Ed Balls speech can put Labour on the offensive

By Manic Street Preacher
Anti-cuts protest London 29 Jan 2011

By Jane West

The highly flagged speech made by Ed Balls, the Shadow Chancellor, at the London School of Economics on 16th June potentially can help put Labour on the offensive against the Tories’ disastrous economic policies. It does not go far enough but is a welcome step forward.

In the speech Balls argues that the economic course being pursued by Osborne and Cameron is on a par with the ERM debacle of 1992, when a series of Tory Chancellors – Lawson, Major, Howe and finally Norman Lamont – took Britain into the ERM and then insisted on sticking to the disastrous policy as the devastating economic impact of the inflated exchange rate it required unfolded. Only the financial collapse on Black Wednesday in 1992 forced a change of course, but by that time Britain was in recession, hundreds of businesses failed, while house price falls combined with 15% interest rates condemned thousands of families to the loss of their homes. 

Saying ‘History shows that many politicians have fallen into the trap of sticking stubbornly to their guns, in the misguided belief that any deviation will indicate weakness and in the false hope that things will eventually sort themselves out. But they just dig themselves into deeper and deeper holes’, Balls argued for some sharp rethinking by the Tory government.

Spelling out how the impact of Osborne’s cuts may cost a generation of lost growth and declining productivity, he called for consideration of a ‘Plan B’ that could stimulate growth and give some relief to poorer people in particular for whom inflation was hitting their standard of living particularly hard.

As the first step, Balls proposes a cut in VAT – a regressive tax – which would put some money back in the pockets of the less well off, stimulating consumer demand and boosting growth. Such a cut in VAT would have a positive impact on inflation, currently running at 4.5%. The impact of this is seen if compared to average earnings, which, excluding bonuses, rose only by an annual 2% in the three months to April, meaning a real decline in living standards for all but the wealthiest in society.

The increase in VAT to 20% in January is estimated to have added a minimum 0.76% to inflation, and a cut would have a rapid beneficial impact on CPI.

Additionally, Balls proposes a repeat of the windfall bank bonus tax this year, potentially raising £2bn. He argues this should be allocated to fund the building of 25,000 new homes, establish a fund to help 90,000 young people into work and boost the Regional Growth Fund to create further programmes to stimulate the economy in the regions.

While far from being an adequate programme for addressing the problems confronting the British economy, renewing the welfare state and raising living standards, these are a definite set of steps in the right direction. But most decisively they can put Labour on the offensive against the Tories, rather than the defensive and semi-paralysed state it has been in since the General Election.

It was particularly refreshing that the speech was made the day prominent Blairite Alan Millburn took to the pages of the Daily Telegraph to argue in favour of the original Tory NHS privatisation proposals and warn Ed Miliband and Labour against retreating to the ‘the comfort zone of public sector producer-interest protectionism.’

Unfavourably describing the government’s welcome u-turn on the NHS as the ‘biggest nationalisation since Nye Bevan created the NHS in 1948’ he advocates that Labour occupy a political space to the right of the Tories on the issue!

‘It would be unwise in my view for Labour to concede rather than contest the reform territory. The Government’s u-turn provides a chance for Labour to re-stake its claim to be the party of progressive radical reform. It is only when we are that we win’, he argues. 

Ed Balls’ speech therefore also runs counter to the Blairite offensive of recent weeks, aids rejection of proposals like Milburn’s for Labour to adopt Tory policies wholesale, and is an attack on the Osborne/Cameron claim that there is no alternative to their disastrous assault on services and living standards.

By putting forward the elements of an economic alternative it provides a stronger framework for Labour to present a political alternative to the Tories.