Britain will need further austerity after the next election in 2015, the Labour party said on Thursday, warning that any future left-wing government would have to find new ways to redistribute wealth and help the poor.
Labour leader Ed Miliband, who has been sketching out a vision for Britain this year which he hopes will win back voters after the party lost power in 2010, said reform to a responsible capitalism would be vital for social justice.
The fiscal challenges we face mean we need to find new ways of delivering social justice, Miliband said in a speech in London. The failure of the government's austerity plan means that the next Labour government is likely to inherit a deficit that still needs to be reduced.
So even then resources will have to be focussed significantly on paying down that deficit.
The focus of the Conservative-Liberal Democrat coalition government is to all but eliminate by 2015 a record budget deficit which topped 10 percent of national output, but a weak economy and rising unemployment have cast doubt on the plan.
Labour and some leading economists have argued that the government should soften its austerity plan to give Britain's fragile economy room to breathe while the euro zone crisis plays out. Labour say the government's plans will miss the target by about 100 billion pounds on current consensus growth forecasts.
Bank of England Governor Mervyn King, while supportive of the government's fiscal policy, has warned that the economy could stagnate until mid-2012 and analysts expect unemployment to continue to rise.
If Labour wins the next election, therefore, it is likely that it will not have anything like the money to spend on welfare, education and health which the former Labour administration, in power from 1997 to 2010, enjoyed.
Labour leads in the polls although the next general election is not due until 2015.
Miliband and his team are trying to find ways to reform the economy so that less direct intervention by the state would be necessary to create opportunities to those from underprivileged backgrounds and to make society fairer for all.
He outlined five areas which Labour would focus on: redefining the relationship between finance and the economy; moving away from short-term shareholder value-based business; addressing skills shortages; tackling unfair and excessive pay and reducing the power of big companies with vested interests.
The old view was that some companies were too big to be challenged, never mind too big to fail, he said. They would threaten to leave the country or not invest in Britain.
The old view that we should let predatory behaviour continue unchecked has let down our country and business. Vested interests, predators that do long term damage, are bad for our business and our economy.
Among the measures being considered by Labour are ways to move institutional investors away from an obsession with companies' quarterly results and whether all shareholders should have the same voting rights.
Labour also want more competition in the banking sector and are looking at how to create a UK investment bank which could fund enterprise.
Miliband said an employee should also sit on remuneration committees at big firms.
This simple reform would help forge a new compact between workers and employers, he said. Building trust that salaries at the top are deserved. That long term decisions are being made.
(Reporting by Matt Falloon; Editing by Susan Fenton)