Osborne has dug his hole; Balls shouldn’t dig one too

by Jonathan Todd

“What he is now doing is the equivalent of ripping out the foundations of the house just as the hurricane is about to hit”.

Ed Balls said this of the government’s economic strategy in August 2010. It is curious, then, that last week David Cameron told the CBI that controlling Britain’s debt was “proving harder than anyone envisaged”. That’s anyone besides Balls and an increasing number of others convinced by him.

The day after Cameron’s CBI speech The Financial Times reported that it now looks impossible that George Osborne will be able to fulfil the boast made in the March 2011 budget that the structural deficit will be eliminated by 2014/15. Indeed, The Financial Times went on, achieving that goal in 2015/16 also appears unlikely.

To acknowledge that the structural deficit can’t be closed this parliament, John Redwood concedes, “is a defining moment … This, after all, was said to be the (government’s) fundamental point”.

The TUC are clear about the economic causality leading to this political failure. They have compared the current state of the UK economy with the government’s forecasts at the time of the June 2010 budget and found that poor GDP growth, lower than expected tax receipts, rising unemployment and higher welfare spending are likely to leave the economy around £65bn smaller than anticipated in 2015.

The scale of the deficit means that Labour has never denied the need for cuts. But it is because we understand that growth, and consequent increased tax receipts and reduced welfare spending, are preconditions of tackling the deficit that we would have avoided cutting into that spending which raises the economy’s productive and growth capacities.

We wouldn’t have scrapped the future jobs fund only to reintroduce a paler version 18 months later. We wouldn’t have talked about economic rebalancing, while launching a Maoist assault on regional economic architecture. We wouldn’t have reaped chaos everywhere from financial regulation to the green economy. We wouldn’t have sold Northern Rock at a loss to the taxpayer and not recast the financial sector as a more mutualised one, less like the one that so let us down.

Osborne has given us shrivelled government, not smart government, in such a doom-laden tone that households have been frightened out of spending and businesses out of investing, making the doom a self-fulfilling prophecy. Now the goalposts shift. One Downing Street strategist told The Times last week:

“Plan A means dealing with the debt crisis, not dealing with the debt crisis to a specific timetable. The eurozone crisis has changed the context”.

Three things to note here:

First, everything used to be Labour’s fault. Now everything is the euro’s fault. Nothing is the government’s fault. This offends economic sense and, as Alastair Campbell notes, “with every day that passes, excuses become more irritating, the lack of clear strategy becomes more exposed, and the gap between the lives and mindsets of Cameron, Clegg and Osborne, and the rest of the population, becomes more politically dangerous”.

Second, while the timetable slips, the focus on debt remains. This objective will continue to prove elusive unless growth is secured. Osborne is in a hole, and is still digging.

Third, it is odd that a party who, insofar as they have an economic strategy derive it from Milton Friedman type economics, claim the eurozone crisis is a calamity that couldn’t have been anticipated. It was Friedman who famously said that the euro wouldn’t survive its first major recession. It’s a predictable part of the hurricane that Balls feared.

Given these weaknesses, Osborne will try to change tack in his statement; probably somewhat by stealth. No matter how deep a hole Osborne digs, we must avoid digging our own. We cannot appear to be asking the country to reconsider the verdict made at the last election; only to be acting upon its lessons.

We lost the election, in part, because we lost fiscal credibility. The most popular explanation for the latest economic slowdown remains the debts of last government. This means that, irrespective of how bad things get for Osborne, fiscal credibility for Labour will remain a precondition of Labour being heard on the economy.

It is important, for example, that our proposed bankers’ bonus tax is clearly, consistently and exclusively earmarked for measures to tackle youth unemployment. If the Tories are able to claim that we have an incredibly large number of purposes for this tax revenue, then we are not convincing.

After defeat in 1979, Labour didn’t return to government until we won the economic argument. Under the long shadow of the winter of discontent, it wasn’t until Gordon Brown built a reputation as a shadow chancellor ever faithful to prudence that we did so. This required complete discipline from Brown. Well beyond the sound and fury of the annual statement, the same, in a different context, will continue to be required from Balls.

We didn’t win in 1997 because of Black Wednesday. We won’t win the next election by default either. We will win it by proving we’ve changed and acted upon the hard lessons of the last one.

Jonathan Todd is Labour Uncut’s economic columnist


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14 Responses to “Osborne has dug his hole; Balls shouldn’t dig one too”

  1. Nick says:

    The scale of the deficit means that Labour has never denied the need for cuts

    So what should be cut? Name it. You haven’t so you are coming across as pathetic.

    Lib/Labour is going to get what it wants – higher taxes
    The Tories are going to get what they want – smaller government.
    The public are going to get screwed.

    The reason is simple. Too large a deficit, too big a debt

  2. Nick says:

    We lost the election, in part, because we lost fiscal credibility. The most popular explanation for the latest economic slowdown remains the debts of last government. This means that, irrespective of how bad things get for Osborne, fiscal credibility for Labour will remain a precondition of Labour being heard on the economy.

    What would be the effect if the electorate were told the truth?

    Why not send them a bill. On it are all the accrued liabiltiies. State pension entitlements, state second pension, PFI, Guarantees, civil service, borrowing, …

    Anything were the government says you are entitled because you have already handed over money.

    Left off is any future spending. No bailing out the 50% of people with no savings in their retirement …

    Each year, every taxpayer (since they pay) gets their pro rata share of the bill, in the form of an invoice. Capital, interest payments, and any increases listed.

    ie. Truthful and honest.

    Now, given the legacy is 225,000 for each taxpayer, and the bill linked to CPI, its a rather large amount. However, its truthful.

    Now what do you think the electorate would think of that legacy?

    Not that its all your fault. Some of its the Tories. However, the majority of it is Labour.

    It’s because you never consider the cost of your actions. It’s fairy tale politics. The money’s down the back of the sofa. We can hit the bankers (who hit the customers) or move taking the cash. We can hit the corporates who move like Google. Eventually you hit the middle class and when that doesn’t work, its the poor.

    But what the heck. You handed out 170K a year tax free to some benefits claimants.

  3. The Future says:

    I think what is clear is that we are very very lucky to have Ed Balls around.

    If we hadn’t swam against the current we would have had not just nothing unique to say but what we had said would have been wrong.

    But you are right. We have to fight the next election and not the last. Even if, we know that we got the key economic call right.

  4. Dave says:

    To quote a phrase … “I agree with Nick”

    The line ‘Labour has never denied the need for cuts’ has made me laugh out loud.

    What cuts does the Labour leadership support? In full, please.

  5. Mark Krantz says:

    Labour promised ‘cuts worst than Thatcher’ at the last election and lost. Now Balls says that if the finances are in a bad way come the next election – which they will be after massive Tory cuts and huge bailouts for the rich and the banks – then Labour will be promising ‘cuts wost than Osbourne’ !? As long as Labour presents itself as the party that will run the British economy for the ’1%’ then they will not win. Look at Greece and Spain. Labour needs a plan for the needs of the 99%, not the bond markets.

  6. ad says:

    So how much more money should the government borrow? What effect would this have on the economy?

    And given that most predictions of the growth rate made last year were out by a factor of two, why should I believe your answers?

    I never had much trust in macroeconomics. My faith has not increased over the last three years.

  7. Clr Ralph Baldwin says:

    Jonathon, very interesting Newsnight where we had the Minister being more open than the Opposition Mp Rachael Reeves, who on the Strikes would only say, like a 6 year old automaton “Strikes are a failure, Strikes are a failure….” very similar in style to Ed Millibands great successes when he repeated himself lol and did not have an opinion of his own lol.

  8. swatantra says:

    Things are simply not getting better… not for the next 6 years anyway.
    More borrowng more debt. Osborne may have to revise his Statement yet again in 3 months time.

  9. Amber Star says:

    Osborne has given us shrivelled government, not smart government, in such a doom-laden tone that households have been frightened out of spending and businesses out of investing, making the doom a self-fulfilling prophecy…
    ———————————-
    This is what has caused the calamity. Ordinary people who are not particularly interested in economics or politics, believed that the Labour Government had handled the banking crisis well & all would return to normal relatively quickly.

    Then Osborne & the Tory press kicked off the Prophets of Doom: Deficit Denier tour. It was a good strategy, as far as getting Labour out was concerned. But they hadn’t thought any further ahead than that. They have not a clue about how to rebuild the confidence they have crushed; every excuse they give for poor growth just worries people more. And today’s horrendous Autumn Statement will make it incredibly difficult to turn around people’s lack of confidence in their future prospects.

    How can you inspire confidence from opposition when the Government has mastered to ability to cause fear & panic with their every economic pronouncement? That’s the challenge facing Labour. And if the two Eds can meet that challenge, then they will deserve a landslide victory in 2015.
    8-)

  10. swatantra says:

    So far Labour have been in denial of how serious the state of the Economy actually is.
    As Bill Shankly said: Its not just a matter of life an death; its more serious than that.

  11. Madasafish says:

    There have been a number of academic studies by economists of how long economies take to recover from financial crises – as opposed to industrial ones.

    The average was around 10 years before full “normal” growth is seen again.

    These studies are not new, and are well known to anyone who looks at how countries perform after crises.

    It’s all very well and good talking economic rubbish to the great unwashed who know no better .. but until Labour tell it as it is to the economists/banks/bond holders .. then it will have zero economic credibility..

    UK gilt yields are currently as low as German ones – only because the Coalition’s austerity program has credibility. Conversely Labour’s are not. And frankly whilst Ed Balls is Shadow Chancellor – or renounces all his and Gordon Brown’s work as WRONG.. – Labour will have zero economic credibility.

    Anyone who looks at the sums knows state funded civil servants’ pensions are unsustainable, the benefits system is unsustainable and the UK has far too much red tape.

    Period.

  12. swatantra says:

    Thats at least 2 GEs away. Has Labour the vision to plan ahead and the stamina and can it sustain languishing in oppo that long, or by some fluke suddenly find itself back in power again, and what would it do. Its going to be a long hard slog, and a lower standard of living for all of us.

  13. AnneJGP says:

    The fundamental reason I could not bring myself to vote Labour at the last GE is that I was afraid of Mr Balls being appointed Chancellor of the Exchequer. Mr Darling would have been acceptable, but I was (and am) convinced that he would not have survived in the post following a Labour GE win.

    Kudos to you for your efforts to rehabilitate Mr Balls, but with this voter, at least, you will need a lot more co-operation from Mr Balls himself before you succeed.

    On a more positive note, it does seem to me that people in general are beginning to accept that we are in difficult financial & economic circumstances. With wider acceptance of the difficulties, there is likely to be more constructive thinking about how to deal with those difficulties. Then, I think, there will be more acceptance that “we are where we are” and less focus on “who’s to blame”.

  14. Mike Homfray says:

    We returned to government in 1997 because the Tories had become such a rabble. Not because of what we were saying.

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