Warning for Miliband: you're losing the debate on the economy

(AP)

Ed Miliband is given a stark warning today that Labour is losing the crucial political battle on the economy despite growing fears that the Coalition Government's tough deficit reduction programme is hurting but not working.

In a pamphlet published on the eve of Labour's annual conference in Liverpool, two Labour figures warn that the party has gone backwards in Mr Miliband's first year as leader and "lacks credibility on the economy".

It says: "Voters have even less idea about what Labour stands for now than a year ago, despite the election of a new leader. There is a general sense that New Labour had been abandoned, but very little idea of what this means in practice."

While Mr Miliband is seen as decent and not extreme or out of touch, he is not regarded as a potential Prime Minister.

The pamphlet, Southern Discomfort One Year On, is written by Patrick Diamond, a former aide to Tony Blair and Gordon Brown who wrote last year's election manifesto with Mr Miliband, and Lord Radice, a former Labour MP who first diagnosed Labour's "southern problem" in the 1990s.

Their research in the South and the Midlands concludes that Labour's position is "weak", particularly among the skilled and white collar workers of "Middle Britain" who helped both Margaret Thatcher and Tony Blair win three elections.

Labour holds only 49 of the 302 parliamentary seats in the South (excluding London) and Midlands, which includes many key marginals. "The party cannot win without doing much better in the South and Midlands, nor can it rely on David Cameron's failure to make further inroads in the North and Scotland," says the pamphlet published by the Policy Network think-tank.

It warns that the Conservatives could win the next general election by default even if George Osborne's strategy fails because Labour has lost voters' trust on the economy. "While voters still see Labour as caring and fair, they no longer believe the party is capable of running the economy," it says. "Even more importantly, they do not consider that Labour understands, respects or rewards those who want to get on. Far from encouraging and rewarding talent and opportunity, Labour is still seen as a party likely to 'clobber' those who want to make the most of new opportunities."

The authors suggest Labour has not been able to capitalise on the feelings of anxiety and insecurity among wavering Labour voters which have replaced "aspiration" as their main concern. These people still want politicians to recognise the importance of enabling people to get on in life and do well for themselves and their families.

Mr Diamond and Lord Radice warn: "The heightened mood of pessimism and anxiety may encourage voters to take refuge in what they know, namely the apparent certainties of the Conservative approach based on sound money, smaller government, hostility to Europe and a punitive approach on immigration and crime which may have added resonance among some voters given the prevailing sentiment of insecurity."

The research found that immigration is a serious weakness for Labour, but that the Tories are seen as "more interested in looking after the rich than the British people as a whole". David Cameron is "not loved but he is respected as a capable leader".

Voters remain open-minded about the Government, not least because Labour is not offering an alternative.

Some voters fear that Labour would revert to a "tax and spend" policy. The pamphlet proposes that Labour reduce regressive taxes such as council tax and stamp duty by tackling unearned capital and wealth, by adopting the "mansion tax" on homes worth more than £2m, favoured by Vince Cable, the Liberal Democrat Business Secretary. They also propose "earmarked" taxes to raise money directly for health and education.

The authors say that Labour needs to show "fairness and competence" to win back the confidence of voters.

"The Conservatives have successfully defined Labour as the party of economic incompetence, financial profligacy and recession, recalling images of past Labour governments swept from office after one kind or another," they concluded.