Dermot Finch

Labour's Business

Ed Miliband's speech to Labour's conference in September went down like a lead balloon with British business - especially that bit about "predators versus producers". Since then, the Labour leader has tried to clarify his argument, most recently in two speeches to the Social Market Foundation and IPPR. In both, he makes a better case for a more responsible brand of capitalism.

Even so, Labour is still not trusted on the economy - a real problem ahead of the Autumn Statement, and as the economy remains the biggest issue for the electorate.

Today's publication of Labour's Business is therefore quite timely. It's a collection of essays from businesspeople and policymakers, on how the Labour Party can regain its credibility on the economy - particularly on small businesses. Chuka Umunna writes the foreword, and chapter authors include Kitty Ussher, Hazel Blears and Tessa Jowell.

Labour's Business warns that Labour is letting the Conservatives run away with the "party of enterprise" title, and sets out how the party can promote a stronger enterprise culture and reclaim its credibility on the economy.

I've written the opening chapter (pages 16-19), about Gordon Brown's period as Chancellor and his mixed record on enterprise. I was a Treasury official for most of Brown's tenure at Number 11, and saw his enterprise strategy up close. Although he personally championed "an enterprise culture open to all", Brown launched too many initiatives and left too many areas of the UK excessively reliant on the public sector and vulnerable to the spending cuts that are now underway.

My advice to the current Labour leader: "rather than just defending the public sector, Labour needs to set out more clearly how it will deepen the private sector element of the UK economy".

Autumn Statement preview

Tomorrow's Autumn Statement will have plenty of bad news - lower growth, higher borrowing, higher unemployment. The Chancellor knows he can't bury all that bad news tomorrow - that's why he's been pre-releasing his response over the past few days, to give it some airtime. So what are the key elements of this growth package? And how will Labour react?

First, it's clear the Chancellor will miss his self-imposed target to eliminate the structural deficit by 2014/15. Andrew Marr pressed him on this yesterday. Osborne dodged the question, and told us this was "an exceptionally difficult time". In fact, as I wrote 10 days ago, the independent Office for Budget Responsibility will probably say the structural deficit won't disappear until 2016/17 - well into the next Parliament. That means we'll all have to be in it together for quite a bit longer.

Meanwhile, the Treasury is understood to have stepped up its contingency planning in case of a break-up of the eurozone. Osborne said yesterday that a disorderly euro collapse would be massively damaging, and was already having a "hugely chilling effect" on the UK economy.

Faced with that gloomy prospect, the Chancellor has been forced to respond with a package of new and additional measures to boost growth. He will say he's sticking to his plan, but as Alistair Darling said yesterday: "Plan A is slowly but surely being left behind".

1. Credit easing is by far the most important element of the growth package. Labelled the "national loan guarantee scheme", the Government will underwrite up to £40b of bank loans to SMEs, over a two-year period. The Treasury is calling this a "game-changer", and it is a potentially massive step. But it does rely on the banks to lend, and SME confidence to borrow. Labour is suspending judgment until tomorrow, although Darling did say it is a "welcome step" and "right in principle".
2. Infrastructure spending will get an additional £30b boost over the long term (mainly from pension funds), with £5b due before the next election (paid for by under-spends elsewhere). The PM and Clegg have already announced a £400m plan to build 16k new homes. Labour will no doubt remind us that public sector net investment in capital was due to fall from £49b in 2009/10 to £24b in 2013/14, so this extra spend is a relatively small increase. Also remember that the £5b announcement was almost made at the Lib Dems' conference in September, before George Osborne stamped on it. My colleague Tom Wadsworth has written more on infrastructure, here.
3. The £1b Youth Contract will address youth unemployment, which now stands at just over 1 million. As Nick Clegg announced last week, the three-year scheme will give employers subsidies worth £2,275 to take on 160k 18-24 year olds for six months. Labour will say this is too little, too late - and just another version of the Future Jobs Fund, which the Coalition scrapped in 2010.
4. Rail fares will increase by 6.2% in January, but not by as much as initially planned (8.2%). And a 3p rise in fuel duty, due in April, will be delayed. That will be something of a relief for commuters and drivers, but Labour will say that inflation is still hurting many families.   

It's not exactly clear how all this extra stuff will be paid for - probably a combination of departmental underspends, less generous tax credits and some kind of extension to the bank bonus tax.

This Autumn Statement should be a humiliation for Osborne, and an open goal for Labour. But it's not quite as simple as that. Labour is not yet credible on the economy - most people still buy the Coalition's argument that they are just clearing up Labour's mess. As the fiscal numbers get worse, it could actually be harder for Labour to make the case for higher levels of spending.

That's why it's interesting to see some growing signs of fiscal conservatism within Labour's ranks - most recently, Ed Miliband talking last week about the need for Labour to pay down the deficit from 2015 onwards. Cutting "too far, too fast" has been the Labour mantra so far. Look out for a slightly different message from Miliband tomorrow, that Labour would reduce the deficit in a more responsible manner.

The structural deficit: 5 things you need to know

George Osborne has spent the last 18 months telling everyone that he will eliminate the structural deficit by the end of this Parliament. As I wrote back in July, that now looks impossible.

The Office for Budget Responsibility will confirm its more gloomy fiscal outlook on 29th Nov, the same day as the Autumn Statement. It is likely to say that the structural deficit will not disappear until 2016/17, due to worse-than-expected growth. Eds Miliband and Balls will pounce on this, as a huge indictment of the Coalition's spending cuts. Osborne will need some good answers.

Just to get you in the mood, here are five things you need to know about the structural deficit:

1. The structural deficit is the bit of the overall deficit that does not go away when the economy recovers. In the OBR jargon, it's the "cyclically-adjusted current budget" (and it doesn't include capital spending on transport, housing, etc.).
2. Since June 2010, the OBR has been forecasting that the structural defict would shrink from around 4.6% of GDP in 2010/11 and disappear by 2014/15, ending up in a surplus of around 0.4% of GDP. That's why the Chancellor has said he would eliminate it by the end of this Parliament.
3. But the economic outlook has worsened over the past six months. We're not going to bounce back to the levels of output we enjoyed before the recession. As a result, a bigger chunk of the deficit is structural rather than cyclical. In OBR-speak, the "output gap" is smaller than earlier thought and there is less "spare capacity" in the economy.
4. The Chancellor's "fiscal mandate" is looser than he has made out. It's "a forward-looking target to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period". So his goal isn't to eliminate the structural deficit by the end of this Parliament (2015), it's to achieve structural budget balance over a rolling 5-year horizon. On 29th Nov, the OBR will publish forecasts across the 5 years from 2012/13 to 2016/17.
5. Whereas we were due to eliminate the structural deficit by 2014/15 (i.e. within this Parliament), the OBR is likely to say we won't eliminate it until 2016/17 (i.e. well into the next Parliament).

So, Osborne will miss his self-imposed target of eliminating the structural deficit by 2014/15. This will be politically embarrassing for him, so he'll need an impressive performance on the 29th. He will need to steady nerves inside the Coalition, and reassure the public that he is still on the right track. Meanwhile, he could come under pressure from the markets to cut spending further than he has already planned.

Looking further ahead, the next government in 2015 will still inherit a structural deficit - which may mean more spending cuts post-election, on top of those already planned up to 2015 under the current Spending Review. No sunny uplands for a while, then - looks like more pain to come.

Labour's response to this is tricky. Politically, the gloomy fiscal outlook will allow them to trash Osborne's Plan A as misguided and self-defeating. But economically, there will be even less room for the additional spending that their Plan B calls for.

The structural deficit might sound geeky, but it's actually going to define the economic debate from now on...

Sir Bob to replace one third of GOD

Normally, the announcement of a new head of the Home Civil Service is quite predictable. They've all tended to be HM Treasury permanent secretaries (e.g. Gus O'Donnell, Andrew Turnbull), Prime Ministerial private secretaries (e.g. Robin Butler) or other versions of long-standing Whitehall mandarins (e.g. Richard Wilson).

Bob Kerslake is none of those things. That's why today's announcement of his appointment as the new head of the Civil Service (from Jan 2012) is such a first. It's not just that he, Jeremy Heywood and Ian Watmore will between them split the three jobs carried out by Gus O'Donnell (otherwise known as GOD): Civil Service chief, Cabinet Secretary and Cabinet Office permanent secretary.

The real surprise is the choice of Sir Bob himself. He must be the first council and quango chief to rise to the very top of the civil service. Chief executive of Sheffield City Council (1997-2008) and then head of the Homes & Communities Agency (2008-10), Kerslake was closely involved with the Labour Government and with many of its policies.

But like every good public servant, he displayed exemplary chameleon skills when the Coalition arrived last year, first switching from the HCA to running the Department for Communities & Local Government; and then implementing perhaps the deepest of all departmental staff cuts across Whitehall.

Kerslake's local government roots would normally be the kiss of death for an aspiring mandarin. But for David Cameron, Sir Bob's local credentials are hugely appealing - they underline the PM's own commitment to localism, and usefully contrast with Jeremy Heywood's Downing Street-Treasury-Morgan Stanley background. Just to reinforce the "first" point, Kerslake will continue as permanent secretary of CLG - highly unusual, and perhaps only a short-term arrangement, but a very handy and high-profile efficiency saving (for now).

Other permanent secretaries had been more strongly tipped for the post - including Suma Chakrabarti at the Ministry of Justice, and Helen Ghosh at the Home Office. Many other perm secs - Lin Homer (DfT), Bronwyn Hill (DEFRA), Martin Donnelly (BIS) - are new to their posts, and will be surprised at Kerslake's rapid elevation. They will have to wait until 2015 - when Kerslake reaches 60 - before the top job comes up for renewal.