The economy will be the most important issue of the next general election. The central question will be: who has the best plans for jobs and the future of our country, and who can be trusted to deliver them? While the future always matters most, the past matters, too. For the Tories and Liberal Democrats, what’s happened in this parliament to the economy, public services and the fairness of our communities will determine whether they can be trusted again. For Labour, what we got right and wrong in office will also count. That is why the Tories and Lib Dems have been busily re-writing history – ours and their own. They like to claim that every decision they take, every cut they make, are all Labour’s fault. They want people to believe it was too much spending on schools, hospitals and police which caused the recession and the deficit, because they want an excuse to cut spending on those services now. But they conveniently forget we’ve just been through the worst global financial crisis since the 1930s – it was a global crisis, not a recession made in Britain.
We should be clear that the crisis was caused by the irresponsible actions of banks around the globe. And while every major country faced that recession and so ended up with big deficits, it was also the fault of governments and central banks – including Britain’s – which didn’t see the financial crisis coming and should have been tougher regulating the banks. When the City and the Conservatives called for lighter regulation, we should have ignored them and been tougher still. Every government in the world got that wrong – and I’ve said sorry for the part I, and the last Labour Government, played in that. So we should be honest about what we got right and what we got wrong. But when the Tories urge us to say there was “a decade of over-spending”, we should remind them that before the crash they were matching our spending.
No government can say every penny was spent wisely, but before the crisis hit, Britain had a lower deficit and national debt than we inherited from the Tories. Our national debt was lower than America, Japan, France and Germany. In Budgets before the crash, we took decisions to ensure we were meeting our fiscal rules to keep national debt below 40 per cent of gross domestic product and balance over the economic cycle the “current budget”’ – day-to-day spending excluding capital investment. We had low borrowing to finance capital investment in schools, hospitals, roads and housing, not for day-to-day expenditure as the Tories claim. And we raised some taxes so that this current budget balanced over the economic cycle and to ensure there was no structural deficit.
After the global financial crisis hit, everything changed. As tax revenues from the City collapsed and we invested to keep people in work and stop recession turning into depression – actions the Tories opposed – we built up a big deficit. And figures in Budget red books were revised to take into account how the economy turned out. A year ago, after that global crisis, we were turning the corner: the economy was growing, unemployment was falling and because more people were in work paying taxes borrowing ended up £21 billion lower last year than forecast.
We have to get the deficit down, but since George Osborne decided to cut it further and faster than any other major economy, we’ve seen the economy grind to a halt, rising inflation and unemployment at a 17-year high. Cutting too deep and too fast is a vicious circle because lower growth and higher unemployment means we will have to borrow £46 billion more than planned. It’s this Tory-led Government which is responsible for the lost jobs and slow growth Britain is facing now. We must not let George Osborne off the hook.
Ed Balls is the Shadow Chancellor and Labour & Co-op MP for Morley and Outwood
