The Waugh Room

Monday 14th March 2011 | 12:42

Balls shifts Labour's policy

In a dry-run for the Budget, there's lots of claim and counter-claim about Labour's economic plans today.

But the most fascinating aspect of the the Balls/Miliband presser was a notable shift in the party's policy on spending.

Balls and Miliband both stressed repeatedly that they were going to stick to the Darling plan* to halve the deficit in 4 years.

Yet there was a new caveat: Budgets are of necessity based on year-to-year events and so there is a bit of flexibility about how to achieve that overall deficit target.

The Tories have been pointing out relentlessly that if Darling was Chancellor next week, he would have introduced spending cuts just £2 billion lower than the Coalition's for this year.

Balls was clearly keen to put some clear red water between Labour and the Tories and so dismissed this as "nonsense", pointing out the Tories wanted an "extreme" plan over time to eliminate rather than halve the deficit.

To give himself further room for maneouvre on spending, Balls pointed out that even Darling had not given a specific spending cuts figure for this year. He said that Darling had not "pre-ordained" any cuts for this year and stressed that lower borrowing of £20 billion proved Labour was on the right track.

I asked him about both those points because it sounded awfully like Balls wants to use the £20 billion lower borrowing to actually increase spending to keep the economy afloat. So, how exactly would he use that £20 bn? He replied:

"You make Budgets on a year-to-year basis. You do so on the basis of what's happening to the economy and to tax revenues. Our commitment was to halve the deficit in four years. Because unemployment was falling faster than expected, net borrowing was coming in £20 billion lower than anticipated.

"So of course that means you can take decisions Budget by Budget to keep on track on the deficit and there was no pre-ordained view that spending was on a particular path.

"The question is not would I do now if I was the Chancellor in this Budget when I've not got the information. The question is for George Osborne, who's actually the Chancellor, to get the economy back on track."

Balls made clear during the leadership contest that he disagreed with Darling's deficit reduction plan. He's had to agree to its overall target, but today we've seen that he's asserted himself within weeks of taking up the Shadow Chancellor post. Tweaking the year-on-year figures is his answer.

Earlier, to make his point, Balls used his scripted text to hammer home the need for year-on-year flexibility.

"The whole point about being Chancellor is to anticipate unforeseen events, to err on the side of caution. It won't be good enough if George Osborne stands up next week in the Budget and says the reason he has to downgrade his growth forecast is the cold winter, or the Irish bailout or because of the spike in world oil prices or the aftermath of the Japanese earthquake.

"If he had taken a more cautious approach to reducing the deficit and also acted to sustain growth then our economy would not be so vulnerable now to these unforeseen events."

As I said, this was a scripted section of the press conference, implying that it was a pre-approved attack line.

I'd be surprised if the Tories didn't seize on the suggestion that Osborne would in any way seek to use the Japanese tragedy for his own political advantage.

 

 

FOOTNOTE: Darling said while in office that he envisaged two thirds of his deficit reduction plan to come from spending cuts and a third from tax rises. It's worth remembering that Alan Johnson tweaked that to a 60:40 ratio to give himself more cash raised from taxes and less from spending. So there is already a tradition of the Shad Cllr tweaking the Darling package.

Of course, Darling was careful to avoid saying how he'd achieve his overall cuts figure.

 

UPDATE: Tory MP Matthew Hancock has now hit back hard on the Japan quote. He's just told PoliticsHome:

"It's beneath contempt for Ed Balls to try to politicise the tragedy in Japan whilst the rescue efforts are still ongoing to find survivors. It shows how desperate Labour have become that they don't have anything positive to say."

FURTHER UPDATE: Labour have now hit back in turn. Kerry McCarthy said:

“It’s pretty desperate of the Conservatives to deliberately distort in this way what was a serious point about how Chancellors should act cautiously so they are not knocked off course by events out of their control.

"As Ed pointed out unforeseen events like what’s happening in the Middle East and the Japanese earthquake will have an impact on economies around the world. But by pursuing a reckless economic plan in Britain George Osborne has given our economy no flexibility for when things like this happen.

"The reason George Osborne looks set to downgrade his growth forecast is because his cuts which go too far and too fast are hitting business and consumer confidence and costing thousands of jobs in the public and private sector.”