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Why the zero-based spending review is so important

  The recent election results have led to a debate about how Labour can reconnect with parts of its core vote that United Kingdom Independence party is targeting. Some blue Labour insights have been revisited as we seek to show we are on the side of people who genuinely feel powerless in the face of change. We should also keep focused on our efforts to build lasting relationships with voters where we ourselves are open to changing the way we do things. All this is healthy stuff, but we know that our policies have to stand on a foundation of economic credibility. This is a debate I am looking for at this year’s Progress annual conference, taking place tomorrow. Having a sensible and convincing approach to deficit-cutting and spending is one important requirement. The other is having the economic answers to the challenges that lie ahead over the next few years. That is why the zero-based spending review is one of the most valuable things we are doing in opposition.
The review has been undertaking a close examination of the finances of each government department. The aim is to understand how these departments work, identify measures that might save costs over the long term (such as preventative healthcare) even if they cost now, and identify potential and growing liabilities, such as nuclear power station decommissioning. Although Michael Ashcroft has found that a significant proportion of people believe there has been enough austerity, the finances suggest that spending commitments will need to be reduced further for some time to reduce the rate of borrowing, unless growth and tax revenues surprise.
This is the case even if you believe the government’s plans are too extreme. Moreover, as Chris Leslie, shadow chief secretary to the Treasury, said in a speech this morning about the review, ‘we won’t be able to undo the cuts that have been felt in recent years.’ I believe that merely cutting spending in line with Tory plans will not gain us the credibility we need. After all, why not just vote for the party already doing the cutting? The reason to vote Labour, of course, is because our priorities are different, but we also have to show we will spend effectively. I would have an effective spending guarantee for future spending increases, independently monitored by an organisation such as the National Audit Office. Leslie made the point that ‘if you believe that as a society we achieve more by coming together and pooling our resources to deliver services from which we all benefit, then we have a responsibility to prove to the taxpayer that this can be done efficiently and effectively.’
This commitment to effective spending needs to be more widely communicated, with examples, by our shadow cabinet team. In many cases this is about having the courage to act for the long term, which means a great deal of communication is required about what we are doing. In all cases it is about being ruthless in ensuring our spending will do what we intend it to do. This approach is the only way we can win trust to increase spending where that is required. Otherwise, people will believe the propaganda that we will waste money.
However, economic credibility is also about meeting the challenges of the future. One way is through large-scale, long-term investment. This country’s record on investment is embarrassing. Visitors to China can be overwhelmed at the scale of development in that country, and the infrastructure planning that has helped power it, even while acknowledging the serious consequences. But we do not have to take lessons from China: we can look at our own past, where large projects were undertaken because the collective will existed to make them possible and see them through.
To grow and prosper this country needs to improve its transport links and digital infrastructure. A national investment bank and a consensus around public investment are essential, alongside a major focus on improving education. Our economic policy allows for increases in capital spending even while we get current spending under control. However we have to get this right by being rigorous on where and how we invest. Building a consensus on investment is not about removing politics from public investment, it is about having the right politics. We need both an effective spending commitment and a credible investment policy to help us win the general election next year.

This article was first published by Progress, on 30 May 2014.
Progress, 30 May 2014, 04/06/2014

Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.
Central banks are struggling to head off general inflation while dealing with price shocks that will be negative for growth. They waited too long, which has made their tasks more difficult.
The Bank of England has raised interest rates, but that does not mean it has been most effectively managing inflation risks.
The Bank should signal it will act if higher prices look likely to translate to higher inflation rate.
The IMF's Fiscal Monitor is actually quite radical.
Spare a thought for finance ministers, and the opposition counterparts who aspire to replace them. The conventional wisdom was that they should at least make an attempt to follow fiscal rules. Now, there are no rules.
My letter in the Financial Times on the need for a framework for economic policy decision-making.
Responding to Brian Griffiths' article in The Article on the risks of inflation.