Balls's IMF response shows Labour's spending priorities

If the party does borrow for investment after 2015, it will be childcare, jobs and housing that benefit.

During the period when the economy was flatlining, Ed Balls used to respond to anaemic growth forecasts by calling on George Osborne to adopt his "five-point plan" to stimulate jobs and growth, including a cut in VAT to 17.5 per cent, a one-year National Insurance tax break for small firms, a repeat of the bank bonus tax to build 25,000 affordable homes and guarantee a job for 100,000 young people, accelerated infrastructure spending on schools, roads and transport, and a one-year cut in VAT on home improvments, repairs and maintenance. Had Osborne taken his advice, the UK would almost certainly be in a better position than it is now (output remains 2 per cent below its pre-recession peak and real wages, contrary to what David Cameron claimed at last week's PMQs, are still falling). 

But with a recovery finally underway (albeit the wrong kind of recovery), Balls's focus his shifted from short-term stimulus to long-term investment. In response to the IMF's upgrading of its growth forecast for the UK in 2014 from 1.9 per cent to 2.4 per cent, he said: 

After three damaging years of flatlining, any growth is both welcome and long overdue. But this is the slowest recovery for 100 years and working people are facing a cost-of-living crisis with real wages now down £1600 a year under David Cameron.

With business investment still weak and the IMF forecasting that UK growth will slow down again next year, it’s clear that this is not yet a recovery that is built to last. Simply to catch up all the lost ground since 2010 we need 1.5 per cent growth each quarter between now and the election.

Instead of more complacency from George Osborne we need Labour’s plan to secure a stronger recovery and earn our way to higher living standards for the many, not just a few at the top. That means reforms to our banks and energy market, expanding free childcare to make work pay, a compulsory jobs guarantee and a plan to build 200,000 new homes a year.

The last paragraph is particularly worth noting. While Balls has pledged that there will be no more borrowing for day-to-day spending in 2015-16, he has left open the option of borrowing for investment (capital spending). Should Labour pursue this course, it is the areas Balls cites - childcare, jobs and housing - that will benefit. Shadow childcare minister Lucy Powell, Ed Miliband's former deputy chief of staff (and an MP to watch), has smartly redefined childcare as an "infrastructure priority" in order to bolster the case for investment. As she wrote on The Staggers last year

While early years education is vital for child development and early intervention, childcare should be seen by government as an issue for business and a key infrastructure priority to promote growth and get people back to work, linking in with BIS responsibilities for flexible working and shared parental leave. That’s why I’m proposing that a future Labour government should have a Childcare and Early Years Minister with cross-departmental responsibilities in the Department for Business, Innovation and Skills and the Department for Education coordinating support for working parents across government including working with Ministers in the Treasury and Department for Work and Pensions. Support for families should be shaped by what parents need rather than falling between the silos of government. Ensuring good quality early years education and child development goes hand in hand with getting the quality parents want to have so they feel happy leaving their children to return to work.

When I asked Balls during my recent interview with him whether Labour would borrow for investment, he told me: "In the speech I gave at Reuters in the summer, I said, and Ed and I both said, that’s a decision we should make much closer to the election when we’ve got more information about what the state of the economy is going to be. So we’ve been very clear, no more borrowing for day-to-day spending, but on the capital side that’s something that we’re going to continue to look at. I’m not going to rule it out, but I’m also not going to say now that it’s definitely the right thing to do."

While Balls is likely to come under greater pressure to confirm Labour's intentions as the year goes on, it's worth remembering that Gordon Brown waited until the start of 1997 before announcing his fiscal rules. In less benign economic circumstances, Balls and Miliband may not show their hand until 2015. 

Ed Balls speaks at the CBI conference in London last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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By refusing to stand down, Jeremy Corbyn has betrayed the British working classes

The most successful Labour politicians of the last decades brought to politics not only a burning desire to improve the lot of the working classes but also an understanding of how free market economies work.

Jeremy Corbyn has defended his refusal to resign the leadership of the Labour Party on the grounds that to do so would be betraying all his supporters in the country at large. But by staying on as leader of the party and hence dooming it to heavy defeat in the next general election he would be betraying the interests of the working classes this country. More years of Tory rule means more years of austerity, further cuts in public services, and perpetuation of the gross inequality of incomes. The former Chief Secretary to the Treasury, Seema Malhotra, made the same point when she told Newsnight that “We have an unelectable leader, and if we lose elections then the price of our failure is paid by the working people of this country and their families who do not have a government to stand up for them.”

Of course, in different ways, many leading figures in the Labour movement, particularly in the trade unions, have betrayed the interests of the working classes for several decades. For example, in contrast with their union counterparts in the Scandinavian countries who pressurised governments to help move workers out of declining industries into expanding sectors of the economy, many British trade union leaders adopted the opposite policy. More generally, the trade unions have played a big part in the election of Labour party leaders, like Corbyn, who were unlikely to win a parliamentary election, thereby perpetuating the rule of Tory governments dedicated to promoting the interests of the richer sections of society.

And worse still, even in opposition Corbyn failed to protect the interests of the working classes. He did this by his abysmal failure to understand the significance of Tory economic policies. For example, when the Chancellor of the Exchequer had finished presenting the last budget, in which taxes were reduced for the rich at the expense of public services that benefit everybody, especially the poor, the best John McConnell could do – presumably in agreement with Corbyn – was to stand up and mock the Chancellor for having failed to fulfill his party’s old promise to balance the budget by this year! Obviously neither he nor Corbyn understood that had the government done so the effects on working class standards of living would have been even worse. Neither of them seems to have learnt that the object of fiscal policy is to balance the economy, not the budget.

Instead, they have gone along with Tory myth about the importance of not leaving future generations with the burden of debt. They have never asked “To whom would future generations owe this debt?” To their dead ancestors? To Martians? When Cameron and his accomplices banged on about how important it was to cut public expenditures because the average household in Britain owed about £3,000, they never pointed out that this meant that the average household in Britain was a creditor to the tune of about the same amount (after allowing for net overseas lending). Instead they went along with all this balanced budget nonsense. They did not understand that balancing the budget was just the excuse needed to justify the prime objective of the Tory Party, namely to reduce public expenditures in order to be able to reduce taxes on the rich. For Corbyn and his allies to go along with an overriding objective of balancing the budget is breathtaking economic illiteracy. And the working classes have paid the price.

One left-wing member of the panel on Question Time last week complained that the interests of the working classes were ignored by “the elite”. But it is members of the elite who have been most successful in promoting the interests of the working classes. The most successful pro-working class governments since the war have all been led mainly by politicians who would be castigated for being part of the elite, such as Clement Atlee, Harold Wilson, Tony Crosland, Barbara Castle, Richard Crossman, Roy Jenkins, Denis Healey, Tony Blair, and many others too numerous to list. They brought to politics not only a burning desire to improve the lot of the working classes (from which some of them, like me, had emerged) and reduce inequality in society but also an understanding of how free market economies work and how to deal with its deficiencies. This happens to be more effective than ignorant rhetoric that can only stroke the egos and satisfy the vanity of demagogues

People of stature like those I have singled out above seem to be much more rare in politics these days. But there is surely no need to go to other extreme and persist with leaders like Jeremy Corbyn, a certain election loser, however pure his motives and principled his ambitions.

Wilfred Beckerman is an Emeritus Fellow of Balliol College, Oxford, and was, for several years in the 1970s, the economics correspondent for the New Statesman