“George Osborne was fond of saying – wrongly – that the Labour government had failed to fix the roof while the sun was shining. What he is now doing is the equivalent of ripping out the foundations of the house just as the hurricane is about to hit,”
Speaking on Friday morning at Bloomberg, where Chancellor Osborne attacked Labour as "deficit deniers", Balls argues that the Coalition has ignored the impact of its accelerated deficit reduction plan on growth:
“We have a Chancellor who believes that he can slash public spending, raise VAT and cut benefits – he can take billions out of the economy and billions more out of people’s pockets, he can directly cut thousands of public sector jobs and private sector contracts, and none of this will have any impact on unemployment or growth.
“Why? Because against all the evidence, both contemporary and historical, he argues the private sector will somehow rush to fill the void left by government and consumer spending, and become the driver of jobs and growth. This is ‘growth-denial’ on a grand scale.”
The speech - which will be available at Balls' campaign website - is Balls' response to George Osborne, and also to the debate inside the Labour party about how the next leader should set out Labour's approach
A significant party debate was sparked by Pat McFadden's speech to the Fabian Society last month. There are several points of agreement between McFadden and Balls - the need to challenge the Coalition's claim that 'there is no alternative' and set out a pro-growth political economy - but the important difference is between McFadden's concern of Labour being "tuned out" by the electorate if it focuses only on fighting the cuts and does not stick to its previous strategy to halve the deficit in four years. Balls' argument that this debate should not be closed down.
This is how Balls argues for an alternative Labour strategy.
it is Labour’s responsibility to set out a clear plan for growth, a more sensible timetable for deficit reduction, and a robust explanation of why that will better support our economy and public finances.
“Even halving the deficit over four years represents comfortably the biggest and fastest cut in the deficit since the period after the Second World War, but without the peace dividend to fund it.
“In a recent article in the Financial Times, the historian Niall Ferguson writes: ‘People are nervous of world war-sized deficits when there isn’t a war to justify them.’ But this is precisely the case I made to Gordon Brown and Alistair Darling last year - we have just experienced the biggest global financial crisis in a century, an event as momentous in historical and financial terms as war, famine or plague.
“Our economies were saved from catastrophe only by government intervention to nationalise banks and to absorb huge financial liabilities from the private financial sector. To attempt to repair the damage of such an event and return the national debt to its previous level in juts a few years is not only dangerously incredible in the eyes of financial markets but places an intolerable burdens on current users of public services.
“Just think if Clement Attlee’s government at the end of the second world war had decided that the first priority was to reduce the debts built up during the second world war - there would have been no money to fund the creation of the NHS, no money to rebuild the railways and housing destroyed in the Blitz, no money to fund the expansion of the welfare state.
“All the things the Labour movement is proudest of about that post-war government would have been jettisoned.
“And why weren’t they? Because they recognised that when a country has been through an once-in-a-generation event like the Second World War – where the costs involved are a second thought next to equipping the armed forces and saving people’s lives, homes and freedom – then the government needs a once-in-a-generation approach to the resulting deficit: a slower, steadier pace of reduction which meant they could also fund the improvements in health, education and welfare that the post-war generation demanded and deserved.
“Instead, George Osborne not only wants to go further and faster than the post-war government in reducing the deficit, he is planning to go £40 billion further and faster this year than even Alistair Darling’s plans.
“So when George Osborne – and some in my own party – say that there is no alternative to their timetable and that anyone who disagrees is a deficit-denier, I say this: If it was possible for our post-war government to have the wisdom and foresight to recognise the benefits of a slower, steadier approach to reducing an even bigger deficit, then it does not behove you to close off all debate.
“That is why - on grounds of prosperity and fairness - I believe Labour does need a credible and medium-term plan to reduce the deficit and to reduce our level of national debt, but only once growth is fully secured and over a markedly longer period than George Osborne is currently planning.”
Balls' argument about the level of debt inherited by the Attlee government echoes an argument made by Tim Horton and James Gregory in the Fabian book 'The Solidarity Society', where they wrote:
compare Britain of 1945 to that of 2009. There can be little doubt which was the age of austerity and which of affluence. One was the era of the ration book; the other of the iPod. After the war, Britain had national debt of over 200 per cent of GDP, compared to 60 per cent today. But that country voted for the vision set out in the Beveridge Report of 1942, created a National Health Service free at the point of need, and pledged ’never again’ to the mass unemployment of the 1930s.
Today, even after inflation, our national output is four and a half times greater than it was then.
So the real difference between 1945 and 2009 is not a crisis of affordability. It is a crisis of ambition.
It will be necessary to rebalance the public finances, and debate the different priorities about how to do so. But we should remember too that our societies today, overall, remain the richest the world has ever seen.
The Solidarity Society - Tim Horton and James Gregory, Fabian Society and Webb Memorial Trust (2009)