Forget the Labour leadership: the party needs to pick a Shadow Chancellor

Labour’s contests for leader and deputy leader are now in full and rambunctious swing—but what of our future Shadow Chancellor? With the party’s economic reputation in tatters, getting the right one is just as important as getting the right leader. It’s certainly far more important than the right deputy.

Restoring economic credibility will be a long, hard slog. Depressing as it might be for those of us who worked in government between 1997 and 2010, the public—who had to suffer the consequences of the Great Recession—will probably never agree that the Blair/Brown government did not in some way cause it. In terms of the facts, a paper I co-authored with Professor John van Reenen of the LSE in 2011 still reads pretty well. “In retrospect, it is clear that public debt levels were too high for the stage of the cycle in 2008 in the UK (alongside many other countries like the US, Ireland and Spain)” but that “the poor state of the public finances was a consequence of the recession, not a cause of it.”

However, history has taught us that arguing back is pretty fruitless: most analysis of the 1974-79 Labour government suggests that it didn’t fare too badly economically, relative to other western countries. But in the immediate years after 1979 that cut no ice with an electorate sure that the high inflation, unburied bodies and rubbish piling up in Trafalgar square told the true and whole story. We may as well stop beating ourselves up about the past and try to learn something from it.

I was working on the economics side for the Labour party and frontbench in the three years running up to our 1992 defeat, and my lesson learned is worth repeating: if you are not trusted on the economy, then you are not going to win.

When people cast their vote, they metaphorically hand their wallet over to a party. The first question they ask is whether they can trust you not to lose the money, not to waste it and to spend it only on what is really needed. The second is whether they think you will spend it in line with their priorities and values. In 1992, Labour failed on both counts.  We had gained a lot of ground since our 1987 defeat, but on economic trust we had a long way to go.

Following our 1992 defeat, slowly, doggedly, we began to build the key credibility on these fronts. The first—trust in your economic competence—was the most important. The exit from the ERM and the inept way that the chancellor Norman Lamont (aided by special adviser David Cameron) handled it, helped an awful lot. But we also pursued a new approach, one which set a particular tone and laid out serious and symbolic policies which showed people that Labour really cared about how to run a successful economy.

We were pro-business and showed that we relished the idea of wealth creation just as much as we did spending the proceeds of growth. We embraced what I call “supply side Keynesianism”—a shift in focus to stability and investing in things that boost the supply side of the economy and make us more productive, like up-skilling the workforce, getting more research into new products and boosting our infrastructure and public services that underpin successful business.

It was not an easy path and Shadow Chancellor Gordon Brown lost a lot of his popularity amongst party activists for pursuing it, but it worked. After 1992, the party got behind him—it became disciplined and focused, and members genuinely believed in the strategy.

Getting the centre-left to really focus on economics is never easy. We are far more comfortable spending public money to solve the problems of the world and debating new forms of capitalism. But this model provided a place where most of the party felt comfortable. Such an agenda allows us to link an economic policy that makes sense to the public with our desire to create social justice in a way that more than the bottom few deciles can relate to. It means more of a focus on things that mean something to a typical voter, be that their trains, buses, schools, roads, houses, or hospitals.

So the lesson from 1992 is not so much that we should search for a transformational, symbolic policy or a particular time path for deficit reduction. It is that the context, the tone and the mood we set around our approach to economic policy have to be right and have to be genuine—and we need the right shadow chancellor to do that. Potential leaders should therefore stand on a ticket with their shadow chancellors, so we get a proper a look at the party’s economic future, the person they propose to front it, and make sure the approach we take to the economy is front and centre of the debate.

Doom is nigh on the left at present: demographics, Scots, the white working class, cosmopolitans and London, UKIP, our own internal debates and so on. It is a familiar fatalism from the previous times we have been knocked out. But the lessons from the past are not of doom and gloom—if we work hard, we can establish economic competence once again.

A longer version of this piece appears in the current issue of the Fabian Review