Miliband admits Labour would borrow more - now he needs to make the argument

The Labour leader should explain why borrowing for growth is the economically responsible course.

After his disastrous appearance on The World At One yesterday, it was a more relaxed Ed Miliband who took to the Daybreak sofa this morning. Asked about the ill-fated interview by presenter Lorraine Kelly and his refusal to say whether Labour would borrow more in the short term, he replied: 

Look, that happens. You do interviews; some interviews well, some interviews not so well. Look, I was asked a question about VAT and Labour's plans to cut VAT. I am clear about this, a temporary cut in VAT, as we are proposing, would lead to a temporary rise in borrowing. The point I was making yesterday was that if you can get growth going by cutting VAT, then over time you will see actually borrowing fall - that was the point I was making yesterday and it's good to be able to make it today. 

Although Miliband made it sound otherwise, the admission was a significant one. Labour's "five point-plan for jobs and growth" has always rested on the assumption that the party would borrow more in the short-term. Were it do otherwise, and fund measures such as a VAT cut through spending cuts or tax rises elsewhere, the effectiveness of any stimulus would be dramatically reduced. Yet until now, Miliband has refused to concede as much. 

Now he has finally done so, the task for Labour is to persuade the public that borrowing for growth, at a time of stagnation and rising unemployment, is the right (and responsible) thing to do. Today's ComRes poll for the Independent, showing that 58 per cent of the public believe that the government's economic plan has failed and that it will be "time for a change" in 2015 is a reminder of the appetite for an alternative. 

The difficulty for Labour is that the Tories' argument that "you can't borrow more to borrow less" has a seductive appeal. But as anyone who has ever taken out a mortgage or founded a company knows, it's not true. As families struggle to find affordable housing and adequate employment, Labour should make the argument that now is precisely the time for the government to take advantage of record low interest rates and borrow to invest. To the charge that it is burdening future generations with debt, the party should reply: what kind of country will our children inherit if we don't build more homes, create more jobs and protect the services we rely on? When the private sector is unwilling or unable to fulfil these duties, it falls to the state to intervene and act as a spender of last resort. As Nye Bevan once declared, government must never become a mere "public mourner for private economic crimes". 

The failure of Labour to make these arguments since 2010 means it has a significant political deficit to overcome. But if Miliband is to offer a genuine alternative to austerity, he must now resolve to do so. 

Ed Miliband delivers a speech on the high street in the town centre on April 25, 2013 in Worcester. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.