Labour should radically revamp its economic policy, making full employment its aim and seeking a different economic outcome from the Maastricht treaty, Bryan Gould, Labour's leadership contender, told the party's economic strategy group.
The main weakness of Labour's shadow Budget, he said, was not that it was redistributive - taxing the better-off more while reducing tax and improving benefits lower down - but that it confirmed the impression 'that the only important difference in economic policy between us and the Tories lay with tax'.
In a paper to the group, which acts as a Labour economic think-tank, Mr Gould said: 'Mainly because we supported entry into the ERM at an obviously overvalued exchange rate, we appeared to concede that the whole of macro-economic policy was beyond debate.
'Our endorsement of both the primacy and correctness of the exchange rate target meant that we would complain about the consequences of over-valuation, high interest rates, cuts in public spending, inadequate investment, but not about the imperatives which made these consequences inevitable and which everyone knew would apply at least as much to us as to the Tories.'.
Labour had sensible training and investment policies for the medium term, he said. They would have produced valuable and important benefits a decade or so from now, but 'we had no answer to the question of how these policies would resolve the immediate problems of recession and unemployment'.
Mr Gould went on: 'When we asserted that, in the short term, we would get interest rates down, people quite naturally asked how we could expect to do so when committed to the same exchange rate target as the Tories.
'Most damagingly, we were debarred from arguing for full employment, which must surely be the central aim of economic policy for any party of the left.'
Labour had debarred itself from any effective critique of the ERM and had been 'remarkably quiescent' in accepting the economic consequences of Maastricht.
'How can a party of the left accept a central bank which the Treaty says explicitly is accountable to no one, let alone elected politicians? How can we accept price stability as the over-riding aim of economic policy? How can we accept convergence criteria which would require us to lop perhaps 12bn off current levels of public spending?'
The lesson, he said, 'is surely that Labour needs an economic policy as well as a tax policy'.
Labour was established by people who thought that socialist policies would help them to better themselves, Mr Gould said. 'We cannot fulfil that commitment without a distinctive and positive economic policy.'Reuse content