Dear Ed . . .

An open letter to the leader of the Labour Party.

Dear Ed,

I am not a politician. I am a trial lawyer. We are both members of the Labour Party. We are both in the business of convincing our audience that our arguments are correct. While I have never fought a political campaign, I am, like you, in the business of undermining the analysis advanced by my opponent and presenting complex concepts so as to make them comprehensible to intelligent but often uninformed ears. As the chances of my ever having the opportunity to challenge the Conservative position in court are disappointingly low, I offer my trial strategy to you, in the hope that you might find an alternative perspective useful.

I care passionately that our party is re-elected. That will not happen until the public rejects the coalition’s line that: 1) it inherited an economic catastrophe caused entirely by the previous administration having “maxed out the credit card” and 2) that it can only be addressed by extreme cuts to government spending. I fear that the electorate is a long way from that point.

The role of the advocate is both destructive and constructive. He exposes the fallacy of his opponent’s case, then sets out his own narrative. He does both in a way that his audience can understand. He avoids the jargon and the acronyms and sets the context. He uses statistics but doesn’t recite them.

People understand comparisons. Our recent political history – a Conservative administration for 17 years followed by Labour government for 13 years – enables some telling illustrations. Compare the parties’ records on debt and deficit. Everyone knows there was a meltdown in the financial markets in 2008. Explain how much it cost them as taxpayers and how it caused a dramatic increase in both public-sector debt and deficit.

Nearly every family in the country has to control a household budget and has had, at some time, to deal with debt. Explain, in household terms, why the credit card analogy is so wrong and why dealing with debt solely by drastically cutting expenditure is so potentially disastrous. Once you have done this, then tie the threads together.

The Conservatives paint a simple picture. Their previous administration was a model of financial and fiscal rectitude. There was no deficit and no debt. Then, under Labour, spending (on the nation’s credit card) increased wildly, become uncontrolled and led, inexorably, to financial catastrophe and our current level of indebtedness. To add insult to national injury, all of the money was wasted on the sort of trivia that we all foolishly buy from time to time (our friend the credit card analogy again). It follows that:

Labour can never again be trusted with the national purse
Extreme measures must be taken immediately to stop the irresponsible levels of expenditure and
As the cuts only mean not spending money on things we don’t need, they are a good thing in their own right.

Ludicrous as this caricature may be, it has considerable traction in the country. How then do we confront it?

Put debt and deficit into context

We have always had a national debt. It was neither invented by, nor accumulated solely under, the last Labour government. It has been a fact of national life for hundreds of years under administrations of every political hue, not only in this country, but across the world. Even now, in 2011, our national debt is not at historically high levels relative to our GDP or by comparison with the other major economies of the world.

It has, in fact, been considerably higher for most of our history and for there now to be an annual deficit (still less a national debt) is not therefore, of itself, a sign, or evidence, of fiscal mismanagement. Nor does it represent, of itself, a national emergency requiring an extreme response.

Myth of the maxed-out credit card

Public-sector net debt and public-sector net borrowing (as a percentage of GDP) were significantly greater in 1997, after 18 years of Conservative rule, than they were in 2008 after 11 years of Labour and just before the crisis in the financial market. Over the course of their administration, the Conservatives spent every year, on average, more than they earned. Until the financial crisis in 2008, Labour, on the other hand, was able, again on average, to balance the books.

The levels of spending (again as a percentage of GDP) were almost exactly the same in 2008 as they were in 1997. As to what the money was spent on – and contrary to popular myth – the spending under Labour in 2008 on social benefits was lower than it had been under the Conservatives in 1997, whereas the spending on other, productive items such as health and education was commensurately higher.

The NHS and state education are infinitely better resourced now than they were when Labour took power. That Labour did so while still balancing the books presumably underpinned the Conservatives’ pledge, in 2008 (but now conveniently forgotten), to maintain spending at those levels.

The bailout

If it wasn’t because Labour were maxing out the credit card, how then did we get from balancing the books over the 11 years to 2008 to an annual shortfall of nearly £100bn by 2011 – and a doubling of the national debt (an increase of £430bn) over the same period? Unfortunately, if a week is a long time in politics, then the market crash in 2008 must qualify as ancient history, and the sad truth is that its catastrophic contribution to the current situation no longer resonates in the public consciousness.

You can hardly blame them. The Conservative narrative has expunged the inconvenient contribution of the collapse of the banking system to our financial predicament so comprehensively, and so implausibly, it would have made a Maoist historian blush. In any event, the figures involved are almost beyond comprehension and the intricacies of both the causes of the crash and the measures taken in response to it would challenge the mind of a PhD in economics.

However, without a cogent and concise explanation of the effect of the crash on the economy, Labour will continue to attract an unfair measure of blame for its consequences.

Some straightforward propositions could hit home. The breakdown in the financial markets was a worldwide phenomenon. To stave off a collapse of the financial system, almost all of the governments in the developed world had, to a greater or lesser extent, to intervene. This caused a dramatic increase in our national debt (and annual deficit).

Hundreds of billions of pounds were spent bailing out Royal Bank of Scotland, Lloyds and Northern Rock and were pumped generally into the system The interest that we are paying every year on the money that we borrowed to do so runs to the tens of billions. At the same time, the recession triggered by the banking crash (together with emergency measures taken to stimulate the economy, such as the temporary cut in VAT) caused a slump in government revenue.

This perfect storm has challenged the economies of industrialised countries across the world and the UK has been no exception. It would have been a miracle if any economy could have ridden that storm without increasing their debt and deficit. To ascribe that inevitable effect, sustained globally, exclusively to the spending policies of the Labour administration in the UK is not only misleading, it is absurd.

The strategy

There is a seductive appeal in the Conservatives’ analogy of the household with the credit card bill that must be paid off as soon as possible – and whose repayment takes priority over any other consideration. It is a simple message to which the public can relate and which, of course, provides the narrative cover for a programme of cuts at which even Margaret Thatcher would have blanched at the zenith of her power.

Unfortunately for the country, the economic fallacy of treating the deficit like a credit card debt is now plain to see as, a year into the coalition, the tentative recovery of the early part of 2010 has been stopped in its tracks, even before the cuts have really begun to bite. For that reason, the public could now be somewhat more receptive to an alternative approach. How then to explain that alternative in a compelling and comprehensible fashion?

It is safe to assume that not everyone is familiar with Keynes’s General Theory, nor is a dry exposition of competing economic analyses likely to gain traction with the electorate. A more profitable avenue may lie, as the Conservatives discovered, with an analogy with the household budget. The critical distinction would lie in the characterisation of the debt.

Rather than an outstanding bill on a credit card, the UK’s debt can, and should, be seen as the national mortgage which, for reasons very largely outside the control of the government, had to be increased vastly to enable the economy to continue to function.

There will be few members of the public (particularly among the “squeezed middle” to which Labour should be reaching out) who are not familiar with the extension of mortgage borrowing to meet a financial challenge: whether to fund the care costs of an elderly relative, an extension of the home to accommodate a new (or returning) member of the family, to cover a period of unemployment, or to fund a business venture. They would rightly be resistant to charges of fecklessness for doing so: for those of us without the luxury of a generous trust fund, it is a commonplace in life that one sometimes has to borrow additional funds to tide the family over during a difficult period or to get a venture off the ground that will in time generate an income.

Neither would they consider the overriding imperative in their household budget to be the immediate repayment of that borrowing. Certainly they would plan for the debt to be repaid, but they would aim to do so in the long term, over a period and a rate that the household could reasonably bear.

To apply the Conservative remedy in this context is to demonstrate its absurdity: the elderly relative would be removed from the care home, the nascent business and its assets sold off, the mortgaged property sold off and the family home sold off. The household may now be homeless with no means of generating an income, but at least the mortgage would have been paid off.

Labour has been too defensive for too long about its economic record. In the months after last year’s general election, it allowed the coalition to set the mood music with its endless repetition of the mantra of the maxed-out credit card and the “inherited financial mess”. It may be that a new administration would always have had the exclusive ear of the public for a honeymoon period. Be that as it may, the time has come to strike back.

The public now knows the extent of the coalition’s programme of cuts and knows not only that theyse go infinitely beyond a prudent trimming of the household expenditure but that they hit the poorest hardest. It is also starting to see the folly of wholesale and arbitrary retrenchment when the economy is at its most vulnerable. It is now ready to lend Labour its ear.

Our message to the public must be coherent, comprehensible and compelling. It if is not, the public will not be giving us its vote.

John Whitting is a QC and member of the Labour Party.