The next government can credibly afford to spend more than the Coalition's plans. But this is only the starting point of a new debate about public spending.
... behind the detailed measures of this Budget is the conviction that we must break for good from the conflicts and dogmas that have held us back and have for too long failed our country. (Gordon Brown, 1998)
In 1997 Labour faced the challenge of demonstrating a commitment to fiscal discipline and macroeconomic stability, while at the same time delivering an agenda for social justice and opportunity. It had to break free from what it perceived to be the outdated dogmas of both the right and left and establish a model for new times.
The challenge for Labour in opposition today is even greater. In 1997 New Labour inherited a buoyant economy in a benign macroeconomic environment. But the banking crisis of 2008 and the recession that followed have altered the UK's economic and political landscape. If elected in 2015 the party will not be able to return to New Labour's political economy, but will need to restore trust in its role as a custodian of the public finances, while pursuing a radical agenda committed to strong economic reform and egalitarian outcomes, even when there is less flexibility to spend. The task has been made more difficult by poorly designed fiscal consolidation in this parliament. At the time of the next election the UK's budget deficit will still be high by historical standards and wages are not expected to be restored to their pre-crisis levels for years to come: by the end of the Office for Budget Responsibility's (OBR) forecast period weekly median pay will be more than 5 per cent lower than it was in 2008 (Office for Budget Responsibility, 2013a).
Since the crisis Labour has sketched the outline of an agenda aimed at 'changing the shape of the UK economy rather than simply pulling traditional levers', based on a revival of political economy and an ambitious programme for supply-side reform (Weldon, 2013, 30). This is welcome, but the decisions the party makes about public spending in the medium-term will affect the reach of this response.
For its part, the Conservative Party has been clear: the 2012 Autumn Statement showed a government committed to a permanent, structural shrinking of the state to levels below the post-war trend. Rather than mimic this rhetoric, Labour needs a strategic vision for how it would approach public spending decisions after 2015 while delivering prosperity, sustainability and social justice.
The Fabian Society's Commission on Future Spending Choices was...