Leader sets out new direction and warns party it faces difficult choices on spending at next election
Ed Miliband will set out a new direction for the Labour party under his leadership on Tuesday by saying that the unprecedented and unexpected landscape at the next election will require it to address the deficit and make decisions "all of us wish we did not have to take".
In what is billed as a significant statement of Miliband's position in the light of the government's admission that the deficit will not be eliminated by 2015, he will use a speech to the London Citizens organisation to promise to lead a changed party.
He will stress that the persistence of the deficit does not mean Labour has to abandon its distinctive agenda, but instead rethink it. He will say: "Each time New Labour won an election, we came back to power with a growing economy. Next time we come back to power, it will be different. We will be handed a deficit. Whoever is the next prime minister will not have money to spend. We will have to make difficult choices that all of us wish we did not have to make."
The speech reflects lengthy conversations among shadow cabinet members on whether their economic narrative fits the public mood. In what are described as very direct discussions, the argument was made that the party cannot resonate emotionally with the public mood unless it reflects the seriousness of the deficit.
It was also said that the party could not be seen to be still arguing about whether the government had been right to cut in 2010 when the electorate will want to know what Labour will do in 2015.
Saying Labour needs to rethink how fairness is achieved, Miliband will argue: "The failure of George Osborne's economic policy creates a different landscape for the 2015 general election and whoever wins it. The ideas which won three elections between 1997 and 2005 won't be the ideas which will win the election in 2015. So we will be a different party from the one we were in the past. A changed Labour party."
He will add: "In the short term, where the government is stripping demand out of the economy, we would go less far and less fast. We call for these things not because we aren't interested in dealing with the deficit. We call for them because we are. The sooner growth and jobs return, the easier it is to deal with the deficit we face."
He will set out three ways to achieve fairness in more austere times: reforming the economy to support long-term wealth creation with rewards fairly shared; tackling vested interests that squeeze the living standards of families across the country; and making choices that favour the "hardworking majority".
He will claim: "Everyone is now joining us talking about the squeezed middle, the next generation, and responsible capitalism. But it's not enough just to talk about them. Suddenly David Cameron is falling over himself to say he too is burning with passion to take on 'crony capitalism'. Now he has accepted this is the battleground of politics, I say: 'Bring it on.'"
Miliband is likely to be pressed about how he would rethink Labour's spending priorities, and will face criticism he is too vague to engage the electorate and lift his weak personal polling. In a piece published by the Guardian's Comment is Free, Lord (Stewart) Wood, one of his closest advisers, says that matching the Tories cut for cut or outflanking them on the right would be a blind alley.
But offering status quo capitalism would also be wrong, he says. "For the past 50 years, Labour's approach to governing has rested on using the proceeds of growth to fund redistribution, social protection and public services. In 2012, we know that these proceeds will be in scarcer supply than in the past, and the claims of deficit and debt reduction on them when growth does return will be greater than before."
Wood argues that the deficit Labour inherited in 1997 was 3.4% of GDP, and this year it will be 8.4%. "We'll still tax and we'll still spend, and in straitened times the politics of tax and spend – making sure tax is properly progressive, making sure spending is well targeted and efficient – will become more not less important. But these choices will be tougher. The 1980s supply-side revolution from the right has run its course. What Britain needs is a supply-side revolution from the left. We will need new types of banks and stronger competition in the banking industry; corporate governance reforms to incentivise good ownership models and longer-term business strategies; ensuring that companies see the continuing upskilling of their workers as an obligation and not simply a luxury; and the courage to challenge vested interests in the economy that charge excessive prices for energy or train fares and squeeze families' living standards."