Why Fiscal Credibility Is Still Important

Of the many phrases that pepper the UK's political discourse, the oft used 'Magic Money Tree' has to be the most grating. Its employment is a rhetorical device used to shut down any talk of government spending by hawks who believe any movement away from a narrow focus on cuts as a weapon for reducing the deficit is not only ill-advised, but belongs to the realm of fairy tales. More sophisticated commentators know that macroeconomics is more complex than that and government spending can - in some circumstances - reduce budget deficits.

After the financial crash of 2008 the UK's public finances were in a perilous state and the electorate concluded that the Tories, in coalition with Liberal Democrats, could be trusted to repair them. After some success, the Conservatives alone were given a chance to finish the job in 2015. But two years later - somewhat prompted by a promise to spend more by Labour - the public's appetite for so-called austerity has significantly diminished.

Politicians on the centre-left of politics, who are supportive of public spending, may see this as an opportunity to call for extra money for state spending. For so long the political narrative has been dominated by low taxes and spending cuts, and the opportunity presented by Labour to change that focus may prompt many in the centre to call for some fiscal easing. Liberal Democrats need to tread carefully at this political moment.

While Jeremy Corbyn has managed to challenge the post-recession fiscal consensus, there is little evidence that he has any better solutions in addressing the effects of a long period of deficit reduction or any credible plans in terms of rebooting the economy. Labour still has a credibility problem: yes, its manifesto was costed (in as much as both columns on the spread sheet tallied), but it lacked plausibility in terms of priorities and sustainability. Liberal Democrats can't outdo Corbyn on spending promises, but they can come up with carefully crafted tax and spend policies based on improving the value of services, and 'bank for buck' capital investment schemes.

At present, Labour look like the most obvious winners of the next general election, but there is still much to play for. Whether in government or not, Labour's fiscal plans will fall apart under detailed scrutiny or implementation. As Labour's economic policies unravel there will be an opportunity for Liberal Democrats to make the case for properly thought out and costed spending plans. Approaches that promote progressive policies and keep a keen eye on the public purse will be called for. Luckily for the Liberal Democrats they have a leader who has credibility on both counts.

* Steven Duckworth is treasurer of the Social Democrat Group, which is being formed to celebrate and develop our social democrat heritage, and to reach out to social democrats beyond the party. He writes in a personal capacity.