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.

Getty Images.
Show Hide image

Article 50: Theresa May tries to charm the EU but danger lies ahead

As the Prime Minister adopts a more conciliatory stance, she risks becoming caught between party and country. 

She may have been a "reluctant" one but a Remainer Theresa May was. The Prime Minister's first mission was to reassure her viscerally anti-EU party that Brexit meant Brexit. Today, by invoking Article 50, she has proved true to her word.

In this new arena, it is not Britain that has "taken back control" but the EU. When Brussels drew up the divorce proceedings it did so with the intention of maximising its influence. The withdrawal deal that Britain reaches must be approved by at least 72 per cent of member states, representing 65 per cent of the EU’s population. The two-year deadline for leaving can only be extended by unanimous agreement. Even the much-maligned European Parliament has a vote.

While keeping her famously regicidal party on side, May must also charm her 27 EU counterparts. In her Commons statement on Article 50, she unmistakably sought to do so. The PM spoke repeatedly of a new "deep and special partnership" between Britain and the EU, consciously eschewing the language of divorce. In contrast to Donald Trump, who pines for the EU's collapse, May declared that "perhaps now more than ever, the world needs the liberal, democratic values of Europe" (prompting guffaws and jeers from Tim Farron's party and the opposition benches). Indeed, at times, her statement echoed her pro-Remain campaign speech. 

Having previously argued that "no deal is better than a bad deal", the Prime Minister entirely ignored the possibility of failure (though in her letter to the EU she warned that security cooperation "would be weakened" without an agreement). And, as she has done too rarely, May acknowledged "the 48 per cent" who voted Remain. "I know that this is a day of celebration for some and disappointment for others," she said. "The referendum last June was divisive at times. Not everyone shared the same point of view, or voted in the same way. The arguments on both side were passionate." 

Having repeatedly intoned that "we're going to make a success" of Brexit, May showed flashes of scepticism about the path ahead. She warned of negative "consequences" for the UK: "We know that we will lose influence over the rules that affect the European economy. We know that UK companies that trade with the EU will have to align with rules agreed by institutions of which we are no longer a part, just as we do in other overseas markets. We accept that." May also acknowledged that any deal would have to be followed by a "phased process of implementation" (otherwise known as transitional agreement) to prevent the UK falling over what the PM once called the "cliff-edge". 

In Brussels, such realism will be welcomed. Many diplomats have been stunned by the Brexiteers' Panglossian pronouncements, by their casual insults (think Boris Johnson's reckless war references). As the UK seeks to limit the negative "consequences" of a hard Brexit, it will need to foster far greater goodwill. Today, May embarked on that mission. But as the negotiations unfold, with the EU determined for the UK to settle a hefty divorce bill (circa £50bn) at the outset, the Prime Minister will find herself torn between party and country. Having delighted the Brexit-ultras to date, will she now risk alienating the Mail et al? The National Insurance debacle, which saw the government blink in the face of a small rebellion, was regarded by Remainers as an ominous precedent. May turned on the charm today but it will take far longer to erase the animosity and suspicion of the last nine months. 

George Eaton is political editor of the New Statesman.