Labour cannot just coast victory in 2015 election, not when it's running against the current Government – and the previous one too

If Labour is serious about becoming a party of government in 2015, it needs to get its act together – fast. Unless the party faces up to tough decisions on economic policy, December 5, 2013, may be remembered as the day when Labour was consigned to election defeat.

The Chancellor’s Autumn Statement underlined that for all the ineptitude of the Coalition Government’s austerity – its failure to meet the deficit and debt targets agreed in 2010, its inability to achieve essential “rebalancing”, and the danger that the incipient recovery is too reliant on an artificial boom in house prices and personal consumption, it is George Osborne who holds the trump card. Months of adept opposition campaigning on “the cost of living” has been brutally swept aside by a slew of positive economic data – alongside the hard economic choices with which the Chancellor is confronting Labour.

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Most voters recognise the recovery is underway, even if they fear ordinary families will not feel the benefit. This is altering the terms of British political debate. There are indications that real wages are rising again, especially in the south of England and among workers in the private sector, puncturing charges about declining living standards. Meanwhile, the public finances are improving, while the cuts have been inflicted without any apparent destruction of Britain’s social fabric – even if ill-considered spending choices are accentuating inequalities and the burden is being borne by the lowest paid. Unless it can adapt its position in response to fast-changing events, the hallmark of any adroit opposition, Labour will be behind before the contest is properly underway.

The party is at risk of falling victim to fundamental strategic miscalculations. Off the back of a less severe defeat in 2010 than widely anticipated, there is a common belief Labour can somehow coast to victory: all it needs to do is sit tight and watch the Coalition parties grow unpopular in the face of indiscriminate public sector cuts.

In fairness, Ed Miliband has sought to frame a coherent governing project with the concept of a more “responsible capitalism”. But a legitimate attack on “predator” vested interests in the absence of accepting candidly why Labour lost in 2010 will not get the party very far. Despite Gordon Brown’s celebrated handling of the banking crisis in 2008, in the face of a spiralling public sector deficit voters no longer trusted Labour to spend responsibly, tax fairly, and manage the economy competently. The promise of Labour’s leadership contenders to “learn the lessons of defeat” was abandoned long ago.

Three years on, the party’s core message is intended to boost the morale of Labour supporters. It has not yet reached out to those who will shape the outcome of the 2015 election – voters in the suburban heartlands of England. There is no reason why the electorate should choose an opposition party merely because they have grown tired of the Government, as Labour found to its cost in 1992. While opinion polls are a referendum on the governing parties, in elections voters have to choose.

In reality, Labour is not only running against the current Government – but the previous one too. The leadership has been as strident in its critique of the Blair-Brown years as it has in identifying the failings of the Coalition parties. It is certainly the case that the post-1997 governments made serious errors, leaving aside Iraq. But the party is in danger of learning all the wrong lessons, while failing to reclaim the mantle of economic credibility.

The charge that the New Labour legacy is one of abject economic failure is as bizarre now as it was five years ago. Sixty-seven consecutive quarters of growth, the fastest rise in per capita GDP in the G8, sustained improvements in output and productivity, prosperity more fairly shared than at any time in modern economic history, record numbers of start-ups and burgeoning knowledge industries from pharmaceuticals to bio-tech, and British cities such as Leeds, Manchester, Birmingham and Newcastle rejuvenated. Despite the 2008 crash, it was hardly the 1930s or the 1970s.

In truth, the memory of Tony Blair, a three-time election winner but a zealous reformer who ran aggressively against his own party, continues to paralyse the Labour leadership: as a result, he is air-brushed out of history. What Labour must do is move on definitively from the Blair-Brown era. That requires a more sober, objective assessment of New Labour’s successes and failures than anything offered so far.

It is easy to dispense advice to Labour’s top team, much harder to implement it. For Labour to have a chance eighteen months from now, key strategic decisions must be taken. The first is to offer a credible account of how the party will bring the public finances back to surplus in the next parliament, presuming the recovery is sustained. A commitment to balancing the books is a non-negotiable manifesto commitment, as is a compelling strategy for growth that enhances the productive capacity of the economy.

The other is to show that progressive, left of centre values are achievable in a world where there is precious little public money around. That will require, above all, a leaner, smarter, more strategic state. Costs in the NHS will have to be contained, with no repeat of the GP contract debacle. Services like universal childcare and higher education will need to be paid for equitably by those recipients who can afford it. On skills, employers must absorb more of the burden instead of relying on the state’s largesse. The welfare system has to prevent dependency by promoting work, not perpetuating long-term social and economic failure. And Britain needs a real debate about its future defence commitment – including Trident renewal.

A genuine governing alternative requires Labour to demonstrate courage and radicalism. With an election looming, the party cannot, under any circumstances, afford to waste the next year. There is not a moment to lose.

Patrick Diamond was a Downing Street adviser to Tony Blair and Gordon Brown, and is Senior Research Fellow at the Policy Network think tank.