The shadow chancellor's pledge to match coalition cuts smacks of a failure of nerve. Perhaps Ed Balls should re-read his celebrated Bloomberg speech of 2010
Has the Labour party thrown in the towel? Are rightwing commentators correct in claiming that recent speeches by Ed Miliband and Ed Balls amount to surrender? Given the strength of Balls's compelling case against the coalition's austerity programme – from that prescient Bloomberg lecture in August 2010 onwards – the news that Labour intends to stick to the coalition's spending plans for 2015-16, essentially acquiescing in a policy it had successfully ridiculed, is disturbing, to put it mildly.
That celebrated Bloomberg lecture drew reluctant admiration from no less a Conservative figure than Alexander "Boris" Johnson, who noted that George Osborne's warnings of a Greek-style sovereign debt crisis and cripplingly high interest rates proved wide of the mark. At the time Johnson, taking Balls seriously, expressed fears of a double-dip recession and called for the government to go easy on its austerity programme.
We now seem to be witnessing a collective failure of nerve. At just the moment when even the International Monetary Fund is owning up to having got it wrong, Labour, fearful of entering the next election campaign being pilloried as the spending party, gives the impression of being trapped in the headlights. And just for good measure, those highly respected independent thinktanks, the Institute for Fiscal Studies and the Institute for Government, have lamely accepted that it is going to be a case of "austerity, austerity, austerity" for the remainder of the decade.
One commentator has compared the situation to 1976, when the chancellor, Denis Healey, turned back at Heathrow rather than fly to an IMF meeting in Manila. The IMF people who mattered were closer to home, and there was an almighty crisis. Conservative commentators never tire of quoting the speech by prime minister Jim Callaghan to the Labour conference in the midst of that crisis, when he said that the days of spending one's way out of recession were gone. But, as Callaghan made clear in his memoirs, that speech was entirely tactical.
The fact of the matter is that the only way an economy can emerge from depression is by spending its way out. And if the banking system has, to all intents and purposes, gone absent without leave, and the private sector is in the doldrums, then the public sector has to step in. Month by month, analysts grasp at straws whenever there is an economic indicator suggesting that there could possibly be the beginnings of an upturn. But in the early stages of a traditional economic recovery one should be looking for a sustained growth rate of two, three or four percent, until the huge amount of slack in the economy – idle plant, unused machinery, unemployed people desperate for work – is absorbed.
Yet that most reputable of think-tanks, the National Institute of Economic and Social Research, which recently celebrated its 75th birthday, observes in its May review: "The absence of a sustained period of robust growth has plagued the UK economy since the end of the 'Great Recession' in the second quarter of 2009."
That was the time when, with world trade collapsing at a rate of 20% per annum, G20 policymakers, with Gordon Brown at the helm, steered the world economy back on course, with the aid of a $1 trillion collective stimulus. Brown wanted to maintain the stimulus: the US government did, but the 2010 coalition did not, in the name of budgetary consolidation. The US budget position improved dramatically with economic growth while the British deficit, in the absence of decent growth, continues to be an embarrassment. As Niesr notes about this country: "Economic performance is perhaps better described as 'stagnant'." The coalition is presiding over the worst recovery ever.
In his 2010 speech, Balls rightly said the deficit and level of national debt must be tackled eventually, "but only once growth is fully secured and over a markedly longer period than George Osborne is currently planning".
Growth at this stage is manifestly not fully secured. The coalition is planning drastic cuts for 2015-16 without having the faintest idea whether the economy will have emerged from depression. For Labour to commit itself to acceptance of those cuts at this stage is economically unwise. Some political correspondents may salute the Opposition for heading off Conservative criticism, and listening to ill-informed focus groups, but this is all spin.
As Balls said himself in 2010 of the banking crisis, the country "has been through a once-in-a-generation event like the second world war … it was possible for our postwar government to have the wisdom and foresight to recognise the benefits of a slower, steadier approach to reducing an even bigger debt."
The temptation for an electorate that has heard Labour attack austerity for three years, and now learns about what appears to be a major U-turn, is to ask: so what is the difference between the parties?
Well, there is a difference. It was reported a few weeks ago that Labour had abandoned its plan to cut VAT. What Ed Balls actually said in his speech on 3 June was: "Today, with growth prospects still very uncertain … a temporary VAT cut now is still the right prescription … "
Unfortunately, Labour is not in a position to make a temporary VAT cut. Without a major boost to demand, the situation in 2015-16 could still be one of a barely perceptible recovery from depression – which makes the adoption of plans for further spending cuts look all the more eccentric.
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