Balls bites back (with mixed success)

You certainly can’t fault Ed Balls for chutzpah. After the weekend he has just experienced, the shadow chancellor has an article in today’s Mirror accusing George Osborne of “spinning out of control”. It is pure, triple-distilled Balls: a fiery attack on both his political opponents and their policies. So let’s sup deep and read the whole thing, alongside my comments:

THIS is the most exciting Formula 1 season for decades. Because it is not just about who has got the fastest car – it’s about race strategy, overtaking and adapting to the changing conditions. You can be the fastest driver on the track for 40 laps – but that’s no use if, by ignoring advice, you spin-off in the rain or run out of fuel. That’s my worry about the Chancellor George Osborne.

A strange, protracted metaphor, to be sure, and probably not even the right one. I assume Balls is suggesting that Osborne is the “fastest driver” on the track by dint of cutting faster than anyone else, but that’s not even true. As any CoffeeHouser kno, Obama is planning to cut faster (if not, eventually, further) than Osborne — yet Balls doesn’t generally attack the President of the US for going “too far, too fast,” etc. And as for Osborne spinning off “in the rain” by ignoring advice, which pit team should he listen to: Balls or the IMF? The Chancellor is receiving lots of advice in his headset, he has to ignore some of it.

The voices are getting louder and louder, warning him of the dangers facing the economy – the threat to jobs and family budgets from his recklessly fast deficit reduction plan. But he isn’t listening. He just keeps his foot to the floor. This is a very dangerous strategy – dangerous for families and businesses who are struggling to get by, worried about their jobs and unwilling to spend and invest. And it is dangerous for Britain’s long-term future too.

Here starteth Balls’ strongest attack, about the pressures facing the striving classes. The Times has a superb graphic today (£) which shows how everything from energy bills to the price of carrots has risen tremendously over the past five years. It is, of course, disingenuous of Balls to equate this with Osborne’s “deficit reduction plan” (although not entirely, as tax hikes are having their effect on the cost of living), but it is cunning politics. Moreso than any abstract cut in a departmental budget, people will notice the miseries writ in black-and-white across their bills and store receipts. And governments tend to pick up the blame, whatever the cause.

George Osborne’s decision to cut too far and too fast has seen the economy flatline – and we are now set for slower growth and higher unemployment than forecast a year ago. Britain is falling behind other European countries, while countries like India and China power ahead as our economy stalls.

Take out the bit about cutting “too far and too fast,” and much of that is uncontroverisally true. Yet you might take issue with the one-sidedness of it all: slower growth is not the double dip recession that Balls once prophesised, even if it isn’t particularly encouraging; countries like India and China have been powering ahead of us for years; and forecasts changed, for the worse, even when Labour were in power. Balls, naturally, has to work with the ammunition he before him — and some of this is fairly high calibre stuff. But what really matters, for the country and for our politics, is what actually happens in the years to come. The government would argue that the sluggishness of recent months is a result of the uniquely misshapen economy that they inherited. Beating it into shape, they say, will take time, but will be worth it.    

But George Osborne thinks that if the economy goes wrong, it doesn’t matter because he can just blame Labour. Over recent days we have seen my private papers taken and given to the Daily Telegraph. The Tories and their supporters are misrepresenting their contents and using them for a very clear political motive: to attack me, Ed Miliband and the Labour Party and try to promote a Tory lie that the global recession, and the deficit we now have, are all Labour’s fault. Whatever the Tories and their supporters claim now, whatever the dirty tricks, we cannot let them rewrite history. The global financial crisis happened in every country – it was not a recession made in Britain. It was caused by the irresponsible actions of the banks, though Labour accepts that we should have been tougher on them.

One of the most pungent passages in the whole article, and not least because it wallows in the stench emanating from Balls’s own filing cabinet. The shadow chancellor’s clear implication — and it is a vicious one, without proof — is that the release of his private papers was all down to the Tories. But it’s what follows that’s even more noxious. No Tory I know claims that the “global recession” was Labour’s fault. It is Balls who is “rewriting history” here. The Tory charge is instead that Labour left our country, and the public finances, particularly open to the draining effects of that recession. Which brings us on to…

Before the crash, Britain’s national debt and deficit were both lower than Labour inherited from the Tories. And at that time David Cameron and George Osborne were pledged to match our spending plans.

This is an argument that Ed Miliband has made before, but — as it is central to Labour’s defence of their own record — it is worth dwelling on now. The suggestion, sometimes made more explicitly, is that Labour actually paid down the debt and reduced the deficit, and that the crash was solely to blame for their subsequent rise. But, unsurprisingly, this suggestion is equal parts wishful and misleading.

I’ve thrown graphs and more detail at this before, such as here, here and here. So suffice to say that the MiliBalls argument doesn’t account for something that is very important when it comes to the public finances: trajectory. When New Labour swept into Downing Street, the debt and deficit had been put on decelerating — or even downwards — trends by Ken Clarke’s spending plans. So long as Labour followed the plans they inherited, the debt and deficit continued to fall. But as soon as they departed from them, around 2000-01, and started to splurge, the debt and deficit started to rise once again. By the time the crash crashed Labour’s party, debt-fuelled spending had gone on for so long that both the deficit and the national debt were already on accelerated trajectories. This is not what Balls, with his illusions of prudence, would have us believe.

Nor do Balls and Miliband account for what happened next. Yes, in some very specific senses — e.g. as a percentage of GDP — the debt and deficit may have been lower in 2007 than in 1996. But that’s when Labour’s new trajectory really started to bite. Even discounting the measures to support the banks (as well as PFI and other off-balance sheet ruses), our debt rose by over 20 percentage points of GDP between 2007 and 2010, the second fastest rise of any major economy. The deficit that the Tories inherited was the highest in our history.

As for Balls’s observation that the Tories were committed to Labour’s spending plans at the time, he can have that. David Cameron has since, rightly, admitted that it was his worst mistake in Opposition.

But the crash pushed up deficits in every major country as governments took action to stop recession turning to depression, to keep people in jobs and in their homes and Labour cut VAT to get money into people’s pockets and keep the economy going. So now, like every other country, we need to get the deficit down and that means cuts and fair tax rises – like the 50p top rate for those on over £150,000. In government, Labour set out a tough plan to halve the deficit over four years – in line with last year’s pledge from G20 countries.

Funny what Balls omits here. The fact that our deficit is among the worst of any developed economy? The revenue-raising prospects of the 50p rate? Nothing to be said on either. But my favourite omission relates to the last sentence. G20 countries pledged to halve their deficits last year, Balls says. But the pledge was to do so by 2013 — quicker than Labour’s plan.

And going at that balanced and steady pace was starting to work. Last spring the economy was growing again, unemployment was falling and so the Government borrowed £21billion less than expected. But last June, George Osborne made a political choice to cut the deficit further and faster than any other major economy.

In which case, I guess Balls doesn’t regard the US as a major economy.

That decision is hurting families: the VAT rise alone will cost a family with children £450 this year. But by cutting too far and too fast – hitting families and costing jobs – the Tories are also creating a vicious circle in our economy. That’s because more people out of work and on benefits will make it harder to get the deficit down. Our economy has not grown at all in the last six months. The Government’s independent watchdog says the economy will now grow more slowly, with 200,000 more people on the dole each year.

The Office for Budget Responsibility may have pushed some of its unemployment forecasts upwards since last year, but it still expects unemploment to fall. In fact, by the OBR’s calculations, unemployment has already peaked:

That’s bad news for families and businesses, but it’s bad for the deficit too. This slower growth and higher unemployment means that the Government is now set to borrow £46 billion more than they had planned. And it’s not what the Tories promised.

In part, this is one of Balls stronger attacks: in the last Budget, the government did slow its forecasts for deficit reduction, which means more borrowing than it envisaged. (Osborne, though, is confident that he still has enough leeway to meet his pledge to abolish the structual deficit by 2015.) But it also muddies the shadow chancellor’s position: he appears to be attacking the Tories for not cutting the deficit as fast as they said they would, while also attacking them for cutting the deficit too fast.

They claimed they would cut the deficit by cutting waste but they are cutting the police and jobs instead.

Another caricature of the Tories’ position, albeit one fuelled by David Cameron. Even Alan Johnson, when Home Secretary, declined to guarantee that police officers wouldn’t lose their jobs under Labour — and no doubt because it is a decision for local police forces.

One in five young people is now looking for work, yet the Tories don’t seem to understand this is a waste of money and  their potential. That’s why it’s now time for the Government to get a Plan B – and they should follow Labour’s balanced deficit plan, which puts jobs first. Of course we need tough decisions on tax and spending cuts, but getting people off the dole and into work is the best way to get the deficit down. Instead of cutting too far and too fast, if Labour was in government we would be cutting the deficit in a tough but balanced way, halving the deficit over four years. And instead of giving the banks a tax cut this year the Government should adopt Labour’s plan for a bankers’ bonuses tax and use the money to get young people into work and build more affordable homes. This is a key part of Ed Miliband’s focus on the “Promise of Britain” – that each generation does better than the last – which the Conservative-led Government’s policies are undermining at every turn. And that’s why we know every Labour Party member will get behind Ed Miliband and back him 100%. With the economy not turning out as they had hoped, it’s no wonder the Tories are getting worried. But, however much the Conservatives and their supporters sensationalise these papers and try to rewrite history, they will not divide the Labour Party. These kinds of dirty tricks will never distract or dissuade us from taking the fight to the Tories for the damage their misguided policies are doing to jobs, our economy and our vital public services.

“And that’s why we know every Labour Party member will get behind Ed Miliband and back him 100%.” It’s wonderful how Balls makes even his words of encouragement sound like a threat.

That’s why this week I will press George Osborne to use his Mansion House speech to change course. We won’t allow him to leave Britain stuck out on the track and out of fuel while the rest of the world races ahead.