Balls's surplus pledge leaves Labour with room to borrow to invest

Unlike Osborne's budget surplus pledge, Balls's only applies to current spending, leaving open the option of borrowing to fund infrastructure.

In his speech tomorrow at the Fabian Society conference, Ed Balls will commit Labour to achieving a current budget surplus in the next parliament. He will say:

I am today announcing a binding fiscal commitment. The next Labour government will balance the books and deliver a surplus on the current budget and falling national debt in the next Parliament. So my message to my party and the country is this: where this government has failed, we will finish the job.

We will abolish the discredited idea of rolling five year targets and legislate for our tough fiscal rules within 12 months of the general election. Tough fiscal rules which will be independently audited by the Office for Budget Responsibility.

We will get the current budget into surplus as soon as possible in the next Parliament. How fast we can go will depend on the state of the economy and public finances we inherit.

At first sight, this might appear identical to the recent pledge by George Osborne to run a surplus by the end of the next parliament (in 2018-19 at present). But there is one crucial difference. While Osborne's promise applies to total government spending, Balls's only applies to current spending (day-to-day spending on public services, for instance teachers' salaries and hospital drugs). This leaves open the option of Labour borrowing to fund additional capital spending (investment in assets such as housing and roads). A Balls source told me tonight that the party would wait until closer to the election, when economic circumstances are clearer, before deciding whether to do so.

As Balls said in my recent interview with him, "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."

In adopting this stance, Balls has revived the "golden rule" favoured by his mentor Gordon Brown, which stated that "over the economic cycle the government will borrow only to invest and that current spending will be met from taxation" (or, in these austere times, from cuts elsewhere. The big question for Labour is what balance the party will adopt betwen tax rises and cuts).

This is undoubtedly the right policy decision but expect the Tories to respond by declaring that it destroys Labour's ostensible commitment to fiscal responsibility by creating the possibility of "more borrowing". Labour sources are keen to point out that the accompanying pledge to reduce the national debt as a share of GDP means that the party won't be able to ramp up capital spending to unsustainable levels but the onus will be on it to make the case for investment if it chooses to borrow. Polls show that a majority of voters are in favour of borrowing more to fund spending in areas such as housing but, for fear of being portrayed as profligate, Labour has yet to win this argument with the Tories.

While it's Balls's surplus pledge that will dominate discussion tonight, I'm told that the speech will not be solely focused on the deficit and will include more on the reshaped economy promised by Ed Miliband in his speech last week; there will be one new unbriefed announcement.

P.S. If you're going along to the Fabian conference, I'll be speaking at 1:45pm on "who will win in 2015?"

Ed Balls speaks at the Labour conference in Brighton last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.