What should Labour's economic policy be?

One of the first big challenges for Labour's next leader will be to set out their response to the Coalition's comprehensive spending review, and in the process define Labour's new economic policy.

Although this hasn't been a big feature of the leadership campaigns, it is possible to identify four main options which I've heard suggested:

1. The Blairite one set out by Pat McFadden. Continuing the economic policies set out by Alastair Darling and prioritising increased investment to increase economic growth while halving the deficit by cutting spending on public services, public sector pensions and welfare benefits by around £60 billion.

2. The Gordon Brown/Ed Balls strategy of maintaining higher levels of public spending on current priorities and reducing the deficit more slowly, aiming to stabilise levels of debt at c. 90% of GDP rather than 70%.

3. The leftie approach of massive cuts to targeted areas of spending such as defence and prisons, maintaining or expanding other areas of public spending, and raising income tax, corporation tax, capital gains tax, council tax, introducing new taxes such as a graduate tax and a mansion tax, while creating jobs through a Green New Deal.

4. Reject orthodox economics and the idea that the deficit is a problem entirely, and argue for an alternative based on an entirely new kind of political economy such as Modern Monetary Theory.

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The leadership contest has been very good natured, but economic policy is where there is the potential for real divisions to arise within the Labour Party. The next leader needs to have a mandate from members for whichever economic policy they plan to pursue. The policy needs to be understood and backed by Labour's members and supporters, as well as credible and able to stand up to robust scrutiny. Not an easy task.