The shadow business secretary's speech, hosted by the Engineering Employers Federation in London, was previewed in today's Guardian, and can be read in fullon the Fabian website.
It will help to shape a significant debate about the party's political strategy and argument in opposition. McFadden argues that the party must be seen to acknowledge that deficit reduction, including some spending cuts, are necessary, in order to get a hearing for the argument that the coalition's cuts go further, faster and are harsher than is justified or necessary, and to bring the question of growth
How Labour should challenge the Coalition's economic narrative, what its own approach should be to economic growth and to deficit reduction, are likely to play an increasing role in the debate between leadership candidates over the party's economic strategy.
There were the main points.
(1) The government's narrative has mostly succeeded in framing the economic agenda.
Their main point is an accusation that Labour was profligate and economically incompetent in Government. That by our actions we made the recession worse, not better. And that we left a huge problem for the incoming Government, requiring them to take drastic action.
It is claimed that the Government’s actions are born out of necessity, not choice. They don’t really want to be making these cuts or imposing these taxes. They simply have to. And this argument is used to absolve the Government of all responsibility for their decisions. Everything from the VAT rise to the cancellation of new schools is blamed on the previous Labour Government.
(2) Labour must challenge the 'there is no alternative' argument
McFadden argued that the Coalition's argument is founded on an argument which denies there are political and policy choices.
Labour should mount a strong defence of the choices it made in responding to the recession, and challenge the "absurd", unfounded argument that the UK faced the risk of a Greek-style default. This amounted to an attempt by the Coalition to evade responsibility and ownership for its own choices in power, by arguing that everything it has done was unavoidable because of its inheritance from Labour.
The new Government on the other hand has chosen to put Britain at the head of a new drive for austerity. It has chosen to cut faster and cut deeper than we would. It has done so with no accompanying plan for growth or for jobs. We know from the Treasury's own figures their plans will destroy jobs in the public and private sectors. And yet they make huge assumptions about the private sector stepping up to the plate and creating millions of jobs with no plan for how it is to be done.
This is faith based economics, with the Conservatives in the role of the High Priest and the Lib Dems displaying the zeal of the convert. It imposes enormous pain on the country and takes a huge risk with our future.
It cannot be blamed on the Labour government because it is based on judgements which the Conservatives and Lib Dems have shared. And therefore they must take the responsibility for the pain that those choices will inflict.
(3) Labour will be 'tuned out' by the electorate if it is perceived as having nothing to say but 'fight the cuts'
Yet McFadden warned his own party that it would not be credible if it took refuge in a purely oppositionist stance, and withdrew from its own acknowledgement that it would have had to reduce the budget deficit in power.
Unless we absorb that I believe there is a danger of being tuned out by the electorate. By contrast, acknowledging it increases the chance of our fight against what the government is doing being heard.
“Fight the cuts” is a tempting slogan in Opposition, and there are indeed some that must be fought. But if that is all we are saying the conclusion will be drawn that we are wishing the problem away.
As the pain of Government cuts bites, public opposition to them will grow, but people will still want to know what we would do differently - and they won’t believe us if our answer is just that we could make it all go away.
(4) The Labour leadership contest now needs to move on to focus more on the future than the party's record in government
Of course it is right to acknowledge where we went wrong in Government. After all, as one wise local member said to me, if we had all the right answers, how come we lost? And all of us could pick decisions or positions adopted that damaged us or we disagreed with – though we would not all pick the same things.
But the bigger point is that going through each difficult decision taken in Government and telling people it was all a mistake or even contrary to our values is in the end not leadership. Leadership is and always must be about the future. And our economic story is the foundation of this future, everything from tax and spend to skills and trade.
(5) What is the vision for the UK's economic future - and what role must government play to pursue it?
McFadden acknowledged that Labour had been "late to the game" on developing an effective political economy and account of the role of government. But he warned that the Coalition risked leaving itself unable to will any credible means for public policy objectives it claims to share - rebalancing the economy, promoting high skills, and managing the transition to a low carbon economy - because it lacked a positive account of the role of government in promoting growth, beyond getting out of the way.
There is an essential role for Government in a modern industrial economy. It is about creating capability, ensuring the right infrastructure is there, ensuring the right skills are there, the right planning environment, the right research excellence and having the will to make it happen.
And yes, that will require Government funding in some cases. Markets may produce good outcomes in the round but they won’t always get every decision right.
The new Government have talked a lot about what they won’t do in these areas but have said next to nothing about what they will do.
They seem to ignore the role of growth in getting the deficit down and the government’s role in rebalancing the economy.