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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Tory backbench leader Graham Brady: “When we vote to leave the EU, the PM should stay”

As chair of the 1922 Committee, Graham Brady is a king among Tory backbenchers. So what does the ardent Eurosceptic make of David Cameron’s prospects in the EU referendum – and afterwards?

Enter Graham Brady’s office and you are treated to a magnificent panoramic view of the Palace of Westminster and Parliament Square. It is an appropriately grand vantage point for one of the most influential MPs. As the chairman of the Conservative backbench 1922 Committee, Brady is an essential barometer of Tory opinion. In recognition of this, he was one of the first guests to No 10 Downing Street in the hours following David Cameron’s general election victory. A prime minister with a majority of 12 – the smallest of any single-party government since October 1974 – must take permanent heed of his backbenchers.

I met Brady, 48, shortly before the start of Prime Minister’s Questions on 10 February. Among Conservative MPs below us in Portcullis House, there remained only one topic of discussion: Europe. Cameron’s draft agreement with the EU has failed to persuade many Eurosceptics that they should vote in favour of membership of the Union when the referendum is likely held on 23 June. Brady, who entered parliament in 1997 as the MP for Altrincham and Sale West, is one of those who intends to campaign for withdrawal.

“There is a very long-term problem that there is a massive difference between what Britain thought it was joining – the European Economic Community – and what it actually was joining,” he said. “There was no appetite or decision to join a political Europe . . . That is something that has always needed to be resolved in some way and I think the more the eurozone, in particular, integrates with the continuing crisis, the more we will have to see massive political and fiscal integration and probably, still, the departure of some of the weaker eurozone countries. As that process goes on, the United Kingdom has got to redefine its relationship in a meaningful way.”

In advance of the European Council summit in Brussels on 18-19 February, he warned that Cameron’s renegotiations had fallen far short. “The reforms that are being sought by the Prime Minister, while all welcome changes, don’t come anywhere near to that fundamental reform of the nature of our relationship with the EU.”

I asked Brady, who was elected to lead the 1922 Committee in 2010, how many of his Conservative colleagues he expected to join him. “It’s very hard to say. I’ve always thought that a clear majority of Conservative members of parliament are deeply unhappy about the shape of the current European Union. And probably a clear majority would have a preference of leaving the EU as it is today. I suspect that roughly 100 will declare that they’re campaigning for Britain to leave. But many more will be very sympathetic to that objective.”

His estimate of 100 is notably higher than the 50 to 70 predicted by Steve Baker, the co-chairman of Conservatives for Britain.

In recent weeks, Eurosceptics have complained as pro-EU cabinet ministers have campaigned for membership while front-bench opponents have remained “gagged”. Brady told me it was “not unreasonable” for Cameron to force them to abide by collective responsibility until the renegotiation had concluded. But, he added: “What is important is that once the deal is done things should be brought to a conclusion as rapidly as possible. I hope there will be a cabinet meeting, if not on the Friday after the Prime Minister returns, then on the Saturday morning, [so] that the cabinet can agree its collective position and also agree that those who don’t share that view are free to say so and free to campaign.”

Some MPs expect as few as five cabinet members to support EU withdrawal (Iain Duncan Smith, Chris Grayling, Priti Patel, Theresa Villiers and John Whittingdale) although others remain hopeful of persuading Boris Johnson and Michael Gove to join them. “I hope that everybody who is really committed to Britain’s future as a free, independent democracy will realise this is a key decision point,” Brady said.

“There’s no doubt that if Boris Johnson were to campaign for Britain to leave it would bring an energy and buzz to the campaign. Of course that would be welcome, and I hope that Michael Gove will resolve his dilemma in the same direction.”

I asked Brady if he was worried by what some Eurosceptics call “the Farage problem”: that the most prominent opponent of EU membership is also the most polarising. “Nigel Farage is very good at what he does,” he said of the Ukip leader. “He’s a very effective communicator with some audiences, so clearly he has a role in the campaign. Given the salience of the issue for him and his party, it would be unreasonable to expect him not to be prominent in the campaign. But he is a Marmite character and I think this is why it’s so important that there should be a wide range of different voices.”

Brady, who had just returned from a breakfast meeting in the City of London, told me that a number of business people have revealed to him that although their “institutional position is firmly that we should remain in the EU . . . privately their view is completely the opposite”.

Two days before we met, Cameron had been accused of “scaremongering” for warning that “the Jungle”, the refugee camp in Calais, could move to Dover in the event of EU withdrawal. Brady told me that the Prime Minister’s remarks were indeed “inaccurate” and that it was “enormously helpful of the French government to point out that it wasn’t going to happen”.

Were Britain to vote to leave the EU, as polls suggest is possible, many Tory MPs on both sides believe that Cameron would have to resign as Prime Minister. But Brady rejected this suggestion. “No. When we vote to leave the European Union I think it is very important that we have a period of stability. I think it would be hugely valuable to have an experienced team in place to deal with the renegotiation, I think it’s actually very important that the Prime Minister should stay.”

I noted that he referred to “when” Britain leaves the EU, suggesting he was confident of victory. “I’m always confident of victory,” he replied with a smile.

Given Cameron’s decision to pre-resign before the election by vowing to serve only two terms, there will be a Conservative leadership contest before 2020. I asked Brady whether, as some have suggested, the members’ ballot should be widened to include more than two candidates.

“The rules are constructed for each contest by the 1922 executive and agreed with the party board. The only stipulation in the constitution of the party is that we should provide ‘a choice’ to the party members. That has always been construed as a choice of two. I can’t see any reason why parliamentary colleagues would wish to reduce their own influence in the process by putting forward a larger field.”

The Education Secretary, Nicky Morgan, has argued that it is essential there be a female candidate (ideally herself). Brady offered her some advice: “I have very fond recollections of a woman leading the Conservative Party. I hope that if Nicky wants to launch her campaign seriously, she’ll talk to me about how we might promote more grammar schools and selective education as one of the ways that we can stimulate real social mobility in the country again – and she’ll have my support.” It was after the then shadow education secretary, David Willetts, argued in 2007 that grammar schools inhibited social mobility that Brady resigned as shadow minister for Europe.

If there is one stipulation that most Conservative members and MPs will make, it is that there be an anti-EU candidate in the field. I asked Brady whether he would consider standing himself.

“I say to people that I’m very happy with being the returning officer for any leadership contest,” he replied. But the man with a better feel for Conservative backbench opinion than any other ended our conversation with this prediction. “I do think it’s very likely that if we put two candidates forward to the party in the country, at least one of them will have been someone who campaigned for Britain to leave the EU.” 

George Eaton is political editor of the New Statesman.

This article first appeared in the 11 January 2016 issue of the New Statesman, The legacy of Europe's worst battle