Events | 2010.08.27
Ed Balls sets out alternative to coalition spending cuts as he warns of double-dip recession
Labour leadership contender attacks George Osborne\'s contention that private sector will step in to help economy grow
There is an alternative to the government\'s planned cuts, Ed Balls insisted today, as he warned that the Conservative-Liberal Democrat coalition\'s austerity drive risked plunging Britain back into recession.
The Labour leadership contender used a speech to the Bloomberg financial news company in London to hit out at the fact that there has been "so little debate" over the coalition\'s key policy.
"The fundamental questions we face now – is it right to be cutting billions of pounds from public services and taking billions of pounds out of family budgets this financial year and next? What will that do to jobs and growth? And ultimately, what will that mean for the deficit? – are almost ignored," Balls said.
"So strong and broad is this consensus," the shadow education secretary said, "that a special name has been given to those who take a different view – \'deficit-deniers\' – and some in the Labour party believe our very credibility as a party depends on hitching ourselves to the consensus view. I am not one of them."
Balls compared the climate here to that in the US, where "the debate is not about fiscal tightening but whether further stimulus is needed to prevent a double-dip [recession]."
He drew a number of historical parallels to the coalition\'s response to the economic crisis, including Ramsay MacDonald\'s claim after the Great Depression in 1931 that "spending cuts were unavoidable to slash the deficit, ease pressure on sterling and satisfy the markets, in the hope of triggering a private sector-led recovery ... And the result of MacDonald\'s plan? The promised private sector recovery failed to materialise. Unemployment soared. Debt rose. Britain faced years of low growth. The parallels with today\'s situation are striking."
And he attacked Osborne\'s contention that the private sector would help the economy grow once public sector cuts were implemented. "Against all the evidence, both contemporary and historical, he argues the private sector will somehow rush to fill the void left by government and consumer spending, and become the driver of jobs and growth ... [This] has about as much economic credibility as a pyramid scheme," he said.
However, Osborne\'s strategy received some limited support today , when figures for the second quarter of 2010 showed GDP grew by 1.2%, higher than initially estimated, due to a pick-up in the construction industry and strong household spending. However, economists are concerned that it could slow again due to the government\'s looming spending cuts.
Balls also broke with former Labour chancellor Alistair Darling\'s plan to halve the deficit in four years, saying such a pace was "too severe to be credible or sustainable" and associating it not only with Darling but also with David Miliband, the Labour leadership frontrunner. Instead he argued "Labour does need a credible and medium-term plan to reduce the deficit and to reduce our level of national debt, but only once growth is fully secured and over a markedly longer period than George Osborne is currently planning."
He called for tax rises, including "starting the top rate of tax at £100,000 and reversing the cancelled part of the NI rise. I support an international transaction tax and think David Miliband is right to propose a new wealth tax on the largest estates." Some "tough spending cuts" would also be needed, he said.
And he called for the reinstatement of some of the programmes already cancelled by or under threat from the coalition: the future jobs fund, the September school leavers\' guarantee, the youth jobs guarantee, and the Building Schools for the Future plan.
The speech has fuelled speculation that Balls now has his eye on the second-most important position in opposition: shadow chancellor. Balls, the former chief economic adviser to the government, insists he is still fighting hard to win the Labour leadership contest. But his supporters know that it is all but impossible for him to catch the Miliband brothers.
Ed Miliband is also to make a speech today, with a fresh warning that his party cannot afford "to linger in the comfort zone of New Labour", something he also said on Wednesday and which has been taken as coded criticism of his older brother, David.
The shadow climate change secretary is expected to say: "Whenever a political party has become stuck in its ways there are always those who will fight to stay with what they know. The past can be a powerful anchor. Labour now faces a big, defining choice: whether to linger in the comfort zone of New Labour or whether to change, reach out to those who have lost trust in our party. Only change can win."
He will also say: "We must reach out to those who believe we have become cynical about our politics with our belief that it\'s politics which can bring people together to change Britain. We must reach out to the squeezed middle, those who find themselves working harder for longer for less, with a commitment to a new economy on the side of working people, rewarding businesses who invest in their staff and are committed to fair pay. And we must reach out to those who believe we became too casual about the liberties of individuals."
He will say that at the last election "neither New Labour nor Cameron\'s Tories had good enough answers to the challenges facing people in this country".
For more information, please visit
http://www.guardian.co.uk/politics/2010/[...]-balls-coalition-spending-cuts
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