The Staggers

The New Statesman’s rolling politics blog

Balls's new strategy is a political masterstroke

His commitment to long-term fiscal discipline strengthens the case for short-term stimulus.

By George Eaton Published 26 September 2011 11:13

Ed Balls's speech isn't until this afternoon (we'll be live blogging his speech from 12pm) but it's been leading the news all morning. And with good reason. The shadow chancellor is preparing to unveil a new strategy which will see him maintain the case for short-term stimulus but commit to long-term fiscal discipline. Balls will promise to meet the two pledges set out by George Osborne - to eliminate the structural deficit and to ensure a falling debt-to-GDP ratio - and will announce that these will be monitored by the Office for Budget Responsibility (this morning, for the first time, he said that setting up the OBR was "the right thing to do".) In addition, he will promise that any windfall from the sale of state-owned bank shares (estimated by the OBR at £3.4bn) will be used exclusively to pay down the deficit and not to cut taxes.

Balls's smart calculation is that these promises will provide him with the political cover necessary to make the case for renewed stimulus in the form of a temporary cut in VAT and other measures (he has promised to set out a five-point plan for restoring growth in his speech). As Keynes put it: "The boom, not the slump, is the right time for austerity at the Treasury." This is an economic truth that entirely eludes George Osborne. The eurozone crisis has demonstrated precisely why austerity is self-defeating. As Balls argued this morning, there is no reason to believe that the markets would panic if Britain slowed the pace of its deficit reduction programme, not least while the UK can borrow at near historic lows. "The markets know that if economies aren't growing, then you get into a vicious circle and your debt dynamics can actually make a debt unsustainable," he said.

Osborne will reply that Balls's answer to a debt crisis is always more debt. But his own strategy has reduced growth, increased unemployment and, consequently, slowed the pace of deficit reduction (Osborne has already been forced to announce an extra £46bn of borrowing). As the self-defeating nature of Osborne's approach becomes clearer, voters will look for an alternative. Balls is providing it.

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Tags: Party Conferences 2011 Ed Balls Labour

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24 comments

Mon, 2011-09-26 23:30 — p j wall (not verified)

Dear oh dear, you really are a right wing twonk!, compairing Ed balls to paedophiles being on the streets!!!, it shows the right fear Ed balls, because he takes no shit, and he always steamrollers Gideon!, taking insults off Tory loving twonks is a compliment to Balls!, I`d rather have him then your alleged user of illegal drugs, prostitutes, Gideon!!, also, i`ve never heard Ed talking about wanking into magazines!!!, getting called dumb by someone like you shows education didn`t work for you DUDE?.

Mon, 2011-09-26 23:51 — Awake!

hehe u don't need to worry about my education, it allows me to attack Balls without being necessarily tory, left middle etc.
Balls ' s policies have attacked the innocent and the young in this country thru his fiscal profligacy, the disgraceful way he held office (the backstabbibg of your own side, the briefing against those democratically elected members of his own party), the shocking mismanagement of projects, the outright manipulation of figures to suit his ends, the running down of industry, the taking apart of the banking regulator, the introduction of PFI (wait for that puppy tp explode, it's ticking away), the blind eye to the most severe collapse of corporate governance ever (possibly?), the cynical explosion of budget running up to he last election. Future generations have indeed been raped, Sir.

Tue, 2011-09-27 00:36 — Awake!

u think 10% to get a pass in school exams, or 55% to get an A isn't exploitation of our young? I just watched a 16 year old kid at the labour conference saying how terrible his life was, because of the current government?!?!?!?
You could actually see in some of the audiences eyes they disapproved, a muted clap... what an uncomfortable scene- that's exploitation. What does a 16 year old understand of the world- HIS HEART HAS BEEN FILLED WITH HATE- that is exploitation, perpetuating the cycle of nonsense politics and to what end? Power...
Sick, it's sick plain and simple. Were he a muslim kid talking about Jihad and licentiousness, we'd all be shocked- yet there he was, a young mind completely brainwashed, Osborne's fault that he lost his home...
Peddling hate is exploitation, and it gets people nowhere. WAKE UP

Tue, 2011-09-27 08:01 — Luddite (not verified)

"His commitment to long-term fiscal discipline". I'm just about to vomit. This mentally unstable individual is directly responsible for many of our economic woes. The British voters will never take this man seriously, he will always be associated with Gordon Brown and fiscal irresponsibility.

Mon, 2011-09-26 11:30 — Shinsei67

"As Keynes put it: "The boom, not the slump, is the right time for austerity at the Treasury." This is an economic truth that entirely eludes George Osborne."

And it is an economic truth that entirely eluded Brown and Balls when they were at the Treasury.

Is Balls' current scheme any different from Brown's much-vaunted belief in balancing the budget over the economic cycle. And only borrowing for genuine investment.

That was fine in theory until he started cheating.

Mon, 2011-09-26 11:31 — Paul Wooding (not verified)

This blog post outlines perfectly why Labour is floundering with the electorate.

The Keynesian model quoted above is precisely what Labour failed to follow during its time in power. Austerity was a word found wanting at No.11 and we're paying for it now. Ed Balls calling for austerity during the boom times is laughable considering Labour did the exact opposite. His model may well be the correct one for the British economy at the current time, but outside the Labour conference halls and the pages of sympathetic media, Labour sound like hypocrites who have lost the trust of the British public (a fact borne out by the opinion polls)

Mon, 2011-09-26 11:46 — Stu (not verified)

So the road to economic recovery is yet more spending? oh dear when are they going to learn from their mistakes (in the boom years too) that over spending (not even getting our monies worth) is what contributed to this mess. They are working for short term gain and have no clue to long term stability.

He even said that he cannot lay out policies that depend on the current crisis when everything could change in 2015. Yeah except we need to know now what they are in order for them to show to us whether they are credible and electable for the future. Times have changed they can't afford to sit around with a thumb up their arse anymore.

Mon, 2011-09-26 12:03 — mike cobley (not verified)

Quoth Stu - "...oh dear when are they going to learn from their mistakes (in the boom years too) that over spending (not even getting our monies worth) is what contributed to this mess."

Ah, I see a history-rewrite troll is taking part. Sorry, but a look at the actual numbers shows that over half the UK's deficit is due to bank bailouts and the ongoing support for these hopelessly incompetent (yet curiously invulnerable) greedmongers. If the deficit were half the size it is, its unlikely that the low-paid, the disabled, and all the disadvantaged would be facing impossible choices between eating and heating.

Yr welcome.

Mon, 2011-09-26 12:22 — Bob (not verified)

Labour & Balls. Junkies hooked on debt as an easy means to pay for political advantage. Sod the long term impact on the economy, just saddle my kids with more debt - genius.... Oh no its not, just the self interested trying to climb back up the greasy pole. Well I for one have no trust or interest until I hear realism in a strategy which goes beyond a short term political fix.

Mon, 2011-09-26 12:34 — mcquade

"The Keynesian model quoted above is precisely what Labour failed to follow during its time in power."

Is that why Labour paid down the debt inherited from the Tories from 42% of GDP to 36% by 2007?

Mon, 2011-09-26 12:38 — mcquade

"just saddle my kids with more debt - genius..."

Bob, for your entire working life you have been paying off Thatcher's debt which was a far higher percentage of GDP then for all of Labour's years until it had to bail out the banks.

Mon, 2011-09-26 13:43 — Awake!

Mcquade
that is not true. Thather's debt, it being higher, it's not true... And the truth is that gdp % increased when there was the mini recession of 1991-1994, a conservative govt maintained/increased spending whilst receipts dropped, because they could, because of the earlier economic stewardhsip. As i read your lies, all i can think is even if a serious contender makes himself available to lead this party he still has to contend with blinded by hatred people like u. Thatcher's debt? like, what happened before she came into power? 'what about the Falklands' I hear u cry! Is that the same falklands with the oil? effing tories, always thinking ahead... U really think the Argies wanted their 'land' back? or we did? I think it was the OIL. And when Thatcher won the election on the back of that 'excursion', as usual the left was so otterly shite it didn't even think to ask the question, too busy assinating itself...
And i keep hearing that labours debt wasn't that bad till they had to bail out the banks.
1. yes it was. They were right to increase spending on schools and healthcare, shame they wasted so much of it thru their crazy idealogies. Brewery and piss up spring to mind. Think about this, in the UK we have one of the best education systems in the world (private) and rather than simply emulate what is in our own back yard we re-invent education ecery 20 years. woteva...
2. they DID bail out banks, so the money is gone, so u can't say it's almost LIKE it's there were it nor for this or that.... It's like saying i've got a red car save for the fact it's green... it's typical of non-pragmatic types this logic.It's childish in the extreme, really immature.
@ George Eaton
Balls will do this u say:
'Balls will promise to meet the two pledges set out by George Osborne - to eliminate the structural deficit and to ensure a falling debt-to-GDP ratio'
and then he'll pull a rabbit out his hat...

Tue, 2011-09-27 18:19 — AlastairX (not verified)

"Is that why Labour paid down the debt inherited from the Tories from 42% of GDP to 36% by 2007?"

You need to read some Krugman if you are going to use tricks like, playing with dates. When Labour took office, Public Sector Net Debt was 42.5% of GDP. When they left, it was 53.7% of GDP.

More significantly, PSND was falling in 1997, but was rising between 2002 and 2007 - *before* the economy fell off a cliff in 2008.

Mon, 2011-09-26 14:12 — Indu Pendent (not verified)

@mcquade
What you say is misleading to the extent of being deceitful, and whats bad is you know it.

Do you measure your mortgage and the value of your house as percentage of salary -- oh look, I just got a 10% pay rise so my mortgage has fallen from 4 times to 3.9 times my salary therefore I have borrowed less?

Your figures are the typical Labour spin manipulated sexed up version that got the UK in to the mess it is in. Like the sexed up treasure data Ed Balls used to committ the UK to more borrowing before 2008 than we can afford to repay.

Mon, 2011-09-26 14:15 — Indu Pendent (not verified)

Oops!
10% is 4 to 3.6 times!

Mon, 2011-09-26 14:33 — Mr Danger

Right so the new policy is "spending while we're in power, austerity under whoever is unlucky enough to follow us".

Sounds like the old policy to me.

Mon, 2011-09-26 14:35 — C Baker

U turn Balls! All of a sudden, paying off debts is in his vocabulary. It's pretty obvious that when i've paid off my bank loan and credit cards, i'll have more disposable income- just like the government.

The only fiscal stimulus that will be made will be one that bails out the french banks, to stop the greek debt crashing them. Followed by more bank bail outs to prevent total economic melt down. But, rest assured bankers will still get their bonuses, businesses will get no loans and pensions will still be unaffordable. The loss making RBS and Northern rock will lay off low paid workers and still give out bonuses at the top. Also, traders will still bring down european banks, with unregulated trading.

Balls is deluded economically. A real thicko. He couldn't even get an incompetent social worker sacked through correct employment procedure- remember, Baby P? He sacked someone without the correct procedure. His has no idea about economics either.

Mon, 2011-09-26 14:44 — Indu Pendent (not verified)

Just read the speech and feel demoralised.

Not a single mention of UK industry. Its as though UK makers and service doers are invisible and irrelevant. Its just like it was under Labour. All the measures are about treating and manipulating voters to win power.

Same old Labour. Borrow when the sunshines, borrow when it rains, waist waist waist then leave the burden to our kids to carry.

Mon, 2011-09-26 15:30 — Indu Pendent (not verified)

@matt

Foxy, I did look at the Labour leaders speech so why didnt you - rather than blindly accepting what your leader says. All the measures are focussed on making voters feel better. Its synical manipulation of voter preferences without focusing on the national interest.

e.g. VAT cut which makes playstations cheaper and does nothing to help UK exports - it makes the deficit worse and destroys UK jobs but wins votes.

No measures to cut Corporation Tax to encourage the flow of profits into the UK.

Cuts in national insurance for personal service companies and self employed - vote winner but its the medium sized SME which are the UK's engine that Labour ignores.

No mention of Danny's good idea to give cheap loans to businesses which would help.

Foxy, think for yourself and see through the spin.

Mon, 2011-09-26 15:09 — matthew fox (not verified)

Indu Pendent, look within before accusing anyone.

Don't forget, your the genius who has failed to provide evidence of Lagarde or the credit rating agencies attacking public sector pensions.

Words like stones and glass houses spring to mind.

You have been able to demoralise at twenty pace.

Mon, 2011-09-26 16:05 — Mrs,M L Bonwick-Jones (not verified)

Edward the confessor -Just spend spend spend and when there is no more to spend, Just keep on going with that spending!
As Sarah Greening said 'you would never again put Fred Goodwin in charge of banks so you should never put Ed Balls in charge of the economy again'
He said Labours spending record was not
profligate or ineffective, altough he did say the problems that George Osborne and David Cameron have were not their fault, things were always going to be difficault-So Mr Balls if things are not their fault and they were of cause not your fault, then whose thought was it? How can Ed Miliband reform a party that will not take full reponsibility for it's mistakes, and how can this country trust a party with
No Economic credibility !Please Ed Miliband your chancellor needs to go!

Mon, 2011-09-26 16:44 — Mrs,M L Bonwick-Jones (not verified)

Just heard ed Ball's Plan for Growth would Cost the Treasury £20 Billion!

Mon, 2011-09-26 17:13 — Awake!

@ Fox
gosh u keep on at Indu about where did Lagarde attack public sector pensions. I think it was at Chattam house in the last couple of months, she talked about the problems of longterm liabilities.
If u don't know what that is google balence sheet.
Honestly, u insist on making yourself look dumb. U keep asking him for something that is there to see, i mean u have to do SOME work, that's how education works dude