Making a Balls-up of economic recovery
Ed Balls’ speech confirmed that Labour hasn’t got the first clue about how to pursue the economic growth we need.
‘Unless you grow your economy, you can’t cut the deficit… There are three ways that you meet a plan on the deficit: tax rises, which have already been done by the government, spending cuts… but growth is the absolute missing ingredient we have.’
Ed Miliband’s comments on the BBC’s Andrew Marr Show on Sunday made it seem as if politicians are finally getting it. It we want to avoid really painful austerity measures in an environment where there is little room for tax rises, we need economic growth. A rise in economic activity would increase tax revenues and reduce much of the burden of welfare payments to the unemployed and underemployed.
After years of economic growth receiving at best half-hearted support from the political classes, with former prime minister Gordon Brown trying to trumpet years of anaemic growth as ‘the end of boom and bust’, Miliband’s declaration that ‘you’ve got to grow the economy’ sounded like a step in the right direction.
So what does Labour’s proposed economic defibrillator consist of? A dramatic rise in much-needed infrastructure spending? A huge boost to investment in research and development to turn Britain into a powerhouse innovative economy for the twenty-first century, combined with a programme to produce a burst of engineering and science graduates? Rolling back some of the enormous additional costs foisted on to businesses in recent years, from climate change-inspired energy price-hikes to endless ‘red tape’?
Er, no. All was revealed yesterday when shadow chancellor Ed Balls gave his speech to the Labour Party Conference. Step one – ‘repeat the bank bonus tax again this year, and use the money to build 25,000 affordable homes and guarantee a job for 100,000 young people’. Step two – ‘bring forward long-term investment projects’. Step three – ‘reverse January’s damaging VAT rise now for a temporary period’. Step four – ‘announce an immediate one-year cut in VAT to five per cent on home improvements, repairs and maintenance’. Step five – ‘a one-year national-insurance tax break for every small firm which takes on extra workers’.
That’s it. After a lot of bluster, what Balls is proposing is (a) small-scale and temporary, and/or (b) not very much different to what the Lib-Con coalition government is already doing or thinking about doing. So, for example, there have already been pretty heavy hints from Lib-Con ministers that infrastructure spending will be moved forward. The national-insurance holiday has already been hinted at, too. By announcing such things now, the best that Balls can hope for is to steal the thunder of Tory ministers at their forthcoming conference.
Meanwhile, the effect of cutting VAT is small and controversial. The Balls proposal would only leave the VAT rate back at 17.5 per cent – in other words, the rate it was at when the crisis first hit. After a cut in the dying days of the Labour government, and a sharp rise under the Lib Cons, the implementation of another cut would leave the VAT rate, to quote an old Rowan Atkinson sketch, going ‘up and down like a whore’s drawers’.
And while any new homes would be welcome, Balls proposals on this front are small fry. It would still leave the UK desperately short of new housing. Also, yet another make-work scheme won’t exactly solve many problems.
In his speech, Balls declared: ‘Call it Plan A plus. Call it Plan B. Call it Plan C. I don’t care what they call it. Britain just needs a plan that works.’ But what he announced is not, by any means, a plan. It is a bunch of soundbites intended to score some short-term political points. It is a cheap facsimile of action, an affectation. Balls has no apparent vision for the kind of economy that Britain should have in, say, 10 years time. Dr Balls has no more ambition than to keep the patient alive and to continue to make the payments on the hospital bills.
To be fair, Balls is not alone. The Lib-Con government is every bit as trapped in a short-term, tunnel-vision desire simply to bring down the deficit. The only difference between the governing parties and Labour is that Balls and friends think that the economy is in such a parlous state that paying off the debt needs to be slowed down, a bit.
Now, it would be foolish to believe that there are any magic wands to be waved to solve Britain’s economic crisis. From Germany and France to America and Japan, Western nations have in recent years endeavoured to stave off the return of recession by promoting cheap credit and by increasing government borrowing. In effect, we spent the decade running up the financial crisis in 2008 by spending future income. Unfortunately, that future income has turned out to be considerably lower than expected. A painful adjustment over the next few years is pretty much unavoidable.
But there are two kinds of things Britain could do right now. First, it could start to have an honest discussion about the fact that we cannot consume wealth that we do not produce. I am not enthusiastic about cutting healthcare, education or safety-net welfare benefits, but they are only affordable in the long term if the UK economy actually generates the necessary wealth. Government spending must therefore shift away from consumption towards things that will actually enhance wealth production. By avoiding that harsh reality and borrowing more and more, past UK governments have effectively plonked the country’s economic short-and-curlies in the invisible hand of the market – which is now rather agonisingly taking on the shape of a fist.
Secondly, we also need to debate more openly what we are spending money on. For example, does it really make sense to spend billions of pounds on rolling out windfarms that offer nothing, in economic terms, to wealth production but simply provide unreliable, low-carbon electricity? Fast trains sound cool, but blowing billions on a high-speed link from London to Birmingham will bring few economic benefits. (A new international airport in the Thames Estuary, on the other hand, sounds much more compelling.) If we really want to cut business costs, could we have a serious, not-just-for-show bonfire of Britain’s byzantine business regulations and tax systems?
Above all, we must rid ourselves of the shackles of ‘sustainable development’ and the self-imposed barrier that we should reject economic growth because we already have more than enough. At a time when people are losing jobs, facing serious cuts in living standards and the loss of important public services, the notion that we have ‘too much’ is clearly farcical. Also, putting some potential threat to Mother Earth ahead of immediate human need is just perverse. Yet both these ideas appear to have a powerful grip in the corridors of power.
An idea that has come up frequently in recent months is the possibility that Britain may suffer a Japanese-style ‘lost decade’. The reality is that we have already suffered a lost decade (and more) because the basis for new wealth production has not been put in place. While the bust we now face is, in many ways, part-and-parcel of every capitalist boom, things have undoubtedly been made worse by the unwillingness of political leaders to promote economic growth. We have no more time to waste if we want to enjoy a prosperous future.
Rob Lyons is deputy editor of spiked.