Last Sunday I put my name to a letter to  The Observer  outlining an alternative to both "austerity capitulation" and "deficit denial". It backed a four point plan developed by the think tank Compass and reads as follows:

"This week George Osborne will set out the government's spending plans for 2015-16 with the intention of continuing austerity measures beyond the next general election... This will be politically and economically disastrous.

Instead, the government should set out an alternative based around four key pillars.

First, there needs to be a significant investment in green and social infrastructure spending. A £55bn stimulus could generate up to 1m jobs, £187bn of additional GDP and almost £75bn in terms of additional taxation.

Second, tough new fiscal rules need to be set, with independent democratic oversight of government spending in order to earn the trust to borrow and spend people's money wisely.

Third, once recovery is assured, there should be an elimination of the structural deficit through a series of progressive tax rises and by making cuts in wasteful public spending.

And last, there needs to be a restructuring of the state and public services in order to ensure sustained efficiency, responsiveness and innovation. This requires a shift to the "coproduction" and localisation of public services that utilises the expertise, commitment and energy of the people who provide services and of the users of the services.

Britain cannot endure more unnecessary years of austerity and those who are least to blame for the crisis must not pay the price for it."


The letter, and the Compass Plan is important in that the next General Election effectively starts tomorrow, as the Comprehensive Spending Review (CSR) sets out the political landscape to the election and beyond. And it's also important in that tomorrow we'll hear big arguments in the House of Commons over very small differences.

Indeed, there is in fact very little difference between what the government and Labour are now proposing. So while Ed Balls will lay into George Osborne for "cutting too fast, too far", he will go on to lay out his very own version of austerity. We'll hear much about "cuts and caps" from both sides.

What struck me about the Compass Plan, and Neal Lawson's piece in The Guardian yesterday, was how closely they matched my own growing sense of unease. Ed Balls had been spot-on in opposing austerity but now appears to back it, which raises the question of whether Labour has in fact capitulated to austerity?

Compass argues that Balls' approach risks handing a "Get out of Jail Free Card" to George Osborne at a time when his approach has clearly failed and earlier high level supporters are abandoning support for austerity.

In effect, Labour would be saying "sorry George, you were right after all'. Any caveats about where and how Labour would cut differently "would be lost in the howls from the Coalition and its supporters over a spectacular U-turn".

And one aspect in particular that I thought useful in the Compass plan was its proposal to allow the Office for Budget Responsibility to define the economic cycle (unlike under Labour's last 'Golden Rule' where the Chancellor defined the cycle). The democratic accountability aspect would come via a much greater role for the Commons' Public Accounts Committee. And a new commission on economic forecasting would try to improve quality of economic forecasting. This all makes sense.

Of course, we'll hear about some important yet slight differences tomorrow, such as over investment in housing. But at the end of the day, the overall message from both sides will be that economic policy is bound by austerity. As Lawson puts it, under this paradigm, "the state is the problem, not capitalism".

This doesn't make any sense. The problem at the moment is not too much spending, but not enough. The more we cut, the weaker the economy.

The Compass Plan is a package that could be sold to the electorate. It is one that needs more radical reforms along the lines that bloggers like John Clancy and myself here at the Birmingham Post have been pressing for, such as through creating regionally based state-backed business banks to lend to SMEs given the cold-shoulder by the very same PLC banks we have bailed out, as well as tougher takeover rules to allow firms to plan and invest for the long-term.

As Lawson puts it, "millions want an alternative that is both desirable and feasible. They know that what you borrow, has to be paid back - but that it is only people in jobs who can make the repayments. Who is speaking for them?"


* Professor David Bailey works at Coventry University Business School