Labour's positioning on the deficit

Dan Hodges has written an interesting piece on Labour Uncut (http://labour-uncut.co.uk/2010/07/29/dont-go-to-war-over-the-deficit-says-dan-hodges/#more-2119) about how Labour can get the balance right on being seen to fight unpopular cuts without being seen as irresponsible "deficit deniers". I'm trying to mull this over but with more numbers!

I'm concious that I may have mangled the numbers a bit - if anyone from the IFS or any other economist is reading this and spots any double counting please shout in the comments and I'll correct my figures.

At the General Election we were only proposing to fill 70% of the budget gap by 2016/17. There's an important choice to be made by the new Leader and Shadow Chancellor about whether we need to go for a 100% fill now (the maximising prudence and pain position) or stick with 70% or go somewhere in between. If we shift from 70% we need a good explanation why we now disagree with our own previous stance. If we stick at 70% we have £25.8bn (30% of the gap) of Coalition cuts we can credibly oppose (in addition to the £8.2bn explained below) but the public might not wear that as credible.

Putting that big question to one side the rest of the line we had at the General Election which was fiscally prudent but a long way from the carnage the Coalition are going in for.

The essentials were:

• We wouldn't have made any cuts this year as that endangers the fragile economic recovery. The extra growth this would have created would have generated more tax and entailed fewer people on the dole, thus partly paying for itself (I've not seen estimates of the numbers involved in this, would welcome being pointed to them).
• We would only be seeking to deal with the deficit - not overachieve/over cut and make cuts that are greater than the size of the deficit. Institute of Fiscal Studies numbers put the budget gap at £86bn but the Coalition cuts total £91bn.
• We promoted a 30%-70% mix between tax increases and spending cuts to bridge the gap (£25.8bn vs £60.2bn) whilst the Coalition package is 26%-74% after being softened from an intended 20%-80% by the retention of measures from our last Budget (£22.36bn vs £63.64bn).

So the "cuts difference" between our existing policy (ignoring the 70% fill of the gap and assuming we fill it 100%) and the Coalition's is £3.2bn + £5bn (£8.2bn) + whatever the increase in tax take and reduction in benefit spend is projected as from us having kept the fiscal stimulus going for an extra year.

The incoming Leader and Shadow Cabinet should produce a shadow spending review report to come out when Osborne's does on 20th October which would set out in absolutely clear terms:

• The projected impact of starting cutting a year later
• What our £25.8bn of tax increases would look like and how they would be more progressive than the Coalition's regressive VAT increase
• Where our £60.2bn of spending cuts would fall
• What the £8.2bn (plus?) of Coalition cuts that we wouldn't do would be
• Any other differences i.e. things we would cut that the Coalition isn't going to, which therefore enables us to reject other of their cuts

£8.2 bn is not peanuts. It's 9% of their total package. Assuming a public sector employee might cost £30k a year including employer's on costs, it's 273,333 jobs saved - without quantifying the impact of those 273,333 people still paying tax and not receiving dole, and the social impact on them and their families of them still being in work, and the wider benefits to society of whatever public service they were providing. Or looked at another way its over £136 of cuts not happening per person who lives in the UK.

As Bob Hawke once said "the difference between a Labor government and a Coalition government may only be an inch [or £8.2bn] but if you live in that inch it is a very important difference".

Assuming we go for a 100% fill of the budget gap, it's that £8.2bn that the political battle needs to be around. We need to define what's in it and fight those cuts - condemning every cut when we accept £60.2bn of them are necessary will make us look irresponsible and not serious about being a party of government again.