Having chucked away the chance of an early election and a new mandate, Gordon Brown has opted not for major policy change but for Blair-less Blairism. Not a bad platform as we prepare this week for the first Budget with Brown as Prime Minister, though better for business and the better off (who now head the complaining chorus) than for Labour's core supporters.
Yet it ensures two years of political Micawberism and, since things can only get worse this year, a further accumulation of the grievances and grumbles that hang round the neck of any party 10 years in power. Not an exciting prospect for the rank and file, who want change, or a nation facing greater stringencies in the Budget. New Labour has come to the end of its line. Since the economy has been his responsibility, that's the end of Gordon's line too. We are here because New Labour was never a new ideology but a makeover for a scared party with an inferiority complex, to make us respectable, safe and electable. It did all that. It won three elections.
Ten years on, it is yesterday's evangel and can take us no further. Labour is really about growth. We fail without it. We inherited economic growth and a favourable climate but sustained it not by rebuilding manufacturing, as the Germans have done, but by public spending and a massive consumer boom.
Even with all that, the growth wasn't enough to deliver the big improvements the people voted for in 1997, or to provide the surplus for betterment and higher public spending Labour is all about. High by Europe's deflationary levels, British growth rates have been low by the standards of the US, Australia, New Zealand and other countries outside the EU, by British historical standards and by the needs of a nation falling behind.
Yet even that is now petering out. Consumers are burdened with debt. House prices, which sustained wellbeing, are falling. Public spending has plateaued. Without an increase in taxes or borrowing, we are in for a period of fights with public sector unions, desperate attempts to cut public spending, and petty economies such as those on police pay, the arts, defence and local government. Eighteen months of living miserably won't provide an exciting electoral prospect.
The only alternative is to do what we should have done at the start and go for growth. Now, as then, that means applying the Keynesian remedies for recession: a big boost to demand, cheap money and a competitive exchange rate well down from present, grossly overvalued, levels to rebuild and re-boot the productive economy by which we must live. That needs public as well as private spending. Public goes into investment. Private boosts asset inflation.
Some increase in tax for the wealthy would help pay for all this but taxation is deflationary. What we really need now is a tax cut devoted to the less well off, who will spend it. They deserve compensation for the impact of fuel, utility and food prices. Doubled personal allowances would put £3.5bn in their pockets. If we then increase the top rate to 50 per cent on earnings over £100,000, we can stay revenue neutral.
The boost to public spending must come from higher public borrowing. There will be a howl of protest from Finance because it sees public debt as a sign of degeneracy, private as a virtue, and government is over-borrowed already by their minimalist standards as well as by Maastricht and other artificial rules. Yet in times of recession, there is no alternative but to borrow more.
In any case, these policies will be forced on us willy-nilly as the consequence of failure. Markets will bring down the exchange rate of a nation in deficit on the scale of Britain's – indeed they already are. Public spending will have to rise to pay for unemployment and the social costs of failure. Interest rates will have to come down as recession deepens, as they have in the US.
Why not, therefore, mobilise all these measures early and all together in an expansionary programme? This worked for Britain after the l967, l972 and l992 devaluations and without serious inflationary consequences. The pound is now more overvalued than it was in 1992, making it time for another devaluation which would work now as it did then. It is, indeed, the only solution to present problems. All the inhibitions lie exclusively in New Labour's psychology, not in economic reality. In particular, they lie in our commitments to low taxes, low borrowing and "stability", none of which was a Labour priority before 1997.
Neither deflation nor the misery of a prolonged and futile fight against inflation are election winners, but growth and betterment are, producing buoyancy, optimism and a feeling that things are getting better.
Austin Mitchell is the Labour MP for GrimsbyReuse content