If we’re to win the next general election, Labour has to win the economic argument with the Tory-Liberal Democrat coalition. And we have to do so right now. Simply waiting for the public service cuts, job losses, VAT rise and benefit cuts to bite and the Government to become unpopular as a result is a huge political trap for Labour.
If the public is persuaded that, however painful, the coalition’s cuts are necessary, unavoidable and the fault of the previous Government, the coalition will have succeeded. That’s why over recent weeks I’ve been setting out how Labour can and must make the case for a credible economic alternative to the Government’s austerity programme.
As I said in my speech at Bloomberg last month – and as Brendan Barber and many others argued persuasively at the TUC Congress this week – we must set out an alternative plan based on protecting vital services, boosting jobs and growth, fair tax rises and steadier deficit reduction.
Leadership is about changing and leading public opinion rather than being driven by it, so we need to challenge and change the consensus that cutting the deficit is the most urgent priority for our country, regardless of the cost to jobs and growth.
Labour must be clear that the cuts are not only deeply unfair, but economically dangerous too. For all George Osborne’s claims to have delivered a progressive Budget, new evidence emerges each day that the poorest and most vulnerable will be hardest hit. But it’s also the case that deep cuts now, when the recovery is still fragile and there are growing fears about economies around the world, will cost hundreds of thousands of jobs, undermine growth and could risk a double-dip recession. This is a flawed and short-sighted approach, because it will ultimately mean a higher deficit as tax revenues fall and spending on things like jobseekers allowance rises.
The credible way to reduce the deficit is to get the economy moving again by putting jobs and growth first – and the economic evidence suggests that we need to do more, not less, to support the economy at this time. That’s why I’ve set out a costed plan to invest £6 billion in building 100,000 more affordable homes, to tackle the housing shortage while creating hundreds of thousands of private sector jobs.
As John Maynard Keynes said: “When the facts change, I change my mind” and politicians must be willing to do so as well. And the reason we are starting to win the argument for this alternative approach and steadier deficit reduction is because of the economic evidence since the election.
First, encouraging growth figures in the second quarter and the deficit for last year coming in £12 billion lower than forecast in March indicate Labour’s policies to support the economy were working. But since the emergency Budget we have seen increasing signs of economic slowdown, with consumer confidence, business optimism and mortgage starts all down. Even the Office of Budget Responsibility admits the cuts will depress jobs and growth. Second, while the Tories used to repeatedly warn our economy was at risk of being “downgraded” by credit rating agencies because the deficit was not being reduced fast enough, last month Moody’s raised the prospect of downgrades for economies across Europe – including Britain – for precisely the opposite reason: because of the threat of lower growth and higher unemployment on deficits.
Third, there are growing concerns about the state of economies around the world. While policymakers in the United States are asking what more they can do to support their fragile economy, the British Government is pursuing a deflationary strategy that risks repeating the catastrophic mistakes of the 1930s and 1980s. This is why my alternative case is starting to win support from across the political spectrum. It’s not just Ken Livingstone and The Guardian’s economics editor who have praised my Bloomberg speech, as you may expect, but the respected Financial Times commentators Samuel Brittan and Martin Wolf, too.
So when some accuse me of a lurch to the left, I say it’s actually common sense and that’s why even some on the right are wondering whether they’ve called this one correctly. Boris Johnson is hedging his bets, saying: “The consensus around drastic and immediate deficit reduction is in danger of breaking down”, while under the headline: “An awful thought, but what if Balls is right?” the Sunday Times warned the Government to prepare a plan B.
David Cameron, George Osborne and Nick Clegg do not seem to be in any mood for compromise, so their rush for deep cuts now cannot simply be economic ignorance. The truth the coalition dare not speak is that their agenda is being driven not by economic evidence but a right-wing ideology. Whipping up hysteria about the deficit and claiming there is no alternative to their actions is a convenient cover for a political project to roll back the state permanently. This makes it all the more necessary to expose the economic and social dangers of what the coalition is building up to with its savage spending review next month – and to win the case for a credible Labour alternative. We must do so with credibility, passion and urgency.
Ed Balls is Shadow Children and Education Secretary, Labour MP for Normanton and a Labour leadership contender
