Labour needs to do more to restore its reputation for economic competence, says Margaret Hodge

Becoming trusted again on the economy is central to winning the next election. The incompetence of the government and divisions in the Tory party provide us with a precious opportunity, but they do not guarantee a Labour government. Ed Balls has been proved right on growth and the damage caused by the depth and speed of the government’s cuts but we need to place value for money and fiscal prudence at the heart of our economic message. Voters must feel confident with trusting us to run the economy and spend their hard-earned money. To convince them, particularly in our key seats, we have to now start putting forward policies which demonstrate that we have reconnected with their needs and aspirations.

It takes time to build trust and it requires consistency in our messages over time to succeed. We have to be brave and show where our priorities lie: what public spending we would cut as well as how we might grow the economy, and how we will ensure best value for what we do spend. That is a big challenge. It is always easier to make election promises on the assumption that there will be more money. It is much tougher to show how we will be different and better when there is less money. That is why we should lead the battle to ensure that every pound of public spending brings added value to our communities. The pursuit of better value for money is an essentially Labour message which we did not take seriously enough and which the Tories have been able to exploit as part of their justification for cutting back the state.

Too often talking about wasting public money is associated with the right. But being Labour is about standing up for people on low and middle incomes – the kind of people who work two jobs and still struggle to make their wages last until the end of the month. We owe it to them not to waste a penny of the taxes they contribute to the public purse. And those of us who believe in the power of the state to do good must ensure that every pound we raise in taxation supports our ambition to enhance life chances and deliver greater equality.

Embracing an agenda of best value demands the reform of public services. Some party activists believe reform is code for privatisation. It is not. It involves putting the citizen at the heart of how we frame and deliver services. It means focusing on outcomes, not inputs; thinking about what we get, not just what we spend.

This government is ideologically committed to cutting the size of the state. Its principal cuts are in benefits, wages and pensions, and that has nothing to do with reform. Where it is pursuing reform, its proposals are not properly thought through. Its health reforms will not only destroy the NHS as we know and value it, they will do nothing to help it cope with less money over time and will end up costing, rather than saving, the taxpayer billions of pounds.

Its welfare proposals are a train crash waiting to happen, with insufficient effort being put on developing the necessary technology to enable real-time information to be shared between HMRC and the Department for Work and Pensions, and unachievable targets being set with its assumption that eight out of 10 claimants will claim online. The Tories are driven by ideology. Underlying their ‘reforms’ lies a massive and relentless privatisation of public services.

You only have to look at the PFI programme to understand how ill-conceived that old notion of ‘public bad, private good’ is. We are now locked into more than 700 projects at a cost of more than £130bn over time and the Tories are signing new contracts every week. The contracts transfer little risk, but deliver huge profits. More and more of the companies are taking their PFI profits offshore, and so are not paying tax on the excessive gains. At the same time the state is locked into delivering services over 30 years in buildings that may not be fit for a changing purpose. For example, will we really need big hospitals in three decades’ time when we all want people to be looked after in their homes?

We have succeeded in privatising the profits and nationalising the debt. That is not value for money. And that is something Labour should admit we got wrong, because we too fell into the trap of believing that the private sector is by nature more efficient and effective.

The same is true when you look at the abysmal performance of G4S at the Olympics, or the outrageous £8.6m dividend the chair of A4E paid herself in one year alone from profits gained entirely from the taxpayer’s pound.

Private companies involved in delivering public services should be partners, not predators. The Nordic countries talk about ‘complementary actors’ to describe private and third sector providers and I think that is a useful way to look at them so that we bring in private providers where they pass a rigorous value for money test and offer the best and most cost-effective solution. And of course their books should be open to public account so we can follow the taxpayer’s pound to demonstrate value.

Finally, where can we save money and how could we demonstrate a clear leftwing alternative to unthinking cuts? Here are three possibilities for starters.

First, I agree with those who argue it is unsustainable to continue the universal pensioner benefits from the free bus pass to the winter fuel allowance. As a full-time working pensioner myself, it is impossible to justify the continuing benefit I enjoy while children’s centres are closing. At the very least, with the exception of those on pension credit, we should be taxed on the pensioner benefits.

Second, we should resist the pressure to focus health spending on acute services and really put the money into prevention instead. Under Labour, we only spent four per cent of the massive NHS budget on public health. Stop the smoking, tackle the obesity and provide the proper checks and drugs for those at risk of heart disease or diabetes complications and you would help equalise life chances and save money.

Finally, the cost of childcare is horrific. The Tories’ answer is to deregulate, so that children get cheap, poor-quality childcare. Our answer could be to spend less on funding families through tax credits and more on funding the services families need. In the UK, 26 per cent of taxpayers’ money spent on families goes on childcare; in Denmark it is 49 per cent. A large chunk of the money we spend on families goes on tax credits (29 per cent) compared with zero in Denmark. A switch to focusing funding on services would be radical, possible and, dare I say it, popular.

Convincing voters that we will be trusted guardians of the public purse has to be part of the wider economic message. It may feel uncomfortable and unfamiliar territory for the left, but it must be at the heart of the Labour project and we need to get on with it now.


Margaret Hodge MP is chair of the public accounts committee


Photo: William Warby

Defenders of the taxpayer’s pound