Ed Balls rails against cuts to manufacturing

“Curtailing ambition”.

Ed Balls used his address to yesterday’s EEF Manufacturing Conference, perhaps unsurprisingly, as a platform to rail against spending cuts in advance of the delivery of the budget in two weeks’ time.

Playing straight to his manufacturer audience’s fear of Britain sliding into industrial obscurity, he warned that the government’s obsession with deficit reduction at the expense of long-term investment would “curtail ambition” in business and “militate against” the UK’s ability to compete with Europe (read, Germany).

His appearance at the conference coincided with the publication today of a labour-commissioned report by Sir George Cox, Overcoming short-termism within British business, which argues for executive pay to reflect success over longer cycles, tax changes to favour equity markets, and a mechanism to make infrastructure investment decisions independent of political cycles.

Despite a fantastically awkward bit of audience Q&A, in which Balls avoided verbally signing his party up to Sir George’s proposals even though the report author was sitting just feet away in the front row, the rhetoric seemed to go over well with delegates.

But in terms of a demonstration of long term-thinking, the Sturm & Drang over the budget’s treatment of British business paled in comparison to the day’s opening presentation, delivered by Jim “BRICs” O’Neill, Goldman Sachs’ chairman of asset management.

As one might expect from the man who coined the now ubiquitous acronym for emerging markets, O’Neill had very little to say directly about the state of British industry, and even the UK’s fortunes in the context of the Eurozone crisis.

Instead he spoke frankly, and backed by some very big statistics, about the overwhelming importance of emerging markets, particularly China, to both the UK and world economies over the decades to come.

Professing himself to be an optimist, O’Neill predicted the world economy would grow close to 4 per cent in the current decade, largely thanks to China which, he reminded us in words notoriously borrowed by David Cameron, grows the equivalent of Greek GDP every twelve and a half weeks. To underscore the point, O’Neill mentioned in passing that China had, since the end of 2010, grown by approximately the current size of the Indian economy.

He said that if the US and China could partially reverse their traditional roles with regard to production and consumption, so that China ended up “spending more and producing less” and the US vice versa, “it would be a very good sign – and this appears to be happening.”

In response to audience anxiety over the Eurozone, he acknowledged that while Europe was still the single most important export region for the UK, the percentage of UK exports going to the Eurozone had fallen from 55 per cent to 45 per cent over the last decade, and would likely fall further to 39 per cent by 2020.

By the same point time, he argued, 17 per cent of UK exports will likely be destined for the BRICs, while Germany will probably be exporting twice as much to China as to France. If we had known that in the early 1990s, he posited, there might never have been a Eurozone in the first place.

When drawn by session chair Krishnan Guru-Murthy on what he would do if he were chancellor in two weeks, his answer said more through understatement than Balls did through twenty minutes on the soapbox:

“Those nations with more emphasis on long-term fiscal consolidation rather than a "cut debt now" mentality tend to be recovering better… It’s entirely understandable to want to lower debt and to shrink [the financial services] sector… but trying to do both at once? It could be very difficult, and I think I’ll leave it at that”.

Ed Balls. Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.