The recent policy proposal by Ed Miliband to offer the long term unemployed a government job demonstrates a lack of lessons learnt in their time in opposition. Branded under their one nation headline, and in response to the recent cap on benefits, it engages with the wrong end of both the welfare debate and the austerity one. Until now Miliband had been hesitant to reveal any of his hand. His main goal until this point has been survival. This is especially true considering division within the Labour party, along with appearing too left wing, led to eighteen years in the wilderness last time Labour were removed from office in the middle of an economic crisis. Milliband had appeared to have gained a certain level of credibility, rising steadily from the budget crisis. His appearance of one wholly not manufactured also gave credibility in the midst of Cameron and Blair’s dealing with the Murdoch press.

This marks the first real revelation of an intended policy for government. It engages with the austerity debate at the wrong end. Throughout the entire debate the end goals have been ignored by Labour. For all of Cameron’s failure to properly sell austerity as an agenda, he at least had end goals. He aims for Government Spending to constitute 40% of GDP and for the Government to record surpluses. Although his target of a surplus of £20 billion is to be missed at least end goals form part of the debate. Labour’s policy of halving the deficit leaves this aspect vague. Questions arise such as when is a surplus to be achieved, and what proportion of jobs should be in the public sector. Their revelation of this policy however reveals lessons in opposition have not been learnt.

Another gaping hole in the austerity debate is that the current levels of Government Spending have been rising unsustainably for too long, under Labour and Conservative Governments alike. Since 1990 we have recorded a surplus in only four years. The issue is not restoring growth and revenue, this transcends the economic cycle. Throughout the previous period of economic growth, the longest in recent history, level of tax revenue never exceeded forty percent of GDP. When Callaghan made the pip squeak revenues never hit above that mark. The tax proposal required to fund measure then leave something to be desired. Given the long term unemployed is a varying number, funding through a tax relief on high income pensioners cannot seem to cover it.

The true failing lies deeper than that. It offers not solution to the problem of a bloated public sector. By guaranteeing public sector jobs to the long term unemployed, presumably to be on after a fixed length of unemployment, incentives to seek private sector employment is grossly reduced. It also fails in the central problem with excessive public sector employment, namely crowding out. Even if the Keynesian case is believed, it only works to a point. Where a majority are consumed by the public sector, the incentives for the private sector to set up are diminished.

This return to what seems a policy of full employment, also shows a hypocrisy to his rhetoric. Every Prime Minister’s Question Time he mentions that cutting the top rate of tax was unfair, but what about the inflationary result of more government spending, which serves as a flat tax which hits the poorest hardest. Income tax can touch only your income in one year, but inflation can devastate savings too. If he is so concerned for fairness in the tax system why would he advocate a policy which risks this impact?

 

Chris Jaffray