Labour and To­ries launch bid­ding war on spend­ing

Javid and McDon­nell pledge to in­vest bil­lions in cap­i­tal projects

The Guardian - - Front Page - Larry El­liott Rowena Ma­son Peter Walker

Labour and the Con­ser­va­tives turned the elec­tion into a pub­lic-spend­ing bid­ding war yes­ter­day, promis­ing mas­sive pro­grammes of bor­row­ing that would re­turn pub­lic in­vest­ment to lev­els last seen in the 1970s, ac­cord­ing to lead­ing ex­perts on the pub­lic fi­nances.

The In­sti­tute for Fis­cal Stud­ies said plans un­veiled by Sa­jid Javid, the chan­cel­lor, and John McDon­nell, his Labour shadow, would rep­re­sent a de­ci­sive break with the past but warned that a fu­ture gov­ern­ment might have trou­ble de­liv­er­ing projects on the scale en­vis­aged.

On a day dom­i­nated by the ditch­ing of aus­ter­ity by both main par­ties, Javid’s plan to spend an ex­tra £20bn a year on cap­i­tal projects such as roads, rail­ways, schools and hos­pi­tals was trumped by McDon­nell’s pro­posal to in­crease in­fra­struc­ture in­vest­ment by £55bn for each of the next five years.

Labour would more than dou­ble net cap­i­tal spend­ing to £100bn a year, cat­a­pult­ing Bri­tain from near the bot­tom of the in­ter­na­tional pub­lic in­fra­struc­ture league ta­ble to near the top. Cap­i­tal spend­ing would be close to 5% of GDP – a level last seen at the time of the IMFim­posed cuts in 1976.

In a speech in Liver­pool, the shadow chan­cel­lor said Labour would ex­clude bor­row­ing for in­vest­ment from bor­row­ing tar­gets. McDon­nell, who said his plan was “in the best tra­di­tion of British so­cial­ism” and in the foot­steps of Hugh Dal­ton and Gor­don Brown, also promised to shift sig­nif­i­cant de­ci­sion-mak­ing power to the north.

Asked af­ter the speech whether the amount pledged could spook money mar­kets and lead to in­ter­est rate rises,

‘Aus­ter­ity Bri­tain is go­ing to turn into hard-hat Bri­tain who­ever wins the next elec­tion’

James Smith Res­o­lu­tion Foun­da­tion

McDon­nell said: “Our scale of in­vest­ment matches the scale of those emer­gen­cies that we now face, on cli­mate change and so­cially. I’ll tell you, if we didn’t set off on that march, fu­ture gen­er­a­tions would never for­give us.”

Javid con­demned Labour’s plans as “fan­tasy eco­nom­ics” but un­veiled his own plan of ex­tra bor­row­ing to fund spend­ing on cap­i­tal projects, while rip­ping up the fis­cal rules im­posed by his Tory pre­de­ces­sors in the Trea­sury.

Speak­ing at an air­craft hangar near Manch­ester, Javid loos­ened bor­row­ing con­straints to the tune of £20bn a year while at­tack­ing Labour for plan­ning to “sad­dle the coun­try with debt”. He drew a line un­der the era of Ge­orge Os­borne and Philip Ham­mond by set­ting a new cap on bor­row­ing for in­vest­ment at 3% of na­tional in­come, while day-to-day cur­rent spend­ing would be bal­anced. That would al­low bor­row­ing to

rise from £47bn this year to about £70bn, and then keep ris­ing as the econ­omy ex­pands.

Apart from a brief pe­riod dur­ing the fi­nan­cial cri­sis and re­ces­sion of 200809, in­vest­ment spend­ing has not been at 3% of GDP since Mar­garet Thatcher reached No 10 in 1979. Javid said now was a re­spon­si­ble time for this be­cause in­ter­est rates were neg­a­tive for the gov­ern­ment and it was a mo­ment for “new rules for a new eco­nomic era”.

Ben Zaranko, re­search econ­o­mist at the IFS, said: “Both par­ties’ plans would rep­re­sent a sharp change in pol­icy, and Labour’s plans are es­pe­cially am­bi­tious. The key chal­lenge for a gov­ern­ment seek­ing to de­liver in­vest­ment on this scale – par­tic­u­larly in a short time­frame – will be find­ing worth­while and vi­able projects in which to in­vest.

“Short­ages in the num­ber of suit­ably skilled con­struc­tion work­ers, a dearth of ‘shovel-ready’ projects, and prac­ti­cal is­sues re­lat­ing to de­liv­ery will be chal­lenges the next gov­ern­ment will need to think care­fully about how to over­come.”

James Smith, the re­search di­rec­tor for an­other ma­jor think­tank, the Res­o­lu­tion Foun­da­tion, said the par­ties’ plans “rep­re­sent a dra­matic shift from the nar­row debt-driven de­bate that has dom­i­nated the past decade”. He added: “With the low cost of bor­row­ing, aus­ter­ity Bri­tain is go­ing to turn into hard-hat Bri­tain who­ever wins the next elec­tion. This shifts the fo­cus to en­sur­ing that in­vest­ment de­liv­ers real re­turns, not just higher debt.

“There re­main big dif­fer­ences be­tween the main par­ties’ eco­nomic plans, which will be fought over in the elec­tion. But the even big­ger dif­fer­ence, fol­low­ing to­day’s speeches, is be­tween the re­cent eco­nomic past and plans for the fu­ture, as both par­ties have sig­nalled a ma­jor shift to­wards a far big­ger, in­vest­ment-fo­cused state.”

Pub­lic spend­ing on in­vest­ment projects was cut by Os­borne af­ter his ar­rival at the Trea­sury in 2010 as part of the Tory-Lib Dem coali­tion’s at­tempt to cut the bud­get deficit. Dur­ing the 2010s, it has av­er­aged about 2% of GDP.

The an­nounce­ments by Javid and McDon­nell came as the top civil ser­vant blocked pub­li­ca­tion of a re­port by the Trea­sury’s eco­nomic fore­caster that was ex­pected to show the pub­lic fi­nances had de­te­ri­o­rated in the past eight months and that the chan­cel­lor was in breach of his old fis­cal rules. Mark Sed­will, the head of the Cab­i­net Of­fice, told the Of­fice for Bud­get

Re­spon­si­bil­ity’s chair, Robert Chote, that pub­li­ca­tion would breach the Cab­i­net Of­fice’s gen­eral elec­tion guid­ance. But the Lib Dems said the de­ci­sion “smacked of po­lit­i­cal in­ter­fer­ence”.

The British Cham­bers of Com­merce wel­comed the prom­ise of more in­fra­struc­ture spend­ing but struck a note of cau­tion about the scale of Labour’s plans. “Our busi­ness com­mu­ni­ties will agree with John McDon­nell on three fronts: the UK needs more pub­lic in­vest­ment in in­fra­struc­ture, more fo­cus on up­grades in the re­gions, and more de­ci­sions taken lo­cally, rather than in West­min­ster,” said Adam Mar­shall, its di­rec­tor. “We may agree on the aim – but busi­nesses will raise real ques­tions about how Mr McDon­nell plans to get there.”

Dave Pren­tis of the Uni­son union said Javid’s pledges did not go far enough: “Af­ter nine long years of spend­ing cuts, this is nowhere near enough to re­pair the dam­age done to bud­gets, ser­vices and staff in hos­pi­tals, schools, po­lice sta­tions and town halls across the coun­try.”


▲ Jeremy Cor­byn jok­ing with press pho­tog­ra­phers as Labour un­veiled its bat­tle bus in Liver­pool yes­ter­day

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