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.

Evidence-based policy

"Evidence-based policy making" might seem a rather obvious pursuit. Who, you might ask, could possibly make up policies on the back of no evidence whatsover? But in Whitehall it's a relatively recent trend (formally, at least). Championed by the likes of Gus O'Donnell when he was Treasury permanent secretary (2002-05), evidence-based policy making was all the rage under New Labour. 

Before 1997, policy making was based on a slightly thinner evidence base. Interest rates, for example, were set by Ken Clarke & Eddie George, with decisions sometimes based more on the electoral cycle than on economic data. The Monetary Policy Committee changed all that, and put interest rates decisions firmly in the hands of the Bank of England and its economic datasets.

But, as Evan Davis pointed out at the Institute for Government last night, more evidence hasn't necessarily resulted in better decisions. (In fact, he thinks that economists have been quite rubbish in recent years.) And although evidence is helpful, it doesn't simply churn out a clear answer to every policy problem - politicians still need to make judgements.

So yes, we now have a lot more evidence. Star panellist Vince Cable highlighted his Top Five evidence-based policy moves: Lord Stern's report on climate change, Lord Turner's report on pensions, Lord Browne's report on student finance, the Low Pay Commission, as well as the MPC. All good.

But ironically, all that extra weight of economic evidence didn't prevent the Bank, FSA or Treasury from making a series of major decision-making errors in the run-up to the financial markets collapse of 2007/08. 

And although evidence is always helpful, it can be used to support two completely different arguments - like in a court of law. As Jonathan Portes pointed out, the decision by the Coalition to scrap the Educational Maintenance Allowance was a classic piece of "policy-based evidence making". One minute, Labour was publishing evidence that EMAs were vital - the next, Michael Gove was scrapping EMAs based on "new" evidence. Who was right?

Also, take localism. The Labour Government was largely sceptical about the rationale for devolving power to local authorities and community groups. Towards the end of their time in power, Labour ministers did start commissioning and exploring evidence on localism - but progress was painfully slow. The Coalition, by contrast, simply announced that localism was a good thing, committed itself to the localist cause, and got on with implementing its localist agenda - not on the back of a new pack of evidence, but because Conservatives and Lib Dems both believe in it.

So, evidence-based policy making has improved and become more widespread in recent years. But it doesn't provide the full answer, it doesn't guard against bad decisions, and it still allows politicians plenty of room to be, well, political.

 

I used to be Rachel Reeves' boss

Honest. Back in 2002, she was a Bank of England economist and I was the Treasury's economics attache to the British Embassy in Washington DC. My economics skills weren't too hot, and it was quite busy after 9/11, so we needed reinforcements. Cue Rachel.

We worked together for just over a year, until mid-2003. My formal title was First Secretary (Economic Affairs) - I focused on the secretary bit, and let Rachel do most of the economics stuff. And she was very good at it. I probably learned more about monetary policy, inflation targeting and fiscal loosening from Ms Reeves than anyone else.

Nine years on, Rachel is about to be elevated to the Shadow Cabinet  - and is eminently well qualified for the shadow Chief Secretary role. Her strong professional track record outside politics - at the Bank, Embassy and HBOS - is often cited as the reason for her rapid advancement inside politics. A good example of why MPs should not just be drawn from the ranks of special advisers and think tanks.

She's been Labour MP for Leeds West since last year's general election. Before then, she fought her local Bromley & Chislehurst seat twice - first, against Eric Forth in 2005; and then in a by-election against Bob Neill (now a CLG minister) in 2006. Realising that Labour would find it hard to win seats in the South East, she moved up to Leeds and - with the help of local MPs such as George Mudie - secured the nomination for John Battle's seat, ahead of the 2010 election.

If she is made shadow chief secretary, Reeves will fancy her chances against Danny Alexander. Like Reeves, he took PPE at Oxford, but his comms roles at Britain in Europe and Cairngorms National Park don't quite match up to Rachel's stints at the Bank, DC and HBOS. He does have the full force of the Treasury behind him, though. Look out for Treasury Questions on 1st November, for the first Reeves v Alexander contest. In the meantime, she could do worse than consult Alistair Darling - who was shadow chief secretary before the 1997 election.

Conference wrap-up

So that's it for another year: I've left the secure zone, taken off my lanyard and said goodbye to Manchester. Am now thinking: did the party conferences change anything for Clegg, Miliband and Cameron?

I reckon the Lib Dems did better than expected, Labour worse and the Conservatives emerged unscathed. Here's why.

Clegg went into Birmingham fearing the worst, expecting some crowd trouble. But he didn't get any. It was a bit like the last episode of Blackadder, leading his troops over the top - except nobody fired. Maybe he'll go down fighting in 2015, but he survived conference - and created some space for Lib Dems to remain in Coalition, and criticise the Tories.

Miliband needed to make an impact in Liverpool. He did that alright, but in the wrong way. His speech was thoughtful, and did contain a decent theme about corporate responsibility - but it came across like an anti-business think tank pamphlet. A former Cabinet minister told me the whole week had been an "overwhelming disaster". Miliband needs to recover quickly, starting with a bold reshuffle of his shadow cabinet. He will also need to explain his New Bargain more clearly.

Cameron delivered just about enough today. When you're in a hole, reach for the optimism script - call on the British Bulldog spirit, and cross your fingers things will turn out OK. That's basically what he did. By far the most significant announcement was Osborne's, on credit easing - more details on that in his 29 Nov Autumn Statement. If credit easing works, Cameron could be off the hook - if it doesn't, his optimism will backfire.

Overall, though, this was an off-year at conferences. After the excitement of pre- and post-election, this year was always going to be relatively low-key and flat. Given the economy is so dodgy, the Coalition parties decided to keep their heads down and plough on. And given it's only a year into Opposition, Labour just wasn't ready to unveil anything new and substantive.

Roll on 2012.

Party conferences - who are they for?

I'm in the main hall for David Cameron's finale in Manchester, at the end of three long weeks at all three party conferences - my seventh season on the trot. And am wondering: who are party conferences for?

There's a quiet but growing debate about this, on the conference circuit. Here at Conservatives, Fraser Nelson has been complaining that fringe events are packed full of lobbyists instead of party members. Peter Bingle was on the Today programme yesterday, defending all those lobbyists (including me, I suppose).

Some facts: of the 11,000 people at Tory conference, around 4,000 are party members - the rest are public affairs, media and journo types.

More party activists would attend if it were free, but conference passes (and hotels) are quite pricey - the total package is about a grand. Normal people would sensibly rather go to Crete or Florida instead.

One of the consequences is that conference fringe events don't quite capture the full flavour of party sentiment. Questions to panellists can come from constituency members, but they could equally come from the likes of me and other corporates.

I can see why this frustrates Fraser Nelson and others. I'd argue that the balance is about right between party, media and corporates - apart from those heavy-handed campaigners or lobbyists who drone on too long. I get much more frustrated by rubbish AV equipment - see my earlier posts on that.

There is a genuine question to ask about party conferences, and that is whether they should be held every year. Some journalists are already proposing US-style pre-election conventions instead, especially after this year's rather flat and non-eventful season. I doubt whether the parties themselves would go for this.

Mayor opportunity

Boris has been the star here in Manchester, launching his mayoral re-election bid for 2012. Labour by contrast was more muted in its support for Ken last week. Meanwhile, the prospect of mayors in other cities outside London is drawing closer - this could be a handy mid-term opportunity for Labour.

Boris Johnson should be very grateful to Tony Blair. Had Labour not introduced the London mayoralty in 2000, he would still be MP for Henley and a junior minister. Instead, he is the biggest star of the Tory party - apart from Cameron, maybe.

Boris has attracted the most enthusiastic crowds here in Manchester, and must surely walk it to re-election next May. Speculation is already mounting about his plans after 2016. He said yesterday that he would not stand for Parliament while he is mayor, but the opportunity of another stint as MP is still wide open post-2016. And a go for leadership of the party - which must be a worry for Osborne's ambitions.

Labour, meanwhile, appears to be sleepwalking to defeat in London. There is little energy behind Ken Livingstone, and an open assumption that he will lose. I've even heard talk recently of plans to deselect him, and install another candidate - maybe David Lammy.

Multiple mayoral opportunities lie outside London - in cities like Birmingham, Liverpool and Newcastle. Leicester has already got its mayor. Eleven other cities will vote next May on whether to have a mayor, and elections could take place as soon as autumn 2012.

In Birmingham, Labour's Gisela Stuart is about to put her name forward - alongside Sion Simon and former city leader Albert Bore. Brum is the most likely to vote yes, but that's not yet certain. There's a big risk that all 11 cities vote no.

David Cameron is a big fan of mayors, but his party has yet to field a single candidate in Birmingham (or any other city). Ed Miliband isn't a fan - his constituency Doncaster had a bad experience with its mayor.

For Labour, mid-term mayoral elections could be an opportunity to embarrass Cameron - not least in Birmingham. Miliband should be actively campaigning for a yes vote in May - but I doubt whether he will seize this mayor opportunity.

Riding out the storm

George Osborne speeches are now something of a tradition at Conservative conference - and part of the tradition is a recurring catchphrase.

Two years ago, it was "we're all in this together". Today, the Chancellor catchphrase was "together we will ride out the storm". I'm not sure whether that's progress - Osborne still wants us to stick together, but the weather appears to have got worse.

The storm clouds gathering over the Treasury are big and dark. Weak growth, euro crisis, credit squeeze, rising unemployment, high inflation, and more.

Osborne's policy response today was threefold: a clear no to further new spending (even though he's found £800m to freeze council tax again); a promise of "credit easing" to finance business growth (the most significant announcement, more details to come from Treasury); and a bunch of supply-side measures including planning reform and more apprenticeships.

There wasn't much new in all this. Two extra enterprise zones, some rather optimistic new housing numbers, and freezing council tax for another year (which he promised in 2008). Credit easing could help to unlock business finance, but we need to see more detail first.

While Labour was deliberately policy light last week because they need more time, Osborne today tried to be policy heavy in the face of another gathering economic storm. But the real game changers lie outside the conference hall - the fate of the euro, a recovery in bank lending and consumer confidence.