Jeevun Sandher MP: I am committed to Labour’s fiscal rules, but delivery matters too
Rattled by watching the bond markets, Labour MP Jeevun Sandher says it’s time for Labour to prioritise economics over politics
For the past few weeks, I have woken up, reached for my phone, read the news, and then looked at the 10-year gilt rate. Whilst many in Westminster are focused on the political machinations, what matters to me is this: how can we break out of the vicious economic circle that is feeding political turmoil? How do we implement our responsible economic policy that gets growth rising, inflation falling and our debt burden down?
Britain is stuck in an economic trap
For too long, our country has been stuck in a vicious economic trap of low growth, high inflation and a rising debt burden. Low growth fuels fury amongst my constituents who are finding it harder to afford a decent life. High inflation makes voters poorer, while also keeping both the bank rate and bond rates high. Both low growth and high inflation also mean a higher debt burden, measured as debt (interest payments) to GDP. This is the vicious economic circle in action.
Every crisis that hits us – Covid, the war on Ukraine and now Iran – speeds this process up, depressing growth, raising inflation and fuelling political fury. Conflict and climate change are both driving up prices and reducing growth, making the vicious circle move faster and faster, spinning out and making our politics more turbulent.
This is the vicious circle we are breaking out of. With responsible economics that heeds hard economic facts and keeps our fiscal rules intact, there is a way out. By maximising growth, reducing inflation and getting our debt burden down, we can escape the vicious circle for good.
How to break this vicious cycle
First, maximising growth. We can use a tax-funded set of expenditures to maximise growth, without borrowing more. We are doing this with a set of short-term affordability measures, including the straight cut to energy bills that came in April, to raise consumer spending. And as they were paid for by pro-growth tax measures, including windfall taxes, they don’t hit the spending power of consumers. For the longer term, building infrastructure and devolution helps businesses create prosperity across the country.
Second, lower inflation. Our energy bill package has already directly reduced inflation by around 0.4 percentage points. This obviously helps consumers and it also gives the Bank confidence that we are acting to reduce second round effects of today’s inflation on future prices. Because additional spending commitments are funded through taxation, not borrowing, they aren’t inflationary.
Third, when we get growth rising and inflation down, we also get our debt burden down. As in the post-war era, we get the debt burden down through higher growth. On top of this, given a quarter of debt is inflation linked, lower inflation also helps to reduce our debt servicing costs.
Labour’s rules are only as valuable as their results
All my Labour colleagues – both in and outside of Westminster – take this seriously. We all know that a credible plan and path for growth, interest rates and inflation is needed for both the public and the markets. We are all committed to the fiscal rules.
As important as the numbers are, and as an economist they are always close to my heart, what matters more is what they deliver. Affordable lives, a stable economy and a calmer society. That is what responsible economics delivers.
And it will help get me off my phone in the morning.
Dr Jeevun Sandher is the Labour MP for Loughborough. He is also an economist and leads the economics team at the New Economics Foundation