £1.5bn had already been announced and some spending had been reclassified between departments. As far as capital spending is concerned, the (gross) figures will be around £50bn a year, which allowed the chief secretary today to trumpet £100bn of investment over two years. Moreover, while cutting £11.5bn (or £8.4bn if we use the Institute for Fiscal Studies figure) will be significant for services, in terms of the impact on public sector debt it is limited and further cuts, or tax increases, are going to be needed if the government’s fiscal strategy is continued beyond 2016. This is the legacy of George Osborne’s economic policy.

There remains a sense that the serious decisions about public spending have yet to be made. The incremental nature of the cuts so far means the government has been getting away with initiating some serious damage to society with relatively little debate. The state is being reduced by stealth. Changes to social security are a case in point; by the time of the election the effects will be more apparent to the nation as a whole but now there is an unreal nature to a Westminster debate which is divorced from the increasingly grim reality experienced by those on low incomes. Many major political decisions about spending priorities within departments have yet to come and these will test a government not known for its backbone against strong public opposition. The temptation to sell assets for quick gain, repeating mistakes of the 1980s and 1990s, rather than look at alternatives such as leasing out services or improving public sector management, will be strong.

What is missing, as is beginning to be appreciated, is a clear idea about what government is for and how spending should work. It is one thing to string together a narrative about a series of cuts, but another to think afresh. The financial crisis had a huge impact on the economy and public finances, akin to a war. During wartime, the pressure is on to deliver and that stimulates innovative thinking. The coalition is not clear what government should be delivering. To continue with a military theme, consider for example the cuts to the defence budget. Escaping relatively unscathed in this review, the overall cuts nevertheless are not consistent with the national interest or the international role to which this country still aspires.

Meanwhile, the government has missed yet another opportunity to change the rules of the economic game by boosting infrastructure investment. The Office for National Statistics has today revised its estimates and announced that, while a ‘double-dip’ recession never happened last year, GDP fell almost one per cent more in the recession than we thought. That means output is still almost four per cent below the pre-recession peak. Continuous flat or low growth will undermine the productive potential of the economy. The government’s announcement of capital spending now, four years ahead, is a small positive step because it signals intent to business. The government could have followed IMF advice and brought forward £10bn of investment spending now, but really it should have committed to a decade of high investment and education spending, backed with an extensive job guarantee. That would give businesses, including overseas investors, confidence that the UK would be an attractive place in which to invest.

Labour has made some useful gains in recent weeks towards rebuilding its economic credibility. Here are two challenges which lie ahead:

•    Significantly boost credibility on spending with the public
Not simply the level of spending or even where we would prioritise spending, but how we would spend. Voters must be confident we will be better than the coalition in spending money wisely.

•    Prepare for upside economic surprises
It is easy to be pessimistic about the economy and there are many reasons to be. Nevertheless, expectations are low enough for us to speculate whether we may see an upturn in forecasts over the next few months. Osborne has been hoping for this and so far the economy has refused to deliver, stalling since the general election. Yet should growth pick up, so would tax revenues, and with spending cuts already banked that could leave the chancellor with room for more deficit reduction and, maybe, a tax cut. This is when Labour will need a fully fledged One Nation economic policy, for better times as well as bad.

The long-awaited spending review was a depressing day for our public services. The announcement put the detail to the cuts to 2015-16 spending that were promised in the budget in March. For Labour, there were no real surprises and we had finally invested some time and thinking beforehand into building our economic credibility. The challenge comes in working out how to claw our way out of the frame for debate that the chancellor has set.

The world of public finances is a misty, obscure world. For example, of the £11.5bn total figure announced for cuts, £1.5bn had already been announced and some spending had been reclassified between departments. As far as capital spending is concerned, the (gross) figures will be around £50bn a year, which allowed the chief secretary today to trumpet £100bn of investment over two years. Moreover, while cutting £11.5bn (or £8.4bn if we use the Institute for Fiscal Studies figure) will be significant for services, in terms of the impact on public sector debt it is limited and further cuts, or tax increases, are going to be needed if the government’s fiscal strategy is continued beyond 2016. This is the legacy of George Osborne’s economic policy.

There remains a sense that the serious decisions about public spending have yet to be made. The incremental nature of the cuts so far means the government has been getting away with initiating some serious damage to society with relatively little debate. The state is being reduced by stealth. Changes to social security are a case in point; by the time of the election the effects will be more apparent to the nation as a whole but now there is an unreal nature to a Westminster debate which is divorced from the increasingly grim reality experienced by those on low incomes. Many major political decisions about spending priorities within departments have yet to come and these will test a government not known for its backbone against strong public opposition. The temptation to sell assets for quick gain, repeating mistakes of the 1980s and 1990s, rather than look at alternatives such as leasing out services or improving public sector management, will be strong.

What is missing, as is beginning to be appreciated, is a clear idea about what government is for and how spending should work. It is one thing to string together a narrative about a series of cuts, but another to think afresh. The financial crisis had a huge impact on the economy and public finances, akin to a war. During wartime, the pressure is on to deliver and that stimulates innovative thinking. The coalition is not clear what government should be delivering. To continue with a military theme, consider for example the cuts to the defence budget. Escaping relatively unscathed in this review, the overall cuts nevertheless are not consistent with the national interest or the international role to which this country still aspires.

Meanwhile, the government has missed yet another opportunity to change the rules of the economic game by boosting infrastructure investment. The Office for National Statistics has today revised its estimates and announced that, while a ‘double-dip’ recession never happened last year, GDP fell almost one per cent more in the recession than we thought. That means output is still almost four per cent below the pre-recession peak. Continuous flat or low growth will undermine the productive potential of the economy. The government’s announcement of capital spending now, four years ahead, is a small positive step because it signals intent to business. The government could have followed IMF advice and brought forward £10bn of investment spending now, but really it should have committed to a decade of high investment and education spending, backed with an extensive job guarantee. That would give businesses, including overseas investors, confidence that the UK would be an attractive place in which to invest.

Labour has made some useful gains in recent weeks towards rebuilding its economic credibility. Here are two challenges which lie ahead:

•    Significantly boost credibility on spending with the public
Not simply the level of spending or even where we would prioritise spending, but how we would spend. Voters must be confident we will be better than the coalition in spending money wisely.

•    Prepare for upside economic surprises
It is easy to be pessimistic about the economy and there are many reasons to be. Nevertheless, expectations are low enough for us to speculate whether we may see an upturn in forecasts over the next few months. Osborne has been hoping for this and so far the economy has refused to deliver, stalling since the general election. Yet should growth pick up, so would tax revenues, and with spending cuts already banked that could leave the chancellor with room for more deficit reduction and, maybe, a tax cut. This is when Labour will need a fully fledged One Nation economic policy, for better times as well as bad.