Poor economy a drag on Labour fortunes

Ed Miliband is under pressure to fine-tune Labour's stance on the economy amid growing evidence that the party is failing to win the political argument over cutting the deficit.

Several Labour frontbenchers believe the party must urgently come up with an answer to the criticism by David Cameron and George Osborne that Labour's recipe for Britain's debt crisis is to borrow even more. "It is doing us a lot of damage," said one frontbencher. Another said: "We need a rethink. We are in the wrong place on the economy."

The concern amongst Labour MPs will be heightened by the latest poll of polls by The Independent showing that the party has gained no ground despite a month of gloomy economic statistics that have called the Coalition's cuts strategy into question.

Labour remains on 39 per cent (unchanged from the previous month), the Conservatives on 35 per cent (unchanged) and the Liberal Democrats on 11 per cent (down a point). Although these figures would give Labour an overall majority of 38, that would be reduced by proposed changes to constituency boundaries. And more worryingly for Labour, the party trails the Tories on economic competence.

John Curtice, professor of politics at Strathclyde University, who calculated the weighted average of last month's polls, said: "Labour's failure to make any further advance during the course of 2011 must be a source of growing concern to the party. As the economic news has worsened... doubts about the Government's handling of the nation's finances have grown.

"Yet the public doubt whether Labour would do any better – and indeed are still inclined to hold the party responsible for much the austerity that the country is now experiencing. Unless Labour can restore its reputation for economic competence, then however bad the economic news might be for the Government, it seems unlikely the party will be able to secure the kind of lead that would suggest it was on course for victory in 2015. That probably implies spelling out a much clearer alternative to the Government's economic strategy than the party has so far been able to present, and in so doing begin to convince the public that it has learnt from the mistakes made during its previous tenure in office."

Allies of Mr Miliband insist that Labour is united in agreement that its message needed to change following last week's gloomy Autumn Statement by the Chancellor. But they insisted the party's policy would not – and that it still supported a short-term fiscal stimulus to ensure the growth needed to cut the deficit.

Mr Miliband's aides suggested that Labour will say more about the long-term challenge to eliminate the deficit and build a "new economy" and less about its immediate plans including a temporary cut in VAT to combat the "caricature" of its policies painted by the Tories.

Labour now knew it would inherit a deficit if it wins the next election and would have to make cuts, they said. So the party will spell out the "hard choices" facing it on spending and taxation.

Labour sources insisted that the party's economic ratings are improving and claimed the Coalition would not be able to continue to blame Britain's problems on the previous Labour administration. They said it normally took about 18 months for voters to see a new government as "taking ownership" of the economy, so the passage of time would dilute the potency of the Coalition's attacks on Labour.

Mr Osborne mocked Labour's stance, claiming that the only other European parties that wanted to slow the pace of deficit reduction were Communists and the French Workers' Struggle Party.