Why the return of growth doesn't prove that Balls was wrong

The shadow chancellor never said that there would be no recovery, only that it would be painfully slow. And he was right.

When the GDP figures are published tomorrow morning at 9:30am, the cry will go up from the Tories and their media allies that Ed Balls's credibility has been destroyed. They might not like Ed Miliband, but they reserve a special animus for the shadow chancellor. For them, the return of growth proves that Balls's critique of George Osborne's austerity programme was fundamentally wrong; Labour will not be taken seriously until he is thrown overboard. 

If Balls is such a liability to his party, one wonders why so many Conservatives exert so much energy calling for his departure (the answer, as some privately acknowledge, is that he is one of Labour's greatest assets). But put this Machiavellian gamesmanship to one side, the claim that it is Osborne, not Balls, who has been vindicated doesn't bear scrutiny. 

Contrary to the right, Balls never said that there would be no recovery, only that it would be painfully slow. On this point he was entirely right. The return of growth after three years of stagnation is nothing to celebrate. As Balls writes today, "we would need 1.4 per cent growth in each and every quarter between now and the election simply to catch up all the ground lost since 2010." Even if we learn tomorrow that the economy grew by 1% in the third quarter, output will still be 2.3% below its pre-recession peak. In the US, by contrast, where the Obama administration maintained fiscal stimulus, the economy is 3.2% larger than in 2007. Growth of 1% in Q3 would mean that the economy has expanded by just 2.8% since autumn 2010, compared to the 7.7% forecast by the OBR. 

Not all of this can be blamed on Osborne. The continued fragility of the banking sector, the rise in global commodity prices and the eurozone crisis have all constrained growth. But it is precisely for these reasons that wise minds counselled the Chancellor against austerity. As Balls warned in his celebrated Bloomberg speech in 2010, Osborne was "ripping out the foundations of the house just as the hurricane is about to hit". Hippocrates’s injunction to "first, do no harm" should have been his watchword. Instead, with the private sector already contracting, he chose to tighten the squeeze. We are still paying the price today. The double-dip may have been revised away (growth was 0% in Q1 2012 rather than -0.1%; only an economic illiterate would celebrate that) but the austerians didn't only  promise that Britain would avoid another recession, they promised, in the words of Osborne's first Budget, "a steady and sustained economic recovery". What we got was the slowest recovery for more than 100 years. 

Then there is the claim that Labour is only now talking about living standards in a desperate attempt to distract attention from the macroeconomy. As Tim Montgomerie writes in today's Times, "The Opposition won’t acknowledge the recovery but it’s interesting to note what Labour politicians have stopped saying. Ed Balls isn’t talking about a double dip any more. Ed Miliband isn’t calling for the abandonment of Plan A. Labour has moved the goalposts and now talking about the cost of living crisis — a genuine challenge but a different one."

Yet it was on the day after his election as Labour leader that Ed Miliband first used the phrase "the squeezed middle" and it was in February 2011, a few weeks after being appointed as shadow chancellor, that Balls first spoke of a "cost of living crisis". Three months later, in a speech at the LSE, he argued: 

[T]he test for the Treasury isn't just whether they can post better growth rates - we all know the economy will return to stronger growth eventually - it's whether they can make up all this lost ground in jobs and living standards

It is precisely because the recovery has been so weak that real wages have fallen for the longest peirod since 1870. As Osborne himself noted in his conference speech, the cost of living cannot be detached from "the performance of the economy". Rising GDP is no longer a guarantee of rising wages (the point Labour is rightly emphasising) but the near-absence of growth for three years explains why British workers have suffered more than most. Since mid-2010, average hourly wages have fallen by 5.5%, a faster rate of decline than every EU country except Portugal, the Netherlands and Greece. For Osborne to now lecture others on the importance of growth to living standards takes chutzpah to a new level. Wages have fallen for 39 of the 40 months that Osborne has sat in the Treasury (the exception being April 2013 when deferred bonuses were paid out following the abolition of the 50p tax rate).

The living standards crisis wasn't an unavoidable coincidence of the lack of growth, but an inevitable consequence. Before the Tory spin machine whirls into action tomorrow, it's worth remembering this. 

Ed Balls and George Osborne attend the State Opening of Parliament, in the House of Lords at the Palace of Westminster in London May 8, 2013. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.