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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Inside a shaken city: "I just want to be anywhere that’s not Manchester”

The morning after the bombing of the Manchester Arena has left the city's residents jumpy.

On Tuesday morning, the streets in Manchester city centre were eerily silent.

The commuter hub of Victoria Station - which backs onto the arena - was closed as police combed the area for clues, and despite Mayor Andy Burnham’s line of "business as usual", it looked like people were staying away.

Manchester Arena is the second largest indoor concert venue in Europe. With a capacity crowd of 18,000, on Monday night the venue was packed with young people from around the country - at least 22 of whom will never come home. At around 10.33pm, a suicide bomber detonated his device near the exit. Among the dead was an eight-year-old girl. Many more victims remain in hospital. 

Those Mancunians who were not alerted by the sirens woke to the news of their city's worst terrorist attack. Still, as the day went on, the city’s hubbub soon returned and, by lunchtime, there were shoppers and workers milling around Exchange Square and the town hall.

Tourists snapped images of the Albert Square building in the sunshine, and some even asked police for photographs like any other day.

But throughout the morning there were rumours and speculation about further incidents - the Arndale Centre was closed for a period after 11.40am while swathes of police descended, shutting off the main city centre thoroughfare of Market Street.

Corporation Street - closed off at Exchange Square - was at the centre of the city’s IRA blast. A postbox which survived the 1996 bombing stood in the foreground while officers stood guard, police tape fluttering around cordoned-off spaces.

It’s true that the streets of Manchester have known horror before, but not like this.

I spoke to students Beth and Melissa who were in the bustling centre when they saw people running from two different directions.

They vanished and ducked into River Island, when an alert came over the tannoy, and a staff member herded them through the back door onto the street.

“There were so many police stood outside the Arndale, it was so frightening,” Melissa told me.

“We thought it will be fine, it’ll be safe after last night. There were police everywhere walking in, and we felt like it would be fine.”

Beth said that they had planned a day of shopping, and weren’t put off by the attack.

“We heard about the arena this morning but we decided to come into the city, we were watching it all these morning, but you can’t let this stop you.”

They remembered the 1996 Arndale bombing, but added: “we were too young to really understand”.

And even now they’re older, they still did not really understand what had happened to the city.

“Theres nowhere to go, where’s safe? I just want to go home,” Melissa said. “I just want to be anywhere that’s not Manchester.”

Manchester has seen this sort of thing before - but so long ago that the stunned city dwellers are at a loss. In a city which feels under siege, no one is quite sure how anyone can keep us safe from an unknown threat

“We saw armed police on the streets - there were loads just then," Melissa said. "I trust them to keep us safe.”

But other observers were less comforted by the sign of firearms.

Ben, who I encountered standing outside an office block on Corporation Street watching the police, was not too forthcoming, except to say “They don’t know what they’re looking for, do they?” as I passed.

The spirit of the city is often invoked, and ahead of a vigil tonight in Albert Square, there will be solidarity and strength from the capital of the North.

But the community values which Mancunians hold dear are shaken to the core by what has happened here.

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