Mary Ann Sieghart: The problem at the heart of Labour

In order to be listened to again on the economy Labour must display a high degree of humility about its record. Can you imagine the shadow Chancellor doing that?

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At the weekend, a friend asked me seriously whether he should be taking his money out of the bank and buying gold so that if the ATMs dried up, he would have something to fall back on. And while he was at it, he wondered, should he be laying in emergency provisions of rice and tinned food?

We all have a sense of impending economic catastrophe. Greece may default. The euro may implode. The banks may collapse. God knows what's going to happen to our jobs, our savings, our mortgages. That is what people are worrying about. No wonder they're not listening to what Labour is saying to itself in Liverpool.

They're not only not listening – they have their fingers in their ears. Labour, after suffering its second worst election defeat in history, is still being treated like a reviled ex-boyfriend. He may well protest that he did his share of the washing-up (or built some SureStart centres, schools and hospitals); what you remember is that he treated you badly. And if he was also in charge of the joint finances and left you with a stonking overdraft, then he's got a hell of a lot more explaining to do.

Most people still feel that Labour treated them badly; that it was a party for the poor and the very rich but not for those in between. By the last election, an astonishing 65 per cent thought Labour was seriously out of touch with the concerns of the working population. As Liam Byrne, shadow work and pensions secretary, admitted yesterday, "That's quite an achievement."

So of course it has to apologise. Though Labour achieved some good things in office, Tony Blair's Iraq entanglement and the disastrous three years of Gordon Brown have to be addressed. That the party allowed Brown, described by his biographers last week as "the most damaged personality to have become Chancellor or Prime Minister since World War II", to take over as Prime Minister without even being challenged, and despite all the warnings about him, was a dreadful thing to do to the country. That he wasn't unseated when he turned out to be every bit as bad as we had feared was even worse.

And I haven't even started on the economy. No, of course Labour didn't create the US sub-prime crisis. And yes, it has apologised for not having regulated the banks more carefully. But it was still far too dependent on the financial services sector for tax revenue. It carried on running a deficit even after 12 years of growth, when it should have been building up a surplus for bad times. And the money that it spent was not always spent wisely. Tens of billions were wasted in defence procurement and IT systems. Much of the extra cash ploughed into public services failed to show up in better outcomes. Productivity in the public sector tanked. Let's hope that the shadow chancellor, Ed Balls, shows some contrition for this in his speech today.

No party since 1945 has won an election without being trusted on the economy. Normally, when parties lose their reputation for economic competence, they have to take very deliberate steps over a number of years to regain it. In 1979, Labour lost because it was taxing too much, spending too much and failing to curb inflation. More than a decade later, Blair and Brown understood that they could only win back trust if they promised not to raise income tax and to stick to the Tories' tight spending plans. They gave responsibility for inflation to the Bank of England.

Similarly, after the Tories lost their reputation for economic competence in the 1990s, they opposed entry to the euro (so they wouldn't repeat the mistakes of the exchange-rate mechanism) and agreed to match Labour's spending plans. The latter was an economic mistake and was reversed in 2008, but at least it helped to drive home the idea that they were no longer hostile to public services.

Until today, Labour seemed to have learned none of these lessons. Voters think they're profligate? Fine, let's splash out some more money by cutting VAT. People think they can't take hard decisions on the economy? Great, let's cut tuition fees and finance it through a tax on those nasty banks. That will be popular.

We all know it's not that simple, which is why it is sensible now for Balls to propose tough new fiscal rules and tell his colleagues that they are going to have to live with the coalition's cuts. We know we spent too many years living beyond our means, both individually and as a nation. As individuals, we are having to live more frugally now and pay down our debts. We expect our governments to be doing the same. What's more, we look at the crisis in the Eurozone and ask ourselves whether it could be solved by borrowing more and spending more. Hardly.

Labour still has a long way to go before it will be trusted on the economy. In a new Policy Network pamphlet, Southern Discomfort: One Year On, Giles Radice and Patrick Diamond find that, in the southern English seats which Labour has to win in order to govern with a majority, scepticism runs very deep. There, 47 per cent of voters trust the Conservatives to take the right decisions on the economy, compared with only 31 per cent for Labour.

These voters accept that public spending cuts are necessary and give the Tories a 12-point lead in "ensuring value for money in the provision of public services such as schools and hospitals". They even agree, by a small margin, that "public services such as health, education and the police are so inefficient that it is perfectly possible to cut spending on them significantly without cutting the quality of the service they offer."

How can Labour win these people back? In order to be listened to again, it has to display a high degree of humility. Shadow ministers must admit that the last government wasn't always good at spending money wisely. They must accept that the public sector will now have to make do with much less, just like families all over the country. And they must acknowledge Brown's irresponsibility in assuming that his debt-fuelled boom would last for ever.

The question is: can Balls face doing all that? The man for whom the words 'dogmatism' and 'certainty' could have been coined? The man described by Anthony Seldon and Guy Lodge in their latest biography of Brown as a "mafia politician" and "Rottweiler" who bullied Treasury officials to massage their forecasts so that Labour wouldn't have to cut spending?

It is going to require a very deep breath. But, at a time when an economic tornado may be heading their way, that's what people want to hear.



m.sieghart@independent.co.uk

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