Labour in danger of returning to dividing lines of 1980s, when it languished in opposition to Thatcher’s Tories, says former PM
Tony Blair has warned Labour that a fierce resistance to austerity and welfare cuts risks reducing it to a party of protest.
In an apparent dig at Ed Miliband, the former prime minister cautioned that the political centre ground in Britain had not shifted to the left as a result of the credit crunch.
He highlighted the danger of returning to the dividing lines of the 1980s, when Labour championed the “status quo” and languished in opposition to Margaret Thatcher’s Tories.
The intervention – Blair’s most significant on the domestic stage since leaving office nearly six years ago – came in an article for the New Statesman magazine.
He flatly rejected the argument that New Labour created the financial crisis, insisting the structural deficit had been below 1% in 2007-8. But however the crisis occurred, he said, “no one can get permission to govern unless they deal with its reality”.
“The paradox of the financial crisis is that, despite being widely held to have been caused by underregulated markets, it has not brought a decisive shift to the left,” he wrote. “But what might happen is that the left believes such a shift has occurred and behaves accordingly.
“The risk, which is highly visible here in Britain, is that the country returns to a familiar left-right battle. The familiarity is because such a contest dominated the 20th century. The risk is because in the 21st century such a contest debilitates rather than advances the nation. This is at present crystallising around debates over austerity, welfare, immigration and Europe.
“Suddenly, parts of the political landscape that had been cast in shadow for some years, at least under New Labour and the first years of coalition government, are illuminated in sharp relief. The Conservative party is back clothing itself in the mantle of fiscal responsibility, buttressed by moves against ‘benefit scroungers’, immigrants squeezing out British workers and – of course – Labour profligacy.
Blair said the Labour party was back as the party opposing Tory cuts and highlighting the “cruel consequences of the Conservative policies on welfare and representing the disadvantaged and vulnerable (the Lib Dems are in a bit of a fix, frankly)”.
He said the scenario was “less menacing than it seems” for the Tories. “They are now going to inspire loathing on the left. But they’re used to that,” he said. “They’re back on the old territory of harsh reality, tough decisions, piercing the supposed veil of idealistic fantasy that prevents the left from governing sensibly … For Labour, the opposite is true. This scenario is more menacing than it seems.
“The ease with which it can settle back into its old territory of defending the status quo, allying itself, even anchoring itself, to the interests that will passionately and often justly oppose what the government is doing, is so apparently rewarding, that the exercise of political will lies not in going there, but in resisting the temptation to go there.”
Blair insisted Labour’s “guiding principle” should be to seek answers, not become the “repository for people’s anger”. The party needed to be “dispassionate even when the issues arouse great passion” otherwise it would become a “simple fellow-traveller in sympathy” rather than a leader. “In these times, above all, people want leadership,” he added.
Blair said “the case for fundamental reform of the postwar state is clear”, and urged the Labour leadership to ask itself questions such as: “What is driving the rise in housing benefit spending, and if it is the absence of housing, how do we build more?” He also suggested there should be more focus on increasing the skills of unemployed people, setting the right balance between universal and means-tested help for pensioners, and use of DNA technology to tackle crime.
In a passage likely to be taken as implicit criticism of Miliband’s policy platform so far, Blair said the public wanted to “know where we’re coming from because that is a clue as to where we would go, if elected”.
Producing a “vision of the future” is “of the absolute essence”, Blair insisted. “The issue isn’t, and hasn’t been for at least 50 years, whether we believe in social justice,” he wrote. “The issue is how progressive politics fulfils that mission as times, conditions and objective realities change around us. Having such a modern vision elevates the debate. It helps avoid the danger of tactical victories that lead to strategic defeats.
“It means, for example, that we don’t tack right on immigration and Europe, and tack left on tax and spending. It keeps us out of our comfort zone but on a centre ground that is ultimately both more satisfying and more productive for party and country.”
The world must now pray that Japan’s plan comes off in what remains its second-biggest mature economy
David Cameron once demanded a “big bazooka” to solve the euro crisis. In the event, big enough blasts were fired to quieten market monsters, but never to finally silence them; lingering fear still haunts a continent. Japan’s very different crisis, however, has lingered for longer, for so long that it ought instead to be called a permanent stasis – since 1990 to be precise. Rock-bottom interest rates, a depressed yen, stimulus and austerity have all been tried in various combinations. The economy has disregarded the lot, remorselessly rolling from lukewarm recovery to fresh recession and back. But now Tokyo is letting rip with a new bazooka that is big by any standards.
In accordance with wishes of Prime Minister Shinzo Abe, the supposedly independent Bank of Japan has explained how it will pursue inflation. In an economy where falling prices have often been the norm, the stock of money will be doubled in 21 months, and the newly minted currency will be used in novel ways; specifically, to purchase government debt from – in the jargon – across the yield curve. Both elements represent a radical departure in their own right. Nothing on this scale has been tried before, not even when the world’s central bankers worked in panicked concert in 2008. And the whole world must now pray that the plan comes off in what remains its second-biggest mature economy: a recovered Japan really could boost a stagnant planet.
But is that likely? It can’t be ruled out. This was not, as some said, a crude invitation to competitive devaluation: Tokyo is less concerned with the price of yen than with prices in Japanese shops. Even if trading partners cheapen their currencies in reply, it may be no bad thing. During the 1930s, beggar-my-neighbour policies cancelled out in terms of export sales, but the cheapening of currencies nonetheless helped ease debt deflation.
Big bazookas are hard to control, and those wielding the weapon could shoot themselves in the foot. Japan needs to persuade its people that prices will rise, but if expectations of excessive inflation are stoked, investors could take fright, causing borrowing costs to rise. It is a risk, though not one that aggressive monetary expansion in the US or Britain has yet seen realised; besides, risks simply have to be run if the alternative is permanent stagnation.
The deepest doubts arise from Japanese demographics: the typical citizen is four years older even than in ageing Britain. The idea of cheap money is to persuade people to open their wallets, and spend their way to recovery, but in this sort of senior society, fear of inflation eating up pensions could convince people they need to save more and spend less. Let us hope not. Where Japan led, the world has followed since 2008. Fingers crossed that it can now lead the way to a solution.
Cyprus risks deepening the eurozone crisis as austerity is failing across the continent. This is a tide that has to be turned
Europe’s flesheaters are back. The claim that the worst of the eurozone crisis is behind us now looks foolish. The deal forced on Cyprus by the German-led Troika at the weekend isn’t a bailout: it will effectively destroy the island’s economy. Instead of getting a grip on its grossly inflated banks, it will impose a brutal credit contraction, combined with sweeping cuts and privatisations, wiping out perhaps a quarter of Cyprus’s national income. Ordinary Cypriots, not Russian oligarchs, will pay the price.
Of course Cypriot politicians are to blame for having allowed the country to be turned into an adjunct of a bloated financial sector and a refuge for hot Russian money. But what tipped the divided island over wasn’t foreign investors’ sharp practices, but the impact of Europe’s wider crisis on its banks: in particular, their exposure to devastated Greece, currently also in the Troika’s tender care.
Some have hailed the fact the raid was carried out on Cypriot bank deposits over €100,000, rather than the public purse. At last the rich and those responsible for private banking failures are being made to cough up, it’s been said. Which would have been a good thing. But it’s savers, not bankers or shareholders, who are taking the 40% hit. And many of the targeted depositors, such as pensioners, are scarcely rich – or are small businesses which will now go bust.
The Cypriot government should instead have learned from Iceland: taken over the banks, isolated the bad loans, protected deposits, imposed losses on the wealthy, and used a publicly owned banking sector to rebuild the domestic economy. That would have offered its citizens a better future, almost certainly outside the eurozone. But it would have also encroached on private capital’s privileges and clearly couldn’t be tolerated. Instead, in classic EU style, Cypriots have been given no say, while German MPs vote on the deal. Meanwhile, Cyprus’s banks are still closed and capital controls will start to erode the euro as a genuine single currency. As the Greek economist Costas Lapavitsas argues, Cyprus has “reactivated” the European banking crisis.
Not that it had been resolved. Only last month the Dutch government was forced to nationalise the Netherlands’ fourth biggest bank, SNS Reaal, partly because of its over-exposure to losses in Spain. But since the European Central Bank president Mario Draghi pledged last year to do “what it takes” to save the euro, market fever had subsided.
Now the Troika’s decision to help itself to Cypriot savings has paved the way for a new contagion. In the short term that may be contained because of the island’s minuscule proportion of eurozone output. But the move has demolished confidence in bank deposits – a point rammed home by the Dutch finance minister’s blundering signal that the deal had set a precedent. That could easily turn into bank runs in states likely to need new bailouts, as investors move cash to safer locations. Given the spectacular failure of austerity across the continent to overcome the crisis, rather than deepen it as output shrinks and debts mount, more such breakdowns are clearly on the cards.
The eurozone has now become a zombie zone. And any further deterioration can only deepen Britain’s own crisis. Whatever the focus of the meltdown in each country – banking in Cyprus, property in Spain – all flow from the same crisis that erupted in 2007-8 out of a deregulated profit-hunting credit boom across the western world and has delivered a prolonged depression. In the eurozone, the impact of that systemic failure is made worse by a lop-sided one-size-fits-all currency straitjacket that was always going to come apart under pressure. In Britain, the power and weight of the City of London are a particular block on sustainable recovery.
But across Europe, people are being held to ransom by banks, bondholders and corporations determined to ensure that it’s not they who bear the costs of the crisis they created – and politicians who regard it as their job to oblige them. So even though Britain is facing the threat of a triple-dip recession, George Osborne last week ploughed on with a regressive austerity programme that is manifestly failing in its own terms but offers lucrative corporate opportunities in the spaces opened up by the rolling back of the state.
Next week some of the Cameron coalition’s most brutal cuts will kick in – including the deeply unpopular bedroom tax – just as anyone earning over a million pounds a year gets an annual tax cut of at least £42,295, and local councils face the loss of a third of their budgets by 2015. Resistance to death-spiral economics is hardening across Europe, but so is political polarisation. Alexis Tsipras, leader of Greece’s radical left party, currently leading in the polls, compares the situation to prewar Weimar Germany. Cameron is not the only leader using anxieties over migration to deflect anger at the impact of his own policies.
In Britain, public opinion has long balked at the government’s cuts programme and is now increasingly opposed to attacks on welfare. That mood was reflected in last week’s rebellion by 44 Labour MPs against their leaders’ decision not to oppose retrospective legislation imposing benefit sanctions on unemployed people refusing private “workfare” schemes. Today unions and community groups launched a national “people’s assembly” to mobilise against austerity. One way or another, resistance has to get stronger – or they’ll devour us all.
The wealth created by our arts and universities is being choked. The US and others are happy to gain from those we shun
Exports plummeted alarmingly in this week’s figures, hard on the heels of the credit downgrading. One economic woe follows in another’s footsteps, a domino of disasters. This is the death spiral, longer than a lost decade.
Remember when trade was to be our great escape? Government forecasts said net trade (exports minus imports) would rise by 2.4%, as we stole a march on our neighbours. Since then sterling has dropped by a quarter, its biggest fall since 1945. But devaluation has brought no export bonanza, with net trade falling. Yet 70% of government cuts are still to come and David Cameron promises “further and faster” deficit cutting.
So how might Britain earn its living? What are we good at? What’s our USP? A decade ago financial services was the only game, Labour believing the City’s own myth that it was the golden goose. Since those eggs broke, the City has lost international market share. An economist for the bank UBS tells the Financial Times that despite offering financial services 25% cheaper due to the fall in the pound, “no one wants them”.
So what else can we sell? Two exports rich and ripe for growth are our universities and arts, as valuable to life here as for the wealth they earn abroad. Yet the government actively stymies both, obstructing those two sectors where Britain has – but may easily lose – an international competitive trading edge.
Attracting foreign students to prestigious universities should be a booming export trade. Five chairs of parliamentary committees joined in an unprecedented joint call for visas for non-EU students to be excluded from the Home Office’s cap on net immigration figures, a cap blocking an £8bn industry. Genuine university students should count as temporary visitors, valuable in cash and culture for our trading future. But this week the abrupt government answer was no. Immigration policy trumps all else.
Though David Cameron was in India last week, promoting the value of studying in Britain, Universities UK says foreign student numbers are falling. The Migration Matters Trust, run by the Tory MP Gavin Barwell, warns that 24% fewer Indian students and 28% fewer postgraduates came last year. Faced with complaints about the difficulty in getting UK visas compared with Germany or the US, Cameron in India claimed there was “no cap, no limit”, nor any limit to the “graduate level” jobs foreign students can take. That was disingenuous: potential students are put off by stiff visa barriers and turn elsewhere.
Cameron will plainly miss his “net” immigration target of fewer than 100,000 a year by 2015: it now stands at 183,000. With no control over how many people leave or how many EU migrants arrive, choking off visas for non-EU students has been the softest target. While bogus colleges are rightly banned, all universities and well-respected institutions should see their applicants fast-tracked and welcomed.
As soon as Cameron returned from beckoning wealthy Indians he headed straight to Eastleigh to compete with Ukip in immigration fist-shaking – as if India, its traders, politicians and students might not be listening too. India’s investment abroad is growing, its trade has doubled in two years, but Britain’s share of that is falling. As Barwell warns: “The tone of our domestic debate in immigration matters internationally.”
Universities and their cities urgently need the money foreign students bring, but what matters most are the cultural bonds forged with future leaders and opinion-formers. Canada, America and Australia are gaining from those we shun with our rebarbative, dilatory visa system and increasingly xenophobic politics. As Conservative leader, Cameron is best placed to change the terms of the immigration debate – if he had the spine. Of course there must be secure borders and well-enforced rules, or all sense of community is at risk. But if Cameron faced voters with sobering facts on shrinking trade and the value of cultural exchange he could persuade them away from Ukip simplicities to keep the xenophobes in a small corner. Instead, an invaluable export is harmed by refusal to exclude student visas from the cap.
Look now at the neglect of our other main asset. All the arts – theatre, music, painting, video installations, dancing, writing and the rest – punch magnificently above our national weight. Look at War Horse, Les Misérables and hundreds of productions nurtured by state subsidy that earn billions around the world. Look what the BBC brings – yet it suffered a purely vindictive hit to the licence fee. The Arts Council’s minuscule budget was cut by 30% and took another hit last December. It gets just 0.05% of government funding and earns over 10% of our exports. Pound for pound, its phenomenal yield is unmatched in cash or rich social value by any state investment. Despite cuts, councils invest heavily, contributing almost half the money the arts receive. Why? Liverpool, Manchester or Brighton’s leaders will extol what art does for their cities, in the cashable and the ineffable.
Any accountant calculating how Britain can earn and where we should spread our wings would look at state priorities in bafflement. The City destroyed us. Defence and recent wars cost a fortune and bring neither pelf nor respect. Soft power is cheaper than the military kind, and it works. But don’t look to this month’s budget for an iota of vision to re-imagine how we might be, to reflect the vision we saw fleetingly in that Olympic ceremony. No chance, even on the hardest of commercial reckonings, that Cameron and Osborne will invest in Britain as a potential powerhouse of creativity and intellectual energy.
Prime minister David Cameron has promised to fight a new cap on bankers’ bonuses proposed by the European Union
More: Steve Bell on David Cameron and the EU plan to tax bankers’ bonuses – cartoon
PM will be accompanied by more than 100 representatives from multinationals, SMEs and universities, as well as parliamentarians
David Cameron arrives in Mumbai on Monday with the largest trade delegation ever taken by a British prime minister to any country in the world. Cameron, who will be the first British prime minister to visit India’s commercial capital in more than 20 years, will be accompanied by more than 100 representatives from multinationals, small- to medium-sized enterprises (SMEs) and universities. His delegation includes four ministers plus nine other parliamentarians, many of whom have Indian heritage.
Association of Colleges
Association of Corporate Treasurers
Brit Health Care
BT India Pvt.
Cobra Beer Partnership
Confederation of British Industry (CBI)
CTC Aviation Group
De La Rue
East End Foods
Financial Services Authority
Hip Impact Protection
InterContinental Hotels Group
John McAslan & Partners
London Chamber of Commerce & Industry
London School of Economics & Political Science
London Stock Exchange
Marshall of Cambridge (Holdings)
Mitras Automotive (UK)
New College Nottingham
Oxford Business Group
Pathfinder Health India
Polaris Financial Technology
Project Orange Architects & Interiors
Red Gate Software
Solent India Business Network & Dutton Gregory Solicitors LLP
Tata Consultancy Services (TCS) UK
Technology Strategy Board
Thames Bridge Capital
The Blackstone Group
The British Library
The City UK
The Clinical Trial Company Ltd
The Open University
Trans Data Management
UK Export Finance
UK Higher Education International Unit
Ultra Electronics Holdings
Ultra Global PRT
University of Cambridge
University of Cardiff
University of Exeter
University of Southampton
Univesity of Warwick
West Nottinghamshire College
Lord Green, trade minister
Hugo Swire, Foreign Office minister
David Willetts, universities and science minister
Greg Barker, climate change minister
Nine MPs and peers
Priti Patel MP
Alok Sharma MP
Paul Uppal MP
Shailesh Vara MP