Ed Balls on the Budget
Huw Edwards: What is there about this Budget that you support?
Ed Balls: On housing, smaller than we wanted but it is a move. I think the National Insurance cut for small businesses, something we’ve been calling for, that’s a good thing. So there’s a … I think the freeze and the cut in beer duty is the right thing to do. We’ve been saying they should review this, because the danger was the impact on pubs meant the revenue wasn’t actually coming in. So there are some good things in there. Fundamentally though, it doesn’t change anything, this Budget. It’s fundamentally still the same plan that we’ve had for the last two years, and all the Budget shows in even more vivid detail than before is that the plan’s not working. The economy is not growing. Since December they’ve halved the growth forecast for this year to 0.6%. Growth by the end of this year was supposed to be over 8% two years ago, it is actually less than 2% now. They’re now borrowing, compared with their plans in 2010, £245bn more in this Parliament. As you have been pointing out, once you take out the exclusions which the ONS has highlighted, they’re actually borrowing more than this year compared to last year. Goes back to the debate we had in December. But look, that is about the politics and the Chancellor desperately clinging on to his position, fundamentally it is no change in a completely failing plan. And the one thing that they should have done politically, they should have said, when things are so bad, when families are getting worse off, and we will be able to have numbers this afternoon to show that a one earner family, two kids, are worse off already in this Parliament because of tax and benefit changes, will be even more worse off in 2015. Given that’s happening, the squeeze on families, the squeeze on business, George Osborne and David Cameron should have announced today, not to go ahead with the top rate tax cut in two weeks’ time, because politically that is a total disaster. It makes them look so out of touch. Economically, they should have changed …
HE: That would blow a hole in the plans though wouldn’t it?
EB: My advice to George Osborne has always been two things. First of all, if you’re the Chancellor, outcomes speak louder than words. Whatever they say, the outcomes here – no growth, hugely more borrowing, almost a quarter of a trillion pounds more borrowing in this Parliament, no hope coming, and families worse off – speak louder than any Budget speech. Secondly, if you’re a Chancellor, if you made a mistake, do your U-turn quickly. The longer you wait, the worse it gets, and the harder it becomes politically, even if economically it’s the right thing. This plan is not working, and they should have U–turned on the plan a year ago. And as for the top rate tax cut, I think it’s a huge problem for them this year, next year and the year after, because people will say ‘whose side are they on? I’m worse off, and they’re giving a £100,000 tax cut to 13,000 millionaires’. It’s crazy.
HE: Danny Alexander said a few minutes ago that the strategy they have is wise, credible, it is not the government’s fault that lots of our major trading partners in the Eurozone are in a deep crisis. They are not responsible for that, they are trying to hold together the strategy that they have and they make the point that with your strategy – which they characterise as more borrowing – that is really not the way to progress?
EB: They are borrowing more this year than last year …
HE: And you want more than that?
EB: They are borrowing £245bn more in this Parliament, we said all along …said this two years ago, if they had moved more quickly with a sensible, targeted package of measures to kick-start the economy, which would have meant at that time more borrowing for a VAT cut to bring forward housing investment, then we would have got the economy growing and the deficit coming down. On these plans, how can they be credible when the national debt rises this year, next year, the year after, the year after that? They are revising up the borrowing every year for the next few years. It is colossally off-track and families and businesses are screaming in pain and they want a change in my view. They want a different approach to this because this is failing. And what has Danny Alexander, the Chief Secretary, been doing for the last few weeks? Scrambling around trying to find …it is right here on page 13, compared to the autumn statement, the tax receipts forecast has got worse by £5bn, but they have found another £3.5bn of underspends in this year compared to the autumn statement. That is not underspend, that is a chief secretary and a chancellor saying to their colleagues in Cabinet please don’t spend any money on core services because we are trying to make the borrowing come down. And despite all of that, it is still there on page 160, it has still gone up. That is the opposite of the automatic stabilisers, that is politics before economics.
Stephanie Flanders: The problem people have listening to you is you have said all of this time they should be slowing down in their efforts to cut the deficit, they should be borrowing more in order to support the economy. Isn’t that exactly what they are doing? They are borrowing a lot more than they thought because of the slow economy. They are supporting the economy and not going as fast as they originally planned. As you keep saying, borrowing is going up?
EB: Well look, George has this rule, he used to have a rule that said, ‘I have to get the national debt down and balance the budget in 2015’. As you say, that is all for the birds, that’s all gone now …
SF: But you would like that?
EB: I think his only rule is, however bad it gets, I myself must do nothing because I have got to stick to a plan, a self-denying ordinance, not really to do anything other than tinker at the edges. And what they have done is they have sucked confidence out of this economy, the fiscal plan is totally stalled, and to blame the rest of the world … we said two years ago, you know, when the American economy wasn’t growing very well and the Eurozone was in trouble, that was absolutely the wrong time for Britain to attempt to have the biggest and fastest deficit reduction plan in our history. And it has just absolutely not worked. They are borrowing for failure when they could have borrowed to get the economy moving and actually get the deficit down.
SF: They have adjusted it; they have extended it as far as Darling was going to extend it. The Bank of England also thinks it is the fault of the rest of the world, the OBR also thinks it is the rest of the world, it is not just George Osborne. You are rather in the minority in terms of what the cause of slow growth is?
EB: The problem we have got is that the OBR, the Bank of England and the Treasury all said in 2010 this plan would work and their forecasting record, all three of them, in the last two years has been disastrous because it has turned out the hit to growth has been much, much greater, but there have been voices on the other side, our old colleague Martin Wolf of the Financial Times, the IMF, we consistently… these days Vince Cable as well, all saying the fiscal multipliers in a situation like this are different. These forecasts haven’t gone wrong because of the rest of the world, it is because the plan is failing.
SF: We need to translate what fiscal multiplier means. Do you actually think that more borrowing would pay for itself? Because most of the people you just named do not, they do at least admit that it would add to borrowing?
EB: I think that the problem … well first of all, I do think that if you had a plan now to get growth moving in the economy, we would get the borrowing on a downward track faster and we would start to help people with their living standards and business investment. The thing which really worries me in these forecasts is the longer we go on with no growth, with no substantial business investment and long-term unemployment rising for young people, you do permanent damage. The people who said to me I was wrong two years ago were the ones who said the economy is going to grow, and it absolutely hasn’t and the borrowing has gone up. And there are very sensible voices in this debate, including Larry Summers and Brad De Long, who have all said that in an unusual situation like this actually what economists call the fiscal multipliers do mean ploughing on with a failing plan makes things worse. It has stood up every time the Chancellor does a Budget.
Robert Peston: Irrespective of how you think the underlying economy works, aren’t you fearful that the consensus among investors is that to increase borrowing in the short-term would be a disaster?
EB: Look, I look at these figures and think the economic and fiscal failure is bleak for our country for years to come. So I am really worried about it like you, I don’t like what the government is having to announce. I mean of course there is a debate about why our long-term interest rates are so low. In my view they are so low because the economy is flat on its back, it has absolutely stalled, there is no prospect it seems of interest rates going up from the Bank of England because the economy is so weak. We were told that markets cared most about the deficit and the triple A rating. We’ve lost the triple A rating, we’ve been downgraded, but actually there has not been a change in our long-term interest rates I think because they reflect that lack of growth in the economy. What did Moody’s say? It’s the lack of growth which is the problem. I think a sensible plan for growth alongside a tough commitment to deficit reduction – that is actually the only way to a credible plan. Because a credible plan can’t just sound tough, it has got to work and if it doesn’t work you end up with the diminishing credibility of George Osborne.
NR: When Osborne announces £11.5bn worth of spending cuts will you match that or will you it would be a terrible mistake?
EB: Well look, the …if that is his political goal, he is making things worse and worse every few months, because a year ago he said he wasn’t going to need to have spending cuts in the next spending review, then it has gone to £10bn, now it is up to close to £12bn because it keeps getting worse. Now …
NR: It is a political gambit undoubtedly, but it is one in the end that you will have to answer …
EB: The thing about George’s political gambits, he thought his political gambit at the autumn statement was to divide the country into strivers versus shirkers – none of that rhetoric today because he knows that it was working people who got hit. I think when people look at what this actually means for defence, for police, I think you will see in these figures a cut in non-school education spending which will be childcare and nursery, people are going to really worry about this …
NR: So the answer is you won’t match it?
EB: What they are going to say is let’s look at whether fundamentally the medicine in the economy is working. I want a growth plan in the spending review; I want a Chancellor who actually gets confidence and growth moving.
NR: You wouldn’t match those cuts then?
EB: I am going to look at what he proposes in the spending review, I’m not going to pre-empt that, but on this basis this is a failing plan.
HE: Would you give us a quick hint about the 50p tax cut, would you reverse that?
EB: I think that we would do what George Osborne should have done today, reverse it right now. It is crazy to be doing this in two weeks’ time. People are going to say, ‘millionaires are going to get a tax cut, and I am going to pay more?’
HE: So that is something you would attend to?
EB: Right now, absolutely.
HE: Right now is a slightly different answer?
EB: Well you’ll have to wait for our manifesto.Tagged in: budget, ed balls
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