Labour’s election success depends on its ability to prove its economic credibility | Patrick Diamond

Ed Miliband has a golden opportunity to reclaim the politics of productivity and project the party’s ability to create growth

If Labour is to have a serious prospect of outright victory in 2015, the party has to capture the territory of economic competence, redefining the terms of trade in British politics. Labour must strengthen its credentials as a prospective government not only by promising to distribute rising national income more fairly, but in demonstrating that it can expand the British economy, focusing on the institutional reforms required to strengthen the UK’s productive base by addressing long-running structural weaknesses.

The coalition government has no compelling strategy for ensuring that we make the transition towards a “high value” innovation-driven economy that delivers rising productivity and wages in every part of Britain. The UK spends well below the European average on promoting future growth, including knowledge transfer, large-scale technological investment, capital infrastructure, notably regional rail networks and airports, alongside research and development drawing on world-beating higher education institutions. The United States, Japan and the Nordic countries have raced ahead. The UK is slipping further behind in the knowledge “race”.

This is a golden opportunity for Labour to reclaim the politics of production, just as Harold Wilson did 50 years ago by invoking the “white heat of technological revolution”. That is vital if Labour wants to regain the cherished asset of economic credibility, without which no party in British politics has formed a majority government.

The challenge for Labour is to complement its initiatives on the cost-of-living crisis with a bold move to seize the mantle of economic trust. Miliband’s party should go into the election with policies that shore up its credibility and project faith in Britain’s economic future. Rather than squandering the proceeds of a fire-sale of the Royal Bank of Scotland and Lloyds Bank on indiscriminate tax cuts, as the Conservative party is advocating, Labour should promise that half the proceeds will be used immediately to pay down the national debt.

The remaining revenues from the bank’s sale should be invested in a National Growth Fund designed to radically upgrade Britain’s economic capacity: modernising infrastructure; investing in science, innovation, and industrial policy; boosting direct strategic investment by government in growth sectors, especially in regions outside the south-east; transforming the stock of intermediate skills through genuinely world-class apprenticeships. This is a more comprehensive approach than merely creating a National Investment Bank. The initial sale of 6% of the government’s stake in Lloyds raised £3.2bn for the exchequer: the potential is enormous. A National Growth Fund should be the centrepiece of Labour’s alternative autumn statement.

Recent polls indicate that the battleground for the 2015 election is being framed around the politics of economic recovery. Labour has convincing arguments to make: the anaemic recovery is benefiting the already wealthy; the tax system should ensure those with the broadest shoulders bare the burden of fiscal consolidation; the priority for Britain is to strengthen its public services, not further tax cuts for the rich. Nonetheless, an electoral breakthrough is unlikely until Labour regains trust with voters: lack of credibility is a crippling weakness for any prospective governing party. The challenge is to demonstrate that Labour can be trusted to manage the economy prudently while prioritising UK growth in an age of global instability.

The leadership ought never to forget that suspicion of Labour’s motives, however unjustified, runs deep. The charge that Labour governments always run out of money evokes historical memories of past crises – 1931, 1947, 1967 and 1976 – for which the party was blamed. Labour’s credentials for judicious economic management have to be firmly established. © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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