Far from being over, I fear the eurozone crisis is this year entering a more chronic, drawn out but equally dangerous phase.

While the bouts of market turmoil which characterised the crisis of last year may have receded – at least for a time – don’t be fooled. The underlying pressures have not gone away. There is still no plan for Greece. And endless summits have still not got to grips with what needs to be done to properly restore market confidence, stop contagion spreading and promote growth.

I believe it’s essential that the European Central Bank is given political backing to act as lender of last resort. It is the logic of the monetary union these 17 countries have signed up to. Investors need to know that eurozone countries will do whatever it takes to stand together. As long as that doubt remains the current crisis and risk of contagion will continue.

And look at what is happening to growth, unemployment and debts. The credit rating agency Standard and Poor’s got it right when, in downgrading France and others last month, they said ‘austerity alone risks becoming self-defeating’.

Yes, all countries need to make tough decisions on tax and spending. But to successfully get deficits down we need a proper plan for jobs and growth across Europe – just as we need one here in Britain. Yet the new Treaty risks locking in an austerity straitjacket that even the credit rating agencies have now criticised.

In Britain we know what self-defeating austerity means – no growth, soaring unemployment and £158 billion of extra borrowing. Outside the euro, Britain had a choice. But we made the wrong choice and choked off our domestic recovery well before the recent crisis on the continent.

That belief in collective austerity means David Cameron and George Osborne are unable to argue for a proper solution to this crisis, which is vital for our own fragile economy – especially since only rising exports kept us out of recession last year. In Britain and the eurozone, as long as political leaders carry on like this, 2012 is going to be a grim year.

The US government has taken a more balanced and steady approach to deficit reduction up to now and they have more than recovered all the output lost in the global recession, while in Britain we are still almost 4% below our pre-crisis peak. And since George Osborne’s spending review in the autumn of 2010 our economy has grown by just 0.3% while the US has grown by 2.2% over the same period.

While the US growth figures compare favourably to Britain, policymakers in America are rightly concerned and debating what more they can do to boost jobs and growth. Yet here in Britain the Conservative-led government has sent our economy into reverse and is set to borrow £158 billion more than planned, but complacently insist they are going to plough on regardless.

Of course we need tough decisions on tax, spending and pay, but to get the deficit down we also need to get our economy moving and get people off benefits and into work. David Cameron and George Osborne have eight weeks until the Budget to learn that lesson and change course.

Yesterday we found out just how badly David Cameron and George Osborne’s gamble with our economy has backfired. After stalling for more than a year, our economy has now gone into reverse.

Hard-pressed families, pensioners and businesses know that it’s hurting, but on jobs, growth and the deficit the evidence is now clear: it’s just not working.

We’ve all heard the excuses. First they blamed the snow. Then they blamed the Royal Wedding. Now they’re blaming the eurozone.

But the UK’s recovery was choked off well before the recent crisis on the continent. Growth in the euro area was actually revised up last year, while our growth was revised down. And it’s only exports to other countries that stopped our economy going into recession last year.

Cameron and Osborne have only themselves to blame for what has happened on their watch.

It was their decision to cut spending and raise taxes too far and too fast which squeezed the life out of the economy.

Of course, after the biggest global financial crisis in a century, fixing the economy and getting the deficit down was never going to be easy for any country or any government. It would have meant difficult decisions on tax, spending and pay if Labour had won the election.

But when the Tories and Lib Dems got into Downing Street they boasted that cutting spending and raising taxes such as VAT much further and faster would make the economy better, not worse.

But what has happened? Since the Chancellor’s spending review in the autumn of 2010 our economy has grown by just 0.3% – a far cry from the 3.0% the Government expected. It actually shrank at the end of last year.

They said cutting public sector jobs would lead to more private sector jobs. But there are now more people out of work than at any time since 1994 – the last time the Tories were in power. And more than one million young people are unemployed.

They claimed we would be “all in this together”. But women are being hit harder than men and the Government’s last econo-mic statement took three times more from families with children than banks.

And the Government told us all the pain would be worthwhile because their plan would get rid of the deficit by the next election. But the Chancellor is now set to borrow a staggering £158billion more than he planned – wasteful extra borrowing to pay for his economic failure and a bigger dole bill.

It doesn’t have to be this way. And it’s not too late for the Government to change course. They should listen to Labour and the independent International Monetary Fund and get a plan for jobs and growth. Because unless we get our economy moving and people off the dole and into work we’ll never get the deficit down.

That’s why Labour has set out a five-point plan for jobs – including a temporary cut in VAT to help our struggling high streets and give an average £450 boost for a couple with children, tax breaks for small firms taking on extra workers and a tax on bankers’ bonuses to fund 100,000 jobs for young people.

Our jobs plan would be a fairer and better way to get the deficit down – investing in jobs for the future rather than borrow-ing to keep more and more people on the dole.

But I have to be honest with Mirror readers. If the Tories plough on regardless, the next Labour government will inherit a really difficult situation. Of course we would be making different choices now. And we will make tough but different choices in the future. But after five years with Cameron and Osborne at the helm we don’t know how bad the economy will be.

That’s why Ed Miliband and I have said Labour cannot make any promises now – more than three years before the next election – to reverse spending cuts or tax rises.

We will have to see where we are in 2015 because, unlike Nick Clegg, we won’t make promises we can’t keep. We’ll have a big job to sort out the deficit, clear up Osborne’s economic mess and deliver social justice in tougher times.

This Government’s economic failure also means tough times are set to continue now. And in tough times the priority must be protecting jobs rather than pay rises – which is why Labour cannot oppose the Government’s decision to cap public sector pay rises at a 1% average. But I’ve told the Chancellor it must be done fairly – tougher on those at the top to give bigger pay rises to those on lower incomes.

If Cameron and Osborne refuse to change course we cannot duck the reality – the next Labour government will have to pick up the pieces and clear up their mess. But as long as this out-of-touch Government gets it wrong, Ed Miliband and I will continue to say so loud and clear.

The Tories’ economic plan is hurting, but it isn’t working. There is a fairer and better Labour way.

George Osborne must act to kick-start our stalling recovery and he needs to do so right now.

The British recovery has been stalling since the government’s spending review in the autumn of 2010, but now the economy has gone into reverse. Since the Chancellor’s spending review the economy has grown by just 0.3% compared to the 3.0% the government predicted.

And far from the eurozone crisis being to blame, it is only rising exports that kept us out of recession last year. By clobbering the economy with spending cuts and tax rises that go too far and too fast, the government has left us badly exposed if the eurozone crisis deepens this year. This was entirely avoidable and the Chancellor cannot say he wasn’t warned.

These figures are a damning indictment of David Cameron and George Osborne’s failed economic plan. Families, pensioners and businesses know it’s hurting – but the evidence is now overwhelming that on jobs, growth and the deficit it’s just not working.

The time has now come for David Cameron and George Osborne to listen to advice, including yesterday from the chief economist of the IMF. The cautious thing to do is to act now, but the reckless thing to do is just to plough on regardless with a plan that isn’t working and causing huge damage. Labour’s five point plan for jobs would help get our economy moving, get Britain back to work and so help get the deficit down in a fairer, better way.

Of course there need to be tough decisions on spending, tax and pay, but trying to go too far and too fast ends up backfiring. Rising unemployment and a lack of growth means the government won’t now balance the books by 2015 and are set to borrow £158 billion more than planned. And this government’s failure on the economy means the next Labour government will inherit a substantial deficit. We will have to sort out the deficit, clear up George Osborne’s economic mess and deliver social justice in tougher times.

As we have consistently argued cutting spending and raising taxes too far and too fast would choke off the recovery. But it’s not too late for this out of touch government to change course and get a plan for jobs and growth.

The time has now come for David Cameron and George Osborne to realise their economic gamble – cutting spending and raising taxes too far and too fast – has backfired and heed the advice of the independent IMF.

Last year the IMF was clear that if growth undershot expectations then the British Government should reconsider the pace of spending cuts and tax rises which choked off our recovery well before the recent eurozone crisis, pushed up unemployment and has seen borrowing forecasts soar.

Now the IMF has slashed their growth forecasts and confirmed that growth in Britain will indeed be much lower than they expected. And they have called on countries with low interest rates, like the UK, to reconsider the speed of their spending cuts and tax rises.

The Conservative-led Government must now listen to the IMF, change course and finally get a plan for jobs and growth which is vital to get the deficit down. Of course there need to be tough decisions on spending, tax and pay, but trying to go too far and too fast ends up backfiring as George Osborne is now set to borrow £158 billion more than he planned. As even the credit rating agencies have now acknowledged, austerity alone is self-defeating.

We also need to see real leadership in Europe to take the action necessary to resolve the eurozone crisis. This means restoring market confidence by giving the European Central Bank the political backing to act as lender of last resort and getting a plan for jobs and growth which is essential to tackle deficits.

Times are tough right now. Jobs are being lost, bills are going up and tax credits are being unfairly cut.

If Labour was in government now we’d be making different choices.

We wouldn’t be cutting spending and raising taxes as far and as fast as David Cameron and George Osborne.

Because their reckless plan has done exactly what we warned – choked off the recovery and put more people out of work which means £158 billion more borrowing than planned.

We would tax bankers’ bonuses and use the money to get 100,000 young people into work.

And we’d have a temporary VAT cut to help people struggling with rising prices and help kick-start the economy.

But even with Labour’s five point plan for jobs, there would still need to be some cuts and tax rises to get the deficit down.

And the reality is that this Tory led government’s failure on the economy means tough times are set to continue. Incomes will continue to be squeezed for both public and private sectors workers.

But in tough times the priority has got to be getting people into jobs rather than people in work being paid more. That is why Labour cannot oppose the decision to cap public sector pay rises at an average of 1 per cent. But it should be done fairly – tougher on those at the top to help protect those at the bottom.

And I’m afraid that three years before the next election Ed Miliband and I cannot make any promises now to reverse spending cuts or tax rises. After five years of the Tories we don’t know how bad the economy will be.

We cannot duck the reality – this government’s mistakes mean tough choices for the next Labour government. Cameron and Osborne are getting it badly wrong. They should change course and put jobs first.

James Naughtie: This is a big change. You’ll blame it on the government because you argue that Mr Osborne has not handled things as you would have handled it. But the truth is, that you accept, do you not, that if you are going to be credible with the public, you cannot promise to have a wholesale policy of reversing cuts?

Ed Balls: I can’t make promises I can’t keep. I can’t allow Labour to be seen in any way as the party of the short-term quick fix option. It’s going to be very hard. We have consistently said to George Osborne – I have over the last 18 months – that of course you have got to get deficit down, of course there have to be tax rises and spending cuts but he’s going too far and too fast. It won’t work. Unemployment will go up. That’s where we are. That’s going to continue I fear but I can’t promise to people that I can just wave a magic wand and be able to spend more and tax less. I cannot make commitments for three years’ time. I won’t do that. That wouldn’t be credible.

JN: The point here is that of course you have been making the critique that you have just outlined.

EB: And will continue to.

JN: That’s your job in the opposition, but what you haven’t been doing until now is to accept the discipline that comes with that. You have been attacked for it from the government’s side and you have been questioned in quite tough terms on that. What you have said now is that you accept that you can’t say all that you have said and not acknowledge that you have to come clean on living with a cut in public sector pay and a view on cuts that you will not promise to reverse anything until you say where the books are.

EB: I have said these things to you and to others consistently over three years. I was the one who set out £1 billion of education cuts in 2009. Alistair Darling announced a pay freeze. George Osborne continued that. We have never ducked difficult decisions but we also said that there was a question of balance about how fast you go. The problem now is that George Osborne, he won’t listen to my urging to take a more sensible approach. He won’t listen actually to the rating agencies now telling the eurozone that austerity is self-defeating as they have done overnight. He is not listening and therefore we are having to deal with the consequences. Just on the pay point, George Osborne clearly hoped that he would be able to have tax cuts later in the parliament and rising public pay. It’s not going to happen because of his failures but people might expect me to come along and say of we’ll back higher pay. It’s a question of priorities. I can’t say to private and public workers or to the country Labour would put higher pay before jobs when unemployment is so high. I have to be honest with people about the choices we’ll face.

JN: You used the word honesty and what honesty means is this: that public sector workers will have to accept real cuts in their pay between now and 2013. Simple as that.

EB: And it’s really hard.

JN: That’s the consequence of what you are saying.

EB: And private and public sector workers have already been facing those cuts. I’m afraid it’s going to continue and it’s partly because of the VAT rise and the cuts in tax credits and the higher inflation but it’s also because the economy is stagnating. I am not the chancellor; I can’t turn round a stagnating economy. George Osborne will not listen to me urging to be more balanced. I can’t say to people despite all of that the priority will be higher pay over jobs in the public and private sector. That would be irresponsible and I must be responsible and credible in what I say.

JN: You are saying that it’s an option that is simply not available to anyone.

EB: It’s not available to anyone I’m afraid. It would have been tough on pay for any government, it’s going to be tough on pay for any government. It’s going to be tougher because of Osborne’s mistakes. I can’t promise to reverse that now.

JN: Another consequence of this, you have been very clear about what you do as in public sector pay, you have talked about honesty. You have talked about not promising what you can’t deliver if you were ever to be in power. Let’s get on to the follow-up to this which is quite clear. Every time the government stands up and says we’re going to cut this, we’re going to cut that, you will have to be as clear as you say you are being this morning. Should more benefits for example be means tested?

EB: Let me just be absolutely clear what I’m saying. I can’t now make commitments for three years ahead to reverse tax rises or to increase spending when we don’t know the economic position. But I also think that the spending cuts that George Osborne is doing now are not only too fast and in some cases unfair but in some cases totally counter-productive. If you cut the Future Jobs Fund and Educational Maintenance Allowance and you have youth unemployment above a million that means higher benefits bills, higher borrowing. We are going to oppose unfair cuts, destructive cuts and we are also asking to take a more balanced approach and support the economy and jobs now. But my point is, Jim, I can’t make commitments now about what we are going to do in three years’ time when that would be irresponsible. I don’t support spending cuts which I think are actually going to be counter-productive and destructive.

JN: You are going to make a case-by-case argument, that’s clear, but it’s going to involve you saying from time to time, the government is right, I agree, we might not cut quite as deep as that but you are going to have to if you are going to fulfil the sort of promise that you are making this morning. It does mean that day by day week by week when people say where do you stand you can’t dodge it. You can’t duck it. You are going to have to be straight, cut by cut.

EB: Yes, 100 per cent. That’s what we have already tried to do. It’s hard in opposition when you haven’t got all the detail and don’t know where the economy is going to be. But one good example though, we said and say based upon independent research that the police budgets could be cut by 12 per cent without losing police officer numbers. Labour would do that cut. But a twenty per cent cut front-end-loaded will lose 16,000 officers. That is a wrong decision from Theresa May and David Cameron which will damage crime-fighting in our country. That is clear. Labour is saying of course there is going to be a cut, don’t go too far in a way that is going to be destructive. The same is true on jobs. The same is true on other parts of public spending as well. I made clear that we could cut some education spending but not the biggest cuts since the 1950s.

JN: Is there any where that you would go further that the coalition?

EB: We will need look at these issues in the coming weeks and months in the run up to the general election. I absolutely don’t rule out going further than the coalition where I think they could –

JN: [Interrupting] You think about these things day and night. Give us an example.

EB: I think spending £2-3 billion on another huge re-organisation of primary care trusts and the National Health Service is a massive waste of money which will also damage health care and see waiting times rising. That’s one example. I think the £29 billion or so more we are now spending on unemployment benefits is a mistake because George Osborne should be getting unemployment down.

JN: You are opposing Iain Duncan-Smith’s cap on benefits?

EB: We haven’t opposed the idea of a cap.

JN: This is an interesting point because you talk about differences in the cost of living around the country. What about a regional cap?

EB: The problem we have got is that this cap has no taking account – as the benefit system finds hard to do generally – of different variations. That’s why Eric Pickles, the local government minister, said that we will end up with more homelessness if we apply Iain Duncan-Smith’s cap. But there is an important point here and a balance to be struck. Take the issue going back to pay, I think public sector pay should be done in a fair way. The one per cent should be fair to be people at the bottom. Secondly, I do think you need to take into account what’s happening in employment and labour markets up and down the country. But George Osborne’s plan to rip up the pay review bodies and go to local pay would actually be unfair and more expensive and make reform harder. Sometimes if you want restraint and discipline you need to have something like the independent pay review bodies.

JN: Do you see this as a moment where you want to be seen to be making a change. Some of us are old enough to remember Gordon Brown before the 1997 election talking about accepting Conservative spending plans as they had been laid out for the next period and it was seen as quite a moment. Do you want this to be a moment? Are you making a change quite deliberately and publicly?

EB: I want people to hear what I am saying and my commitment to rigour and discipline and spending control.

JN: You have been forced into it.

EB: No. The decision on spending in ’97, like Bank of England independence, like using the 3G mobile phone auction to repay debt, decisions I was involved in – tough decisions – Gordon Brown could not have done that four years earlier. These things are about timing. You have got to be the answer to the question people are asking. Last year I could have said these things. Nobody would have cared because they all believed George Osborne and David Cameron’s plan would work. Their plan is not working. It is failing. People are saying for the first time: is there a Labour alternative and is it credible? I have got an alternative but I have got to show it’s tough and credible. That is what I am doing today. As I said to you a moment ago, the rating agencies are saying today to the eurozone, austerity alone is self-defeating. We are not in the euro. Why is George Osborne doing the same self-defeating austerity too? It doesn’t make sense. We shouldn’t be copying the euro area this time.

-ends-

Thank you Suresh and Andrew – and to all of you for coming along today and giving up your Saturday.

And let me start by saying – after over 20 years of attending the Fabian annual January conference – what a great honour it is to be invited to give the opening speech.

I first spoke at this conference in January 1993 – when I was a junior leader writer at the Financial Times.

It was a very different conference then – not the huge event it has become – with perhaps 100 or so people gathered at Ruskin College, Oxford, including among them the leader of the Labour Party, John Smith.

That conference was held the January after Labour’s election defeat in 1992 – an election in which the Labour opposition had failed to pass either of the two necessary political economy tests for electoral success:

- neither having a real alternative to the straitjacket of the Exchange Rate Mechanism, which could meet the aspirations of anxious voters on growth and jobs;

- nor a credible approach to tax and spending which could win public trust.

Ten months on from that defeat, as we met in Oxford, sterling had recently crashed out of a troubled ERM, the idea of the single currency as the solution for Europe was gaining momentum in Brussels, and here in Britain Labour’s ‘modernisers’ were trying to persuade John Smith that ’safety first’ would not be enough.

And my contribution at that Conference?

To speak about my Fabian pamphlet, published a week or so before, which argued:

-   that Labour could only win the argument for a radical alternative on growth and jobs if we had economic credibility;

-  that neither the ERM nor the single currency could provide that credibility;

-  and that the right approach for Labour and Britain was to make the Bank of England independent – a pretty controversial idea at the time.

I remember showing the pamphlet draft to my FT colleagues Martin Wolf and John Plender, who both said: right approach, very brave – but the Labour Party will never forgive you.

THE GLOBAL ECONOMIC SHADOW

That 1993 Fabian Conference was held in the shadow of seminal events:

- German unification in Europe;

- Black Wednesday in Britain;

- a fourth election defeat for Labour.

And today’s conference – again to debate The Economic Alternative – is, without doubt, being held in the shadow of much greater and more defining events:

- political deadlock and an abject failure of economic leadership in the Euro area, Britain and the US Congress;

- following on from the biggest global financial crisis of the last century.

A toxic combination of grossly irresponsible bank lending, poor governance and weak regulation round the world which in its aftermath poses – as I have argued consistently over the last eighteen months – a threat to the world economy as grave as that which we faced in the depression of the 1930s.

So this is my starting point for today’s Conference.

If Britain and the world are to avoid repeating the mistakes of that 1930s ‘lost decade’ and the 2008 global crisis, then we badly needs political leadership in Britain, Europe and the world to meet two great challenges:

The Growth Challenge – to stop the aftermath of the financial crisis turning into years of slow growth, high unemployment and rising debts – leaving a permanent dent in our prosperity;

and,

The Reform Challenge – long-term reform to make sure such a financial crisis on this scal e can never happen again and to build a stronger and fairer economic model for the future – what Ed Miliband has called a more responsible capitalism – which can, even in tougher times, meet our aspirations for social justice and strong public services.

LABOUR’S POLITICAL SHADOW

But of course, there is another shadow which casts itself across this Conference today – a political shadow which presents a particular challenge to Labour.

I believe we are right to resist the ideological and ahistorical Tory analysis which tries to pin the blame for a global financial crisis on Labour’s approach to public spending – when it is clear that the global financial crisis bankrupted banks and pushed up deficits in high spending and low spending countries alike.

But it is a fact that this financial crisis did happen on Labour’s watch – and that Labour lost the subsequent General Election.

We have never denied that a plan is needed to get t he deficit down, and that it would mean tough decisions on tax and public spending. Before the election, I set out £1 billion of cuts to education.

But as a party and a leadership, I said then and I still believe now that Labour should have been clearer before the election that if we had been re-elected there would have been spending cuts as well as tax rises.

And I have no illusions that there is a big task to turn round Labour’s economic credibility and show – even as George Osborne’s plans deliver unemployment rising, growth stagnating and long-term reform stalling – that Labour can be trusted again.

It is not enough simply to be right in our diagnosis of the Coalition’s failures and unfairness.

And it is not enough to set out a clear alternative – on growth, as we have with our five point plan for jobs; or on long-term reform of our economy, as Ed Miliband did this week and Chuka, Rachel and John Denham have too.

The challenge we face is both to set out a radical and credible alternative; and to win public trust for that alternative vision.

‘KEYNESIAN OTHODOXY’

I referred to that January 1993 Fabian Conference.

Eighteen months later, in September 1994, just a few weeks after Tony Blair was elected Labour leader, and against the backdrop of stubbornly high youth unemployment, rising inflation and squeezed living standards, the Labour Party held a conference at the National Film Theatre on the new economy and Labour’s alternative.

As it happens, that conference was the occasion of the infamous ‘post neo-classical endogenous growth theory’ moment – which, for those who don’t know what it means, says that the rules of the game that the government sets on taxes, spending and regulation are not irrelevant to growth but can have a profound impact – for good or bad – on how the economy works.

Of course, those were very different times, and the policy debates of t hat time emphatically do not offer a blueprint based on the past when today we face such different economic and political challenges.

But the unspoken purpose of that 1994 conference – and its emphasis on Bank of England reform and fiscal discipline – was to address Labour’s economic credibility deficit, and dispel the idea that the party was addicted to the short-term, quick fix, vested-interest-appeasing solution to every problem.

I went back this week to look at the reporting of that conference – and in particular a preview piece in the Independent on Sunday with an anonymous briefing from ‘a senior party insider’.

The article started by saying Tony Blair and Gordon Brown will “ceremoniously ditch Labour’s traditional ‘tax, spend and borrow’ image this week, in a fundamental re-positioning of his party’s economic strategy.

All under the headline… Labour Ditches Keynes.

As someone who had only recently studied ‘New Keynesian’ economics at Harvard, with Democrat Keynesians like Larry Summers and Republican Keynesians like Greg Mankiw, I must admit I was pretty appalled to see the greatest economist of the twentieth century traduced like that.

But the fact was that in the Monetarists versus Keynesians economic debates of the 1970s and 80s, the label ‘Keynesian’ had become – certainly in Conservative circles – a dirty word: profligate, irresponsible, statist, inflation-loving, not to be trusted.

A caricature that clearly could not be allowed to be a Labour caricature if we were to go on and win the 1997 election.

And what has been so striking to me over the past year listening to right-of-centre politicians and commentators – in Britain, America and Europe too – is how much the austerity debate has been used to try to reprise those old ideological divides.

Warn about the risks of deflationary fiscal policy – and that makes you a ‘deficit denier’.

Worry about the dangers of all countries trying to cut their deficits at once – and you are a ‘deluded Keynesian’.

Counsel that the world needs a plan for growth as well as deficit reduction – and you are ‘an irresponsible deluded Keynesian deficit denier’.

Keynes himself must be turning in his grave.

For, as has been fully documented in Lord Skidelsky’s biography, the real Keynes was no profligate tax-and-spender. He would have had no time for some of his disciples.

His seminal 1930 Treatise on Money was as hawkish on inflation as Milton Friedman decades later.

His attitude to irresponsible wage bargaining in the 1920s was as unforgiving as Margaret Thatcher in the 1980s.

Central bank independence? I think Keynes would have backed it – though not if his contemporary Montagu Norman was the Governor.

And as for the irresponsible and inflationary profligacy of the 1970s Tory Barber boom? He would have abhorred it.

KEYNES AND THE GROWTH CHALLENGE

But – and this was his great insight – Keynes also knew that economies could occasionally get stuck in a deflationary rut.

Although he called his famous book in 1936 ‘The General Theory’, it actually was not a general theory at all.

It was a description of what can happen in the unusual and special circumstances after a big financial crash – for him 1929, for us 2008 –  when the ‘animal spirits’ of companies and consumers are so depressed that private spending stagnates.

When interest rates are so low that they can’t be cut any further.

When governments crudely cutting spending risks making deficits worse.

Of course, there will be naïve ‘Keynesians’ who will think it is always a special case – time to let rip and just ‘tax, spend and borrow’ in the hope that will deliver full employment – people who think we are always in 1930s-style depression and more borrowing is always the solution to unemployment.

And that is what gave Keynesianism a bad name in the 1970s.

It is why Labour leader Jim Callaghan was right to tell the Labour Party Conference in 1976 that that you can’t just spend your way to full employment.

But, as I argued well over a year ago now in my Bloomberg speech, the reason why the real Keynes is so relevant today is that the global economy has been sliding into that rare and dangerous ’special case’ that Keynes identified in the 1930s and Japan suffered in the 1990s.

You either learn the lessons of history or repeat the mistakes of history.

With growth stagnating around the world, every country pressing ahead with deep cuts risks being a catastrophic mistake.

Which is why Ed Miliband and I have argued for a global plan for growth, with clear medium-term plans to get deficits down, but stimulus now to avoid a global slump too.

Rejecting the compl acent isolationism of the 1930s and instead following Keynes’ lead by setting out a global solution to global problems – an economic alternative based on growth, job creation and balanced deficit reduction, which is the only sane way forward for Britain – and the only way back to credibility in the Euro area too.

Let us be honest: the Eurozone crisis is a catastrophe building week by week. And the pre-Christmas summit was a disaster for Europe and the Euro and for Britain too.

Europe’s leaders failed to back decisive action by the European Central Bank; they did not address the issue of the current fiscal straitjacket; and they still have no plan for jobs and growth – hence the downgrades of the past 24 hours.

And did our Prime Minister bang the table and demand action?

No, he walked out and undermined our national interests as he did so.

Given the huge risks that the Eurozone crisis poses for Britain, we desperately need a Pri me Minister and Chancellor who can lead in Europe.

But they can’t – and not just because their party won’t let them.

Because to do so means also admitting that they have got things wrong here in Britain too.

George Osborne and David Cameron took it as read that deep and immediate spending cuts and tax rises would at least serve the goal of deficit reduction – no matter how much Labour warned that going too far, too fast would be bad for borrowing as well as for jobs and growth.

The Chancellor claimed that public retrenchment would boost private sector confidence, investment and job creation. He called it ‘expansionary fiscal contraction’.

But this has turned out to be a false prospectus – a repeat of the discredited ‘Treasury View’ of the 1920s. Fragile consumer and business confidence has been crushed by the inflationary hike in VAT, the threatened withdrawal of public sector demand, the reality of falling incomes and the f ear of rising unemployment.

And now the Government claim growth is stagnating because of the chilling effect of the Eurozone crisis – when our exports have actually been over performing compared with expectations, and it is weak domestic demand that has driven growth in the UK down, borrowing up and depressed long-term interest rates on government bonds.

Conservative ministers scoff at our five point plan for jobs and growth, saying ‘Labour’s proposal is to borrow even more’. But it is Chancellor George Osborne who is being forced to borrow billions more – £158 billion more than he planned.

Not borrowing to support the economy through difficult times and help get people back to work, but wasteful extra borrowing to pay for failure – the price of slow growth, rising unemployment and a bigger benefits bill.

Because every time George Osborne revises down his growth forecast, he has to revise down tax revenues and increase the benefits bill too.

Even the IMF has said that if our economy undershoots expectations and risks a period of stagnation, then the UK should slow down the pace of spending cuts and tax rises to get the economy growing again.

Just think: last autumn, many 16 year olds who would otherwise have stayed on at school have lost their Education Maintenance Allowances, and – following the abandonment of the Future Jobs Fund – many have gone straight onto the dole, adding to the more than 1 million young people now unemployed in our country.

On the surface of things, cutting EMAs and the Future Jobs Fund saved money and reduced borrowing.

But  at what cost? How much more will it cost our society and our economy to leave those young people long-term unemployed and unproductive; they and their children receiving benefits rather than paying taxes and contributing to the national wealth?

If we do not invest now in jobs and growth, if we let a year of econom ic flat-lining become a decade of stagnation, what price will our country pay in the long-term?

That is why to meet the Growth Challenge and get the deficit down we are right, as we have set out in the five point plan for jobs, to call for temporary tax cuts and investment in jobs and growth – to stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy.

Action now for growth, jobs and reform which does not conflict with the need for a credible medium term plan on the deficit, but which reinforces it.

KEYNES AND THE REFORM CHALLENGE

But changing times also demand new and long-term reforms to re-shape our economy for the future.

As Ed Miliband argued earlier this week, we will need long-term reforms of our economy to boost growth and deliver social justice in straitened times.

And here again, the words of Keynes writing in The General Theory in 1936 are instructive:
“Speculators may do no harm as bubbles on a steady stream of enterprise” he wrote.

“But the position is serious when enterprise becomes the bubble on a whirl-pool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.

Keynes was right then and now – we cannot simply let markets, in which speculators spend their time chasing one another’s tails, dictate important investment decisions and set the benchmark for what is fair and unfair.

Unregulated capitalism is not only unstable; it is inherently short-termist too.

So just as the current coalition are wrong to reject the insight of Keynes based on his experience of the 1930s, we must, as Ed Miliband has said, learn the lessons of the past three decades and meet the Reform Challenge:

- tougher financial regulation and new capital standards  with financial stability at the heart of economic policymaking and banking ref orm to make sure that the needs of small businesses are addressed, including examining the case for a National Investment  Bank;

- stronger corporate governance to make sure decisions are taken in the long-term interests of wealth creation and jobs, not the short-term interests of traders, speculators and their chums;

- government action to back business and ensure markets work for the long-term, including tougher competition rules, tax incentives for long-term investment, research and development and skills;

- and a youth jobs guarantee with tough rights and responsibilities -­ and an expectation that every young person would take up work or training.

GROWTH, REFORM AND DEFICIT REDUCTION

This is the Economic Alternative:

- to meet the Growth Challenge: short term action now to support jobs, growth and get deficits down;

- to meet the Reform Challenge: long-term reform to tackle short-termism and instability and supp ort long-term investment, growth and fairness.

But to make that alternative work and be credible, it must be underpinned by a clear commitment to balanced but tough spending and budget discipline now and into the medium-term.

The question for Labour has never been about ‘whether’ to get the deficit down but ‘how’ and ‘when’, who carries the greatest burden, and what kind of country we leave behind for our children.

And while we would not have started from here – a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans off track – we are where we are.

As Ed Miliband and I have said for months this government’s failure means the next Labour government will inherit a substantial deficit that we will have to deal with.

After just 18 months, the government’s autumn statement admitted that it will not balance the books by 2015 – the promise that was the cornerst one of the coalition.

And George Osborne has had to admit that he will now have to borrow more than the plan Alistair Darling set out before the election – because of the slow growth and higher unemployment his reckless plan has delivered.

This represents a big challenge for Labour, as Ed Miliband made clear earlier this week. As I said at Labour’s annual conference, we will set out before the next election tough fiscal rules that the next Labour government will have to stick to – to get our country’s current budget back to balance and national debt on a downward path.

In our manifesto we will commit to do the responsible thing and use any windfall gain from the sale of the government’s stakes in RBS and Lloyds to repay the national debt – not for a giveaway.

And, however difficult this is for me, for some of my colleagues and for our wider supporters, we cannot make any commitments now that the next Labour government will reverse tax r ises or spending cuts. And we will not.

Because we don’t know how bad things will be on jobs, growth and the deficit. But we do know that the next Labour government will have to sort out the deficit where this government failed and deliver social justice in tougher times.

And as we make the argument that cutting spending and raising taxes too far and too fast risks making the economy and the deficit worse not better, it is right that we set out where we do support cuts and where we would be making the tough but necessary decisions.

In education, as I have said, £1 billion of cuts – but not the biggest cuts to schools since the 1950s. In policing, 12 per cent cuts to budgets – but not 20 per cent cuts which will hit the frontline hard and see 16,000 officers lost. In defence, £5 billion of cuts – but not a strategic defence review that raises more questions than answers.

And because as progressives we believe in the role of the state and public services to do good, it is vital that we are even tougher on waste than our political opponents – whether that is the £2 billion being wasted on a reckless reorganisation of the NHS, billions being lost in tax avoidance or the waste of mass unemployment.

Times will be tough – we will have no choice but to make difficult choices.

Let me give you one example.

Pay restraint in the public sector in this parliament would have been necessary whoever was in government.

But George Osborne’s economic mistakes mean more difficult decisions on tax, spending and pay. It is now inevitable that public sector pay restraint will have to continue for longer in this parliament.

Labour cannot duck that reality. And we won’t. Jobs must be our priority before higher pay.

That said, there are important issues on incomes, pay and pensions that George Osborne must get right.

We will continue to press for fair pay and fair p ensions reform while defending the vital role the national pay review bodies play in delivering discipline, reform and fairness.

We believe the 3p in the pound rise in pension contributions should never have been imposed without negotiation.

And it is wrong and unfair to penalize those on low and middle incomes by cutting tax credits, hitting women harder than men and families with children hardest of all.

But pay discipline in the public and private sector needs to be accompanied by fairness.

That is why the government should also ask the pay review bodies to deliver the 1 per cent average settlement cap in a fair way – being tougher to those at the top in order to offer more protection to those at the bottom.

Pay also needs to be fair in the private sector, where there have also been tough decisions – with real pay in the private sector falling around 3 % in the last year. But for those at the top boardroom salaries in FTSE 100 com panies have increased by 50% in the past 12 months.

That is why Ed Miliband has rightly called for reforms to ensure that rewards at the top better reflect the success people achieve and the contribution they have make to our economy. David Cameron has now started to talk the talk on this issue, but he now needs to take the action we have been calling for.

THE POLITICAL CHALLENGE FOR LABOUR

Let me finish by returning to the politics.

Because it would be naïve for anybody to think that the government’s deepening economic failure will automatically translate over the coming months into success for Labour.

And the question the public will of course ask is: who can we trust?

Credibility is based on trust and trust is based on honesty.

And let’s be clear: the Tories won’t own up either to the scale of the challenge or the failure of their plans.

They claim Britain is a safe haven… when our low long-term interest rates are not a sign of enhanced credibility but a reflection of stagnant growth in our economy, as it was in Japan in the 1990s.

And they claim we’re all in it together… when middle and lower income families, women and young people are hardest hit, and the pain is only now beginning.

So with determination and vigour – loud and direct – we must expose day by day the huge gulf between what Coalition ministers say and the truth.

But we must be honest with the British people that under Labour there will have to be cuts, and that – on spending, pay and pensions – there will be disappointments and difficult decisions from which we will not flinch.

But honesty does not mean going along with a failed Conservative plan because it is easier in the short-term. We tried that when Labour supported the disastrous decision to join the ERM and stuck with a failing policy right up until September 1992.

I have heard much advice over the past y ear from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics – but who argue that it is bad politics because it is ‘out of tune’ with the public mood.

But that is not honest politics either.

Now is not the time to stand aside, bite our collective lip while this government and Euro area governments make historic and terrible mistakes.

I do believe that we have both a duty to make the right argument on growth and jobs – even if this has put us outside the consensus for a time.

And I do believe this is an argument we can win.

Now is the time to hold our nerve.

To make the case for The Economic Alternative.

To speak up for the people we seek to represent and the values that we stand for.

And to do so in a typically Fabian way – steady, step by step, determined, credible and radical in our vision for a better and fairer future for Britain.

Thank you.

These are tough times and they require tough decisions. As I will say at the Fabian Conference tomorrow, even with our five point plan for jobs and growth and the long-term reforms of our economy that Labour has been calling for, getting the deficit down will mean difficult choices on tax, spending and pay.

On pay, we recognised in government that – to secure the recovery, get unemployment falling and reduce the deficit – we would need restraint on pay in the public sector to match the private sector wage restraint we had seen in the recession.

So in 2009 we announced a 1% pay cap for two years, including a freeze for the highest paid workers like senior civil servants and NHS managers. And we also set out a process to limit the state’s contribution to public sector pensions in a fair and negotiated way – known as ‘cap and share’.

George Osborne continued Labour’s policy and went further, but has gone about it in a typically unfair and ill-thought out way. When he announced a two year pay freeze, he promised a £250 a year increase for all the lowest paid workers. But he has failed to deliver that promise for hundreds of thousands of low paid workers.

On top of that he undermined our sensible approach to public sector pensions reform by imposing, without negotiation, a 3p in the pound rise in pension contributions for all public sector workers.

George Osborne gambled that early tax rises and bigger spending cuts would kick start the recovery, get the deficit and unemployment down earlier and allow him to deliver rising living standards and tax cuts in the second half of this parliament.

But, as the Autumn Statement showed, his failure on the economy – choking off the recovery and pushing up unemployment which means they are set to borrow £158 billion more than they planned and fail to balance the books by the election – means that tough times are set to continue for longer.

That is why George Osborne has been forced to extend public sector pay restraint with a 1% cap in 2013-14 and 2014-15. I know that some people in the trade union movement and in the Labour Party will expect us to oppose this continued pay restraint. But, as I say in an interview with tomorrow’s Guardian, we can’t and we won’t.

Yes, public as well as private sector workers are paying the price for David Cameron and George Osborne’s mistakes. But Ed Miliband and I cannot just promise public sector workers higher wages when public spending is so tight and the costs of rising unemployment are pushing up borrowing projections so massively.

The fact is that in 2012 – apart from those at the very top – everyone in work, in the public and private sector, is going to experience a real incomes crisis: the combination of higher inflation and the rising cost of living, wage freezes, cuts in tax credits, overtime and bonuses withdrawn, some full-timers being asked to work part time and for thousands losing their jobs entirely.

It was always going to be hard, but it is much tougher because of George Osborne’s mistakes.

And we cannot reverse all that damage. Even if George Osborne acts now, as he should, to kick start the recovery and get unemployment falling, as we and the IMF have advised, Labour will have to make difficult choices, as Ed Miliband set out in his speech earlier this week. And jobs must be our priority before higher pay.

That said, there are important issues on incomes, pay and pensions that George Osborne must get right. We will continue to press for fair pay and pensions reform – the 3p in the pound rise in pension contributions should never have been imposed without negotiation. And it is wrong and unfair to penalise those on low and middle incomes by cutting tax credits, hitting women harder than men and families with children hardest of all.

We are also clear that discipline in the public and private sector needs to be accompanied by fairness. That is why the government should also ask the pay review bodies to deliver the 1% average settlement cap in a fair way – being tougher to those at the top in order to offer more protection to those at the bottom.

And we will oppose any moves to undermine the Pay Review Bodies by shifting wholesale to regional and local bargaining in the public sector. Of course, as has been the case for some time, pay needs to reflect local circumstances, for example the need to recruit teachers in London. We have shown we can deliver fair reform, such as through ‘agenda for change’ in the NHS and for school support staff before Michael Gove stopped it.

But the consequence of breaking up national pay setting through the Pay Review Bodies will be to make pay restraint harder, and real reforms more difficult – with costs getting out of control. That is what the previous Tory Government found when they failed to deliver regional pay in the NHS in the 1990s.

Pay also needs to be fair in the private sector, where there have also been tough decisions – with real pay in the private sector falling by almost 3% in the last year. But for those at the top boardroom salaries in FTSE 100 companies have increased by 50% in the past 12 months. That is why Ed Miliband has rightly called for reforms to ensure that rewards at the top better reflect the success people achieve and the contribution they have make to our economy.

Pay restraint in the public sector in this parliament would have been necessary whoever was in government. But George Osborne’s economic mistakes mean more difficult decisions on tax, spending and pay. It is now inevitable that public sector pay restraint will have to continue for longer. Labour cannot duck that reality. And we won’t.

Martha Kearney: How significant a shift does today’s speech mark? There’s certainly been strong rhetoric that we’ve heard, ‘difficult choices’, there’s going to be a ‘different party’ with a ‘new approach’. What is there really of substance?

Ed Balls: I think that what’s happening here is that for the first time people are waking up in the country and the media to the fact that the coalition government had a plan which they said would work to get the economy moving, to get unemployment down, to reduce the deficit and it’s not worked.

MK: But that’s what you’ve said again and again in previous interviews. I understand the argument that you want to make attacking the government. I was asking what’s different about Labour’s position that we are hearing today?

EB: I was answering the question. At the point where people say the economy has flatlined and George Osborne’s borrowing £158 billion more, for the first time, they are turning to say: what is the Labour alternative, is it credible, can it work? And we are clear both that the government’s plan is not working now – they are going too far and too fast – and the government does not have a plan to reform the economy to create jobs in a fair way for the long-term.

MK: [Interrupting] I know you want to criticise the government a lot. But do you accept that Labour has a credibility issue?

EB: But Martha, we cannot win the argument for the alternative short-term and long-term unless people say that we would make the tough decisions in the long-term interests of the country based up on fiscal discipline and probity. Of course it’s a challenge for us because we lost the election and in the first year and a half of this parliament people wanted to give the government benefit of the doubt. Now, as they see the government’s failing, they are asking: can Labour credibly deliver an alternative? We have got to be clear. Look, there’s going to have to be cuts. There would have to be difficult decisions. We would have to have cuts in police. We’d have to have cuts in the schools budget. We’d have to have cuts in the defence budget as Jim Murphy said last week. The government is going recklessly fast and the problem there is that it leads to higher unemployment and higher borrowing. Their plan doesn’t work. We have got to win the argument with a credible alternative.

MK: You have said that you want to make tough decisions and you have talked in very general terms. When you get down to specifics, it’s small beer really, saying that you may not be able to reverse the government’s cuts on the winter fuel allowance which is one of the new things that Ed Miliband said today. That’s tiny in comparison with the deficit that needs to be cut.

EB: As shadow chancellor, I can say to you unequivocally we can make no commitment to reverse any of the government’s tax rises or spending cuts because we don’t know the state of the economy we are going to inherit and what the fiscal position would be. And I fear, as Ed Miliband said today –

MK: [Interrupting] You know it’s going to be pretty bad, don’t you?

EB: It’s going to be tough and therefore I can’t come along and make any irresponsible commitments to you now. We have said, for example, on policing, we’d cut the budget by 12 per cent. That is a big cut. Twenty per cent though is a step too far and will lead to 16,000 officers not being on the beat. That is what we mean by too far and too fast.

MK: How is talking about making spending cuts irresponsible? Isn’t that the responsible thing to do?

EB: The responsible thing to do is to set out with credibility an alternative which would work. You won’t get this deficit down without growth and jobs. But even then, even with a more balanced plan and our five point plant for jobs and growth, we would still have difficult decisions which we will need to face up to between now and the next election as we prepare our manifesto. Ed Miliband was saying today: one, we must face up to those difficult choices; two, there’s things we can do, for example on energy bills or executive pay which don’t require spending; but thirdly, a stronger economy, to reform our economy to make it more long term is the better way to have stronger growth which will deliver the resources that we are going to need. It’s across that range of choices that we will need to set out our policies. But the reason why you are interested in it today is because for the first time it is clear that the government’s plan is not working. People are now saying -

MK: [Interrupting] No, it’s because Labour’s in such difficulty. People aren’t accepting that your economic strategy is working. You are behind in polling in terms of economic credibility. So you may believe that the government has got it wrong but the voters aren’t on your side on that.

EB: The government said the economy would grow. They said that borrowing would come down and that unemployment would fall. What’s happened is that the economy has flatlined, unemployment has risen and they are borrowing more.

MK: Why isn’t the public buying that argument? In recent opinion polls, when people were asked what do they think is the single most important reason for the latest slowdown, they say debts which the last Labour government racked up.

EB: The interesting question is, when I came on your programme six months ago, your argument was the government’s plan will work and yours won’t. Now we see the government’s plan hasn’t worked, the questions is, can politically we turn around the opinion polls. We will only do that through scrutiny from the public and from you and from us setting out the alternative. For the first time, people are saying: what is Labour’s alternative and is it credible? That is a very important moment politically. That is why this is such a significant day because from now on people will be judging a failing Conservative plan against a Labour alternative. I have got to, and Ed has got to, answer the question: is it credible, is it tough, is it discipline, will we resist the short-term fix on pay, pensions, spending or whatever.

MK: Is it possible that you are part of the problem because you are too wedded to the past’s policies. In fact that was one of the points made by Lord Glasman. He said that ‘old faces from the Brown era still dominate the shadow cabinet, they seem stuck in defending Labour’s record in all the wrong ways.’

EB: Outside the Westminster studios and the university seminar rooms, people up and down the country aren’t debating who was where ten years ago. They are saying what’s happening to my job now, my child’s chance of education next year.  They’re saying will we keep our home. They’re saying will we be able to afford a pension or a holiday. What they want is answers from politicians about the future.

MK: Part of those answers is going to be who is going to be in charge of the country’s economy and part of that may well be focussing on who they’d like to see as chancellor and there has been particular personal criticism directed against you. David Cameron attacked you. He apologised for using the term ‘Tourette’s’ but the way that you behave in the House of Commons has been singled out for criticism?

EB: Are you saying you validate David Cameron’s attack and his slurring of people with Tourette’s because of the economic argument?

MK: No of course I’m not. I said he’d apologised for them. What I said is you behave in a certain way in the House of Commons. People have pointed out that you barrack Conservative opponents. You make a lot of hand gestures. Is that something that’s perhaps a turn-off to some voters?

EB: I don’t think so. I think people want an opposition which takes the argument to the government. Sometimes David Cameron gives the impression that he deserves to be there and nobody deserves to criticise his views and his policies and he obviously attempts, whether it’s women who he patronises or me who he makes offensive comments about which don’t offend me but did offend many people up and down the country suffering from Tourette’s. I don’t think that’s the right way to do politics. I think you should debate not about smear but about policy. David Cameron’s policies are failing. They are unfair, they are not working, on the deficit or unemployment and we will argue for the alternative. And to be honest, Martha, I will do that in a direct, clear, honest and open way but I am not going to say offensive things about David Cameron or anybody else. I don’t think that’s the right way to do politics.

The shadow Chancellor tells Steve Richards and Andrew Grice about his plans to seize back the political initiative for Labour

Steve Richards, Andrew Grice
Wednesday, 21 December 2011

http://www.independent.co.uk/news/people/profiles/ed-balls-lib-dems-should-leave-the-coalition-and-join-us-6279901.html#

Ed Balls strides energetically into one of his offices at Westminster. It used to be occupied by the Leader of the Opposition. The last Labour occupant was Tony Blair, consistently well ahead in the polls en route to a landslide victory in 1997. Balls played a key role in that win as adviser to Gordon Brown; now he is shadow Chancellor in an unrecognisably different context. There is an economic crisis and yet the opinion polls suggest the Tories are ahead on the economy. Why is that?

“We had an election 18 months ago and Labour lost after the biggest global financial crisis for 100 years. People said, ‘We are going to give the other guys a go’. During that period, people really wanted it to work, but they are really worried now. People are just starting to ask, ‘Could there be a better way?’ Until that moment came, it was never possible for Labour to be the answer.”

His second reason takes him on to more sensitive terrain at a time when some Shadow Cabinet members and Labour MPs privately express their doubts about Balls and their leader, Ed Miliband.

“The second question is about us: do people trust Labour even if they want an alternative and know the cuts are too far, too fast and that rising unemployment makes the deficit even worse? They have got to believe Labour would have the toughness on spending to take the right long-term decisions for Britain.

“Rightly or wrongly, there is public scepticism about Labour’s willingness to take tough decisions on public spending. A big part of my task is to turn that round and win that argument.”

At which point he implicitly addresses his internal critics by calling for calm patience. “People in the Labour Party have got to hold their nerve and understand that one big thing is changing: for the whole of the last year the Conservatives only wanted to talk in the past. They are imprisoned in the past. I want to talk about the future. What has changed in the last few months is that for the first time the whole debate is about how we get out of this mess. The argument about the future is one we can win as long as we have discipline and credibility.”

Constantly he returns to his challenge in the coming 12 months as he seeks to convince critics that he is not irrationally attached to reckless public spending. “The public have got to be persuaded for the future that we would run the economy and control public spending in a tough and disciplined way. We have got work to do to win that argument… The deficit has got to come down. There have got to be cuts”.

Balls makes a wider judgement as much as an economist as a politician. “We are also facing a massive catastrophe in Europe. 2012 feels like the most dangerous year in my life. It is a very, very dangerous time…What we have seen is the inability of political leaders in the eurozone to put short-term politics aside and do what’s right. This is about leadership. They have got to act and they can’t. It is existential…when it happens there will probably be a crisis moment that puts things into deep freeze, making it hard to trade and hard to finance…the impact on growth and jobs is really dangerous.”

In spite of his fears, he makes no commitment to stick to the cuts planned by the Coalition for two years beyond the next election but promises Labour will give more details of its tough spending decisions next year.

“There is going to be no spending spree for the next Labour Government. There is going to be no growth dividend to start allocating left, right and centre. This is going to be a very, very tough inheritance. But it doesn’t have to be that way.”

This points to a delicate balancing act, acknowledging how tough it could be while lacing his message with some optimism. “There are choices to be made now. There is a more optimistic future in the short term on growth and jobs and the medium term in getting to a better economy.

“We have to be the optimists – the credible optimists”.

Credible optimism, a phrase likely to become a theme for Labour, takes several forms. Strategically, it leads Balls to reject the view of some senior Labour figures that he should follow the Tory path in relation to the economy.

“Some people will say to me publicly and privately, why don’t we just hug the Tories close and let them make the weather? That is a complete abdication of responsibility. It is so dangerous and unnecessary.

“We have got to make the argument for the alternative – in a way that makes people believe we can deliver it… you have got to have a credible but optimistic view of a better and fairer future, but people have got to believe you will deliver. That is a firmly progressive centre ground argument.”

In the search for credibility he pledges tough policies, citing welfare reform in particular.

“We will be taking a tougher approach to conditionality [for benefit claimants]. If people can work, they should work. That is one example. There will be others next year of how we will show people how we will sort this out.”

Balls proceeds to make an unusual invitation, not least coming from someone regarded as a tribal Labour figure: he invites Liberal Democrat MPs to form a coalition with Labour now. “I think it would be much better now and for the future of the country if they did. It would be in the national interest. I don’t think they should wait until 2015. I don’t think it’s possible for Nick Clegg to lead that move

“But I have known many of the senior Lib Dems well enough over 20 years…they know this isn’t working, the economic consequences of carrying on with this are very dangerous for Britain.”

He points out that the Coalition’s law bringing in five-year fixed-term parliaments allows for a new government being formed without a general election. Wary that trust is lost when coalitions are formed and manifesto commitments are dropped, Balls would still become a keen member of such a government.

“Before or after the next election, if the parliamentary arithmetic throws up the need for a coalition of Labour and the Lib Dems, I would go into that with enthusiasm…I could serve in a Cabinet with Chris Huhne or Vince Cable tomorrow.

“They have got to decide whether they want to serve in a Lab-Lib Cabinet which is trying to protect the NHS, keep us a robust defender of the national interest in the EU and get unemployment down, or whether they are willing to go along with what they now find themselves bound into.

“As they sit there over Christmas and reflect what they are in politics for, there is a better way than this.”

He is unlikely to find that most Lib Dem MPs are knocking at Miliband’s door early next year, but then again there is a sense that almost anything could happen in 2012 . On that, Balls is already part of a fearfully large consensus. As for his own leadership ambitions he is evasive, focused instead on the Treasury where he held much sway when Labour last vacated the Leader of the Opposition’s room.

“I lost the leadership election; I got the office. We have got a leader. I back him 100 per cent. If the final job of my political career is Chancellor of the Exchequer, I would have had a pretty good career. My one regret would be if I don’t become Chancellor.”

Knowing how to manage money and be a savvy consumer is a vital life skill in an increasingly complex world. This website plays a really important role in educating and informing millions of people about how best to look after their hard-earned pennies and pounds, get a good deal and avoid being ripped off.

But why don’t young people start learning this at school? Education is about giving young people the skills and knowledge they need to get on in life, which is why I think it’s now time that every child should not only learn the 3Rs at school but about pensions and saving, borrowing and mortgages too.

And that’s exactly what would have happened in every school this September under plans I set in train as Schools Secretary before last year’s general election with the help and support of MoneySavingExpert.com’s very own Martin Lewis.

We said that financial education should be compulsory in the curriculum, as part what’s called Personal, Social, Health and Economic (PSHE) education – with improved training and tools for teachers to have the confidence to teach it. The law to make this happen was going through Parliament when the general election was called last year. But because the Conservatives refused to support Labour’s legislation the plans got scrapped.

There’s been no progress for the last 18 months, but I am determined that we now find a cross-party consensus on this vital issue for the long-term good of our country. So I’m pleased that the e-petition calling for financial education to be a compulsory part of the curriculum has been such a success. It’s already got over 100,000 signatures and has sparked a debate in the House of Commons later today.

There’s a review of the curriculum underway right now which is a perfect opportunity for the government to listen to the thousands of people who are backing this campaign. Let’s keep the pressure on and persuade the government to think again. Every child should learn about how to manage their money. It will set them up for the rest of their lives. And they might even be able to teach their parents a thing or two.

Adam Boulton: What did you make of PMQs? Not quite the note on which Labour would want to end the year?

Ed Balls: I think there are people up and down the country who are really worried about rising unemployment and it is one of those days where I’m afraid the knockabout and the jokes across the House of Commons despatch box slightly jar with the deep concern that families and businesses have about bills and jobs and exports. I don’t think it is a great day for the House of Commons.

AB: But if you take the issue of unemployment, particularly youth unemployment, the reality is that this has been a problem for this government as it was for your government? You know the famous quote from David Miliband saying the problem actually started during the last Labour government.

EB: Well it is true to say first of all we did a great job getting youth unemployment down with the New Deal and the windfall tax after ’97. It is also true to say that in the middle of the decade we focused on incapacity benefit and lone parents and during that period youth unemployment was still lower, but it was on a rising trend. That has completely now changed in the last year where youth unemployment has now shot up to a record high. And Ed Miliband was absolutely right to pin this on David Cameron. He promised a year ago to sort youth unemployment and it has now soared throughout this year. And David Cameron didn’t have a single answer. That is why… I think that, in the end, if you read the transcripts …

AB: You might not agree with him, but you cannot deny that programmes have been put in place to deal with youth unemployment, particularly apprenticeships, I know they cancelled your scheme but each government repackages the last one don’t they?

EB: Why would you cancel the Future Jobs Fund when unemployment is falling and then wait for unemployment to be rising again so fast to try and put a new scheme in place? That takes months.

AB: The problem that they found was that people were being taken through the Future Jobs scheme, taken on for a limited period and then put back on to the dole queue?

EB: Unemployment was falling. Look it is a nonsense to make that argument because the whole point is to get young people into jobs, get them skills, even if it is a temporary job it sets them up for the future. Instead we have seen, this year, a 90% rise in long-term youth unemployment. No wonder the Chancellor is having to borrow billions more than he planned, he is spending all these extra billions on benefits. That doesn’t get the deficit down, that is why the plan is not working.

AB: And yet your big plan is ending up having to borrow more because you want to cut VAT?

EB: Well George Osborne, and we have debated this many times on your programme, is borrowing £158bn more …

AB: Now I know he borrows …

EB: Why?

AB: By your plan he would have to borrow still yet more, so you can’t attack him for that?

EB: But Adam, the reason why he is borrowing more is because unemployment is rising. And what the polls say today, 49% to 40% in The Independent, people agree a plan now to bring the deficit down in a steadier way and get people into work is a better way to get the deficit down. They are going too far, too fast. It is not working and young people …

AB: Take that plan, I am going to be talking to Justine Greening in a moment, Transport Secretary, investment in infrastructure, that is exactly what you would be doing if you were in government?

EB: But the statement two weeks ago announced further cuts in infrastructure every year. There have got to be tough decisions, we’ve got to get the deficit down. But if you try and go too far, too fast, it backfires. It ends up with rising unemployment, more borrowing. I’m afraid that David Cameron wants to blame the euro crisis, the euro crisis is going to hit our economy next year, so far this is all his doing.

AB: Do you think the deal that the 26 reached is going to stop a euro crisis?

EB: No. Absolutely not. Absolutely not. I thought the outcome of the summit was a disaster for Europe and the euro. The things on the table which they were talking about don’t address the issue of the European Central Bank, they don’t address the issue of the fiscal straitjacket, they have no plan for jobs and growth. It is a catastrophe building week by week. And did last week solve it? No. Did our Prime Minister solve it? He walked out.

AB: Yeah but on that basis, if you think it was such a disastrous agreement, not associating yourself with it sounds like a reasonable thing to do?

EB: Not if you are a responsible statesman and not a party politician because we are going to be so affected if this euro crisis blows up. And it was a catastrophic failure …

AB: But if they come out with a stupid plan why associate yourself with it?

EB: Because if they don’t get the right plan we are all going to pay the price …

AB: Yeah but they wouldn’t listen to him …

EB: Why Adam? Why?

AB: They would hardly listen to him on, you know, you are getting it all wrong on the euro and you should be doing something different?

EB: Adam, the British Prime Minister is treated with contempt by the rest of Europe, what a disaster. President Sarkozy …

AB: It doesn’t appear to be what the British people think …

EB: President Sarkozy earlier in the year was calling for action to get the European Central Bank engaged. David Cameron told the Financial Times, ‘I want a big bazooka for Europe’. He walked away from this summit with nothing.

AB: No but you just said you don’t think the 26 came up with the right answer?

EB: I don’t.

AB: So why associate yourself with it?

EB: Because if you walk away … if you walk out of the room and you leave them to make mistakes, it is worse for Britain.

AB: Do you think there are things coming down the pipeline that will be imposed on the City of London that will be detrimental for employment in this country?

EB: Well I hope not. I really hope not. And in the past it has always been the case that you had to win a majority, a qualified majority, and build alliances to make sure we protect financial services. We have never lost a serious vote on those matters. It has been good for London being in the European Union. But now we are outside of the room, left to their own devices, who knows what they are talking about …

AB: You are making it clear that if you had been the British PM there you would not have supported this agreement?

EB: Ed Miliband, Douglas Alexander and I have all said this was not a good deal, but you don’t walk away and betray the British national interest by leaving the eurozone still without an effective central bank, a plan for jobs and growth, a proper plan to sort out the crisis. It is a catastrophe and David Cameron may drink champagne in Chequers this weekend, but for months and years to come we will pay a very, very heavy price for that lightweight lack of leadership.

-ends-

You can read Ed’s interview in today’s FT here or below:

Balls attacks ‘catastrophic’ EU leadership

By George Parker

Ed Balls has attacked a “catastrophic failure of leadership” by David Cameron and other European leaders at last week’s EU summit, warning that a debate about Britain’s isolation should not obscure the ongoing danger to the euro.

The shadow chancellor said David Cameron should have played a lead role in trying to resolve the eurozone crisis – including ensuring the European Central Bank acted as a lender of last resort – instead of “walking away” from the talks.

“We were told in the days and weeks ahead of the summit that it was the vital meeting, but then nothing happens,” he said in an interview with the Financial Times. “There was an abdication of responsibility by all, not just by some.”

Mr Balls said the summit had not addressed the crucial role of the ECB to head off the eurozone sovereign debt crisis. He also believes that European leaders – not just David Cameron – must move away from collective austerity and focus on growth.

By focusing on the wider eurozone problem, Mr Balls may be partly acknowledging that Mr Cameron’s decision to block a new EU treaty will play well with British voters, not to mention the media.

But he said the veto was a “short term and expedient” measure. He admitted that the prime minister was right to hang tough, but argued: “Walking away plays into a short-term political game. You should hang in there and argue for a better outcome.”

In the medium-term, Mr Balls believes the British veto has left UK business and the City more vulnerable and that future battles on single market laws – including financial services regulations – could be harder to win.

“The fear is that we will see a draining away of influence on financial services matters,” he said. “David Cameron will have spent the weekend drinking champagne but the hangover could last for many months to come.”

The shadow chancellor believes British prime ministers are often unable to distinguish between triumphs and defeats at European summits, citing Margaret Thatcher’s “handbagging” triumph at Fontainebleau in 1984 when she secured the British rebate.

“She was worried that the deal wasn’t good enough,” Mr Balls said. “Later it went down as a great victory.” He believes that any triumphalism displayed by Mr Cameron in the Commons today will be shortlived.

In particular, the former Labour City minister is dismissive of Mr Cameron’s attempts to roll back the application of qualified majority voting – replacing it with a requirement for unanimity – in certain areas of financial regulation.

The prime minister argued that unanimity should apply in areas such as the extension of powers to European financial regulators or in the application of bank “user charges”: Mr Cameron feared that a financial transactions tax might be applied as a regulatory fee on banks, thus making it subject to majority voting.

Mr Balls said that the operation of QMV in the single market and in financial services was one of Lady Thatcher’s proudest achievements – at the time at least. “It is massively in Britain’s interests because it stops countries blocking a way forward in financial services,” he said. “But of course that only works if you have allies at the table.”

The shadow chancellor is often a highly partisan figure, but he concedes that all British prime ministers are put in an almost impossible position when they travel to Brussels summits because of hostile media and public opinion.

“Our debate is always binary,” he said, echoing the observation of Tony Blair that British leaders were faced with a stark choice of “isolation or treason”.

“If you reach an agreement you are accused of selling out the national interest,” he said. “Leaders have got to get on top of that.”

This summit is turning out to be a disaster – both for Britain and the whole of Europe.

It’s not only that our weak Prime Minister, having spent several months focused on appeasing his own backbenchers rather than trying to make the argument for a sensible way forwards for Europe, has now found himself completely isolated, relegating Britain to the outer fringes of Europe.

But also, by being so isolated, he has failed to make the case for the action the Euro area, and Britain, badly needs right now to resolve the eurozone crisis.

Rather than glorying in isolation, our Prime Minister should have been building alliances to get political backing for the European Central Bank to act as lender of last resort which is urgent and imperative to restore market confidence, as well as a plan for jobs and growth across Europe to break out of the current austerity straitjacket.

The result is we now face the worst of all worlds – no action to stop contagion spreading in the eurozone, countries simply piling austerity on austerity with no plan for the growth and jobs that are essential to get deficits down, and a sidelined Britain not at the table when decisions that affect our national interest are taken.

Every Prime Minister has to go to summits and talk tough to protect Britain’s national and financial interests. But by walking away, this Prime Minister risks British business and our financial services industry paying a long-term price in lost investment, jobs and influence.

With the British economic recovery choked off over a year ago, well before this recent crisis, we are also now badly exposed if the eurozone continues to fail to get its act together. That is the immediate tragedy of David Cameron’s failure and Europe’s failure this week.

For several months now the government has tried to use the eurozone crisis as an excuse for inaction on jobs and growth here in Britain and a reason to stick stubbornly to an economic plan we now know is hurting, but not working.

But last week’s report from the Office for Budget Responsibility actually revised up growth in the eurozone while UK growth was downgraded again. In fact the positive contribution of net trade – exports minus imports – was the only thing which has prevented our economy from contracting this year.

Our recovery was choked off last year, well before the recent eurozone crisis, and the OBR’s gloomy forecasts for future years are based on “the assumption that the euro area struggles through its current difficulties” not on a worsening situation. By ripping up the foundations of the house – with spending cuts and tax rises that go too far and too fast – our economy has been left badly exposed to the storm that is coming our way.

Because if – by failing to take action to stand together so that the European Central Bank can act as lender of last resort and rushing to policies of collective austerity when Europe desperately needs a plan for jobs and growth – our main trading partners were to now slip into recession, and we are no longer able to rely on exports to fuel economic growth, then where will growth and jobs in Britain come from in the coming years?

That is why I say the eurozone crisis, and last week’s autumn statement, make the case for changing course in Britain now even stronger. Because we now know that George Osborne’s plan A is not only on failing on jobs and growth, but on the deficit too. The government is now set to borrow £158 billion more than planned: extra borrowing not to support the economy through difficult times, but the bill for the economic failure, higher unemployment and bigger benefits bill that this reckless Tory plan has created. As we warned, deep spending cuts and tax rises have proved to be utterly self-defeating in getting borrowing down.

So with the government’s plan having failed, Britain now needs a plan that works. Of course the government’s failure to get the deficit down means that the next Labour government will have to take tough decisions on tax and spending. And as Ed Miliband and I have said we will need long-term reforms of our economy if we are to deliver social justice in straitened times. But to successfully get the deficit down we also need action now to boost jobs and growth, as Labour’s five point plan clearly sets out.

Any British government would be borrowing now. The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a better, fairer way.

If we let a year of flatlining become a decade of stagnation, what price will our country pay in the long term? That is why Labour believes it makes sense to act now with temporary tax cuts and investment in jobs and growth to save ourselves from the future bills of failure.

Not acting now to support the economy will not only condemn hundreds of thousands of people to unemployment and risk thousands more businesses going under, it risks long term damage too. The trend growth rate of the economy is not fixed – so this isn’t just about growth postponed versus pain deferred. Months – or years – of slow growth aren’t something that will be quickly repaired.

As I said in my lecture at the LSE earlier this year, it risks leaving a permanent dent in our nation’s prosperity – relative to how prosperous we might have been and how prosperous we are relative to other countries. The longer we spend with no or slow growth, the longer the road to recovery becomes, the greater the pain that will have to be endured and the further we fall behind.

That is why this out of touch government should listen not just to Labour, but the IMF too, and change course. It’s now clear that George Osborne’s plan has failed. We must now show that Labour has a better way to boost jobs and growth – which will be a fairer, better way of getting the deficit down too. Enough of excuses, it’s time to act.

‘You can’t borrow your way out of a debt crisis.” That is the simple mantra we have heard from the Prime Minister week after week. The Government took it as read that deep and immediate spending cuts and tax rises would at least serve the goal of deficit reduction — no matter how much Labour warned that going too far, too fast would be bad for borrowing as well as for jobs and growth.

So while the scale of borrowing set out in last week’s Autumn Statement is certainly a challenge for Labour, it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.

The Chancellor had claimed that public retrenchment would boost private sector confidence, investment and job creation. He called it “expansionary fiscal contraction”. But this has turned out to be a false prospectus — a repeat of the discredited “Treasury view” of the 1920s. Instead, fragile consumer and business confidence was crushed by the inflationary rise in VAT, the anticipated fall in public sector demand, the reality of falling incomes and the fear of rising unemployment. And so it is George Osborne who is being forced to borrow billions more — to pay the price of slow growth, increasing job losses and a bigger benefits bill.

Yes, in recent weeks, worries about the eurozone crisis have added to the gloom. But our exports have actually been overperforming compared with expectations. It is weak domestic demand that has driven growth in the UK down, borrowing up and depressed interest rates on long-term government bonds. This is not a sign of enhanced credibility but a reflection of stagnant growth in our economy, as it was in Japan in the 1990s and is in America today.

But, I can hear Conservative ministers scoffing, Labour’s proposal is to borrow even more. Let me deal with that argument head on — not in the phraseology of economics textbooks, but in the language of the real world .

This autumn, many young people who would otherwise have stayed on at school have lost their education maintenance allowance and — after the abandonment of the Future Jobs Fund — many more have gone straight into unemployment, contributing to the one million young people out of work.

On the surface of things, cutting EMAs and the Future Jobs Fund saved money and reduced borrowing. But how much more will it cost our society and economy to leave those young people unemployed and unproductive, receiving benefits rather than contributing to the national wealth?

And this is the simple argument: if we let a year of flatlining become a decade of stagnation, what price will our country pay in the long term? That is why I believe it makes sense to act now with temporary tax cuts and investment in jobs and growth to save ourselves from the future bills of failure.

Even the IMF has said that if our economy undershoots expectations and risks a period of stagnation, the UK should slow down the pace of spending cuts and tax rises. That is why it is right for Labour to set out a clear jobs plan now — to stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy.

The fact is, any British government would be borrowing now. The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.

But it would be naive for anybody to think that the Government’s deepening economic failure will automatically translate over the coming months into success for Labour. We have never denied that a plan is needed to get the deficit down and that it would mean tough decisions on tax and public spending. The question was not “whether” but “how” and “when”. And yes, we would not have started from here — a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans wildly off track.

But we are where we are. And the question the public naturally ask is whether and when Labour can be trusted on the economy again. After all, the biggest global financial crisis since the 1930s happened on the previous Labour Government’s watch.

That is why it is so important that we set out before the next election tough fiscal rules that the next Labour government will have to stick to — to get our country’s current budget back into balance and national debt on a downward path. And these fiscal rules will be independently monitored by the Office for Budget Responsibility.

The same iron discipline that guided decisions such as granting independence to the Bank of England and using the £22 billion windfall from the 3G mobile phone auction to repay the national debt (despite Tory demands to spend it) must guide a future Labour government too. So in our manifesto we will commit to do the responsible thing and use any windfall gain from the sale of the Government’s stakes in RBS and Lloyds to repay the national debt rather than for a giveaway. And as Ed Miliband and I have made clear, we will need long-term reforms of our economy to deliver social justice in straitened times.

Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts. But honesty does not mean going along with a failed Conservative plan because it is easier in the short term. We tried that when Labour supported the disastrous decision to join the ERM in 1990 and stuck with it .

I have heard much advice over the past year from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics, but they argue that it is bad politics because it is “out of tune” with the public mood.

But I also remember the advice of my old friend Ken Clarke: that, in the end, good economics is good politics too.

We need real political leadership to resolve the eurozone crisis. The pre-emptive and coordinated action by central banks yesterday is welcome. But the only way to properly ensure market confidence in the eurozone is for the European Central Bank, alongside the bail-out fund, to finally be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to.

Here in Britain, our economic recovery was choked off over a year ago – well before this recent eurozone crisis. Consumer and business confidence has been falling for the last year.

The OBR’s report this week actually upgraded its forecast for eurozone growth this year, while it slashed its forecast for the UK. And it made clear that the main factor driving growth in the UK this year was net trade, while the contraction of domestic demand has driven the slowdown.

But going forward, if eurozone leaders continue to fail to take the necessary action and the eurozone crisis deepens, it will of course have an impact here in Britain.
Last summer I argued that when a global hurricane was brewing it was not the right time to rip up the foundations of the house. The government thought it knew better and that going further and faster than Labour’s more balanced plan would boost confidence and private sector job creation.

But instead of making things better, I believe that gamble has ended up making things worse. With our recovery choked off last autumn and unemployment already rising to a 17 year high, we are now in a much weaker position to face the storm as it gets closer.

And the OBR’s very gloomy forecasts this week are based on “the assumption that the euro area struggles through its current difficulties” not on a worsening situation.

So what can be done here in Wales and across the UK?

The Chancellor’s answer this week was to effectively accept that things would continue to get worse and that the government must carry on and stick to its plan – despite slower growth and higher unemployment which is leading to £158 billion more borrowing than planned. Extra borrowing not to support the economy through difficult times, but the bill for the economic failure, higher unemployment and bigger benefits bill that has been created.

The small measures announced by the government this week will not – according to the OBR itself – make much, if any, impact. The OBR’s report explicitly says: “we have not made any material adjustments to our economy forecast on the basis of these policy announcements”.

But it does not have to be this way.

I believe it is now even more vital that we take action here in Britain to support business, get our economy moving again and create the jobs we need.

The eurozone crisis should not be an excuse for inaction or a reason to stick stubbornly to a plan that isn’t working. It makes the case for changing course now even stronger. Because if we cannot rely on exports to fuel economic growth then where will growth and jobs come from in the coming years?

The IMF was clear earlier this year that if the economy undershoots expectations and risks a period of stagnation – which is what the OBR this week said would happen – then the UK should slow down the pace of spending cuts and tax rises. I believe the Chancellor got it wrong 18 months ago, but by rejecting the IMF’s advice I believe he is compounding the original error and getting it wrong again this week.

Action now is vital for businesses and families, but it is also vital if we’re to successfully get the deficit down in the medium term. That is what Labour’s five point plan for jobs clearly sets out, including a national insurance holiday for small businesses taking on extra workers, a temporary VAT cut to boost spending power and genuinely bringing forward infrastructure projects that help strengthen our economy for the future.

Here in Wales, I fear that businesses and the wider Welsh economy will be disproportionately hard hit by slower growth, rising unemployment and the loss of over 700,000 jobs in the public sector across the UK.

First Minister Carwyn Jones and his team have worked hard in recent weeks, in partnership with business here in Wales, to use every lever available to them to get young people into work and promote apprenticeships, skills and investment. Jobs Growth Wales is exactly the kind of programme we have been calling for the UK government to follow. But without progress in the eurozone and a change of course from our Chancellor these will be tough times ahead.

Not acting now to support the economy – and sticking to a plan of spending cuts and tax rises that I believe goes too far and too fast and has seen our economic recovery weaken rather than strengthen – will not only condemn hundreds of thousands of people to unemployment and risk thousands more businesses going under, it risks long term damage too.

The trend growth rate of the economy is not fixed – so this isn’t just about growth postponed versus pain deferred. Months – or years – of slow growth aren’t something that will be quickly repaired.

As I said in my lecture at the LSE earlier this year, it risks leaving a permanent dent in our nation’s prosperity – relative to how prosperous we might have been and how prosperous we are relative to other countries.

Because economic history also teaches us that economies don’t simply bounce back to where they would have been.

Who now doubts that the depth of the recession of the early 1980s had long-term and permanent effects? Manufacturing jobs and companies lost – never to return. Small businesses gone bankrupt – losing skills, ideas, networks and potential.

Capital investment plans first postponed eventually dropped and never resurrected. And most importantly of all, adults and young people out of work for months, which turned into years, and left a permanent scarring effect on their skills, their health, and their ability and willingness to ever work again.

So the claim that the current debate about the pace of cuts is simply deferring pain misses the point.

The risk is that George Osborne will wreak long-term, as well as short-term, damage on the British economy by creating a vicious circle of permanently lower business investment, lower income and lower employment, which in turn requires bigger tax increases and deeper spending cuts to get the deficit down.

All at a time too when people are already suffering up and down our country – here in Wales and across the UK. Life is already tough enough if you’re unemployed – and we need to help those people into work.

It’s also tough for all those who have worked all their lives but for whom flat wages, the fear of unemployment, higher fuel and food prices and growing debt means they’re seriously worrying about their futures – and those of their children – for the first time. As Ed Miliband has said, this is a threat to the Promise of Britain – the promise that the next generation will be better off than the last. And it’s difficult too for pensioners dependent on fixed incomes, as well as for young people wondering what prospects they will have.

But there is a further reason why this matters. We all know that the financial crisis exposed the vulnerability of banks and the over-reliance of the British economy and tax receipts on financial services. But it also accelerated the rise of India and China as our competitors – not just in low-cost manufacturing; but in top-class design, education and attracting international investment. And we can’t afford to be left behind.

We need to rebuild our banking and financial sectors – and do so by rewarding investment and sustainable growth, not short-term risk-taking. We need a modern industrial policy that provides incentives for technological and scientific innovation. And we must ensure every company takes their responsibilities seriously and every employee gets the chance to up skill.

While the Conservative Liberal notion is that support for market-led growth means that the ideal state is one in which government does as little as possible, in truth, markets are inevitably and unavoidably shaped by what governments do, and by what government doesn’t do.

And the longer we spend with no or slow growth, the longer the road to recovery becomes, the greater the pain that will have to be endured and the further we fall behind.

Mr Speaker, let me start by thanking the Chancellor of the Exchequer for advance notice of his statement and the Office of Budget Responsibility for ensuring that the Chancellor is today setting out to this House the truth about the state of the British economy and the truly colossal failure of the Chancellor’s plan.

Mr Speaker, let’s be clear what the OBR has told us today – though the Chancellor couldn’t quite bring himself to say it: growth flat-lining – down this year and next year and the year after too; unemployment rising; well over £100 billion more borrowing than the Chancellor planned a year ago; more borrowing than the plan which the Chancellor inherited at the last general election, and, as a result, his economic and fiscal strategy in tatters.

After eighteen months in office, the verdict is in: Plan A has failed and it has failed colossally.

With prices rising and unemployment soaring families, pensioners and businesses already know it’s hurting.

And with billions more in borrowing to pay for rising unemployment, today we find out the truth – it’s just not working.

Mr Speaker, the Prime Minister likes to say: “You can’t borrow your way out of a crisis”.

Can the Chancellor confirm that that is exactly what he has been forced to do:

Higher borrowing to pay for the crisis in growth and jobs in Britain, the higher unemployment and the higher benefits bill that his failing plan has delivered?

LAST YEAR’S MISTAKE

Mr Speaker, the Chancellor’s out of touch and complacent hubris of a year ago now seems such a distant memory.

The Prime Minister boasted that Britain was ‘out of the danger zone’. The Chancellor claimed that the UK was a ‘safe haven’. But we know the truth: cutting too far and too fast has backfired – and every one of the Chancellor’s claims of a year ago have completely unravelled.

And, Mr Speaker, it is not as if they weren’t warned – including by their coalition colleagues.

Before the election we said, like every country – and after the global financial crisis – we had to get our deficit down and that meant tough decisions on tax and spending cuts.

The question is not if you do it, but how you do it.

Which is why we on this side of the House warned if you try and cut spending and raise taxes too far and too fast, you risk choking off recovery pushing up unemployment and borrowing.

We said the Chancellor’s plans wasn’t cautious, it was reckless.

We said he was ripping out the foundations of the house leaving our economy not safe but deeply exposed to a brewing global storm.

Let me remind the Chancellor what the Managing Director of the International Monetary Fund warned this summer, she said:

“slamming on the brakes too quickly will hurt the recovery and worsen job prospects”

And Mr Speaker, what has happened?

Consumer and business confidence has slumped in the last year.

Our recovery was choked off over a year ago.

Since last year slower growth than any other G7 country except Japan – and they had an earthquake. Unemployment at a 17 year high. 1 million young people out of work.

And today the news that growth this year will not be the 2.3 percent the Chancellor so confidently predicted in the June Budget this year but just 0.9 percent.

Growth lower next year than this year Mr Speaker. And lower than forecast in the year after.

The fourth time that the OBR has downgraded the growth forecast in just eighteen months.

BORROWING

And Mr Speaker, now today we learn that even judged by the one objective this Chancellor set himself, to get the deficit down, he is failing.

Because with lower growth and rising unemployment pushing up the costs of failure, can the Chancellor confirm that compared to his autumn statement a year ago borrowing is now set to be not the £46bn more that he said it would be in March, can he confirm compared to his plans of a year ago he is now going to borrow a staggering £158 billion more in borrowing?

Higher borrowing than he promised a year ago – £158 billion more borrowing.

And can he also confirm – despite the pain of £40 billion of extra spending cuts and tax rises the Chancellor boasted about a year ago – can he confirm that compared to the plans he inherited at the last election because the recovery he choked off and because unemployment is higher he is now set to borrowing more at the end of this Parliament than the balanced plan inherited from Labour.

Mr Speaker, a year ago the Prime Minister told the CBI that:

“In five years’ time, we will have balanced the books.”

Not some kind of dodgy rolling target – but a clear commitment to eliminate the deficit by 2015.

Can the Chancellor tell the House – will he meet his fiscal mandate to eliminate the structural deficit by 2015?

Isn’t this the truth, Mr Speaker: with unemployment up and borrowing up, going further and faster has been utterly counter-productive and self-defeating.

It has backfired.

We’ve had all of the pain, but none of the gain.

EXCUSES

Mr Speaker, I have to say, these OBR forecasts show that the Government’s entire economic and fiscal strategy is now in complete disarray.

And yet all we get are excuses.

Blaming anyone and anything: Labour, the snow, the royal wedding, the Japanese earthquake, higher inflation, VAT, the Eurozone, low paid dinner ladies a nd teaching assistants; anybody but himself.

When it is the Chancellor that is to blame. It is his failing plan that has pushed up unemployment and pushed up borrowing. It is his reckless gamble that has made things worse here in Britain – not better.

Mr Speaker, of course if eurozone countries continue to fail to sort out their problems, it will have an impact here.

But Britain’s economic recovery was choked off over a year ago –before the euro crisis.

Look at the OBR forecast – they’ve downgraded growth in Britain this year; they’ve upgraded growth in the euro area this year.

Out of 27 countries in the European Union, only Greece, Portugal and Cyprus have grown more slowly than Britain in the last year.

REPEATING THE MISTAKE

I have to say Mr Speaker, it is not only not too late for the Chancellor to change course. The deepening Euro crisis makes it even more important that he sees sense.

But instead, he is clinging to the fantasy that any change of course would make things worse.

And he still clings to the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility and not, as they were in Japan in the 1990s or in America today, a sign of stagnant growth in our economy.

They don’t like it but it is the truth Mr Speaker. They set up the OBR, maybe they should listen to their forecasts Mr Speaker.

This summer the head of the IMF warned the Chancellor:

“Growth is necessary for fiscal credibility”.

But the Chancellor says a change in his plans would lead to a loss of credibility – even as he is forced today to confirm that his growth and borrowing targets are now wildly off track.

Last month the IMF advised the Government and let me quote:

“if activity were to undershoot current expectations and risk a period of stagnation or contraction countries that face historically low yields (f or example, Germany and the United Kingdom) should also consider delaying some of their planned consolidation.”

Mr Speaker with the world darkening and with today’s news that here in Britain we are set to see stagnant growth not just this year but next year too, let me ask the Chancellor:

Isn’t it now time for the Government to listen to the IMF?

How much worse does it have to get – how many more young people need to lose their jobs , how many more businesses go bankrupt – how many more times will he have to downgrade his growth forecasts and upgrade his unemployment forecasts, how many billions more in borrowing do we need to pay for failure – before the Chancellor finally sees sense?

Mr Speaker, these would be difficult times for any Chancellor.

But our fear is that once again the Chancellor is making a catastrophic error of judgement in his statement today.

He is refusing to learn the lesson of history or economics

He is refusing to shift to a more balanced plan.

He got it wrong eighteen months ago. He is getting it wrong again today.

Repeating the mistakes he made last year will only make things worse.

Isn’t now the time to act to listen to the IMF, to cut taxes and have a slower pace of spending adjustment?

Isn’t it time that the Chancellor changed course before it is too late?

A GROWTH PLAN?

What do we have instead, Mr Speaker?

A cobbled together package of growth measures which he must know – and which the OBR forecast confirms – do not address the fundamental problem that his rapid, reckless and deflationary plan that is choking off the recovery and pushing up borrowing.

Mr Speaker, we have been here before.

This is the third emergency growth package in a year.

The last thing our economy needs is yet another fantasy growth package.

Honourable members do not have to take my word for it, let‘s look at t he OBR’s own forecast:

Does the OBR think the Chancellor’s plans are going to boost growth?

No, they’ve revised growth down.

Next year from 2.5% to 0.7% – and in the following year they’ve revised growth down from 2.9% to 2.1%.

And does the OBR think the Chancellor’s plan is going to increase employment and cut unemployment?

Let me tell the House two things in the OBR forecast which the Chancellor did not choose to tell the House.

Unemployment is not only higher next year than this year but higher the year after than this year Mr Speaker.

And employment is expected to fall by 100,000 next year.

We were promised a ‘game changer’ of a statement, we were promised a growth plan that would secure the recovery.

Instead he has a plan for growth that means lower growth and higher unemployment Mr Speaker.

It’s not a game changer, it’s just more of the same.

MEASURES

Let me turn to the measures that he has announced:

He’s announced a new youth jobs fund but why ever did he abolish the Future Jobs Fund in the first place? They abolished it in their first month in office and this replacement won’t take effect till well into next year.

He claims to have increased the bank levy, so why is he still cutting taxes on the banks this year compared to last year – down from £3.5bn last year to £2.5bn this year? And why won’t he also repeat the bank bonus tax to invest properly in youth jobs?

He’s announced a sensible halt to January’s fuel duty rise, but can he confirm, as a result of last January’s VAT rise, motorists are now paying 3p a litre more on petrol?

He’s belatedly announced a plan on Labour’s Enterprise Finance Guarantee under the new label of Credit Easing but why did he wait so long and why did he put his in a Project Merlin deal which has patently failed, and as the Bank of England confirms today, has seen net bank lending to small businesses fall over the past year?

And as for his equally belated decision to set up a new Infrastructure Fund this from the same Chancellor who abolished the Building Schools for the Future programme at a cost of tens of thousands of construction jobs.

Let me ask him, how much of this investment will happen next year or the year after? how much is actually pre-announced funding from the next Spending Review after the next general election? And can he confirm that this new ‘off-budget’ infrastructure fund will be subject to a National Audit Office value for money test to ensure projects are not more expensive to the tax payer than direct government borrowing?

He’s also announced a rebate for energy intensive industries to correct the chaos caused by his botched carbon floor price.

He’s reinstated just 10% of his planned £4bn cut in housing investment.

But even in the last few minutes as we have studied the small p rint, and despite all the bluster about new measures, because this Chancellor is so determined not to break from his failing plan, he is once again giving with one hand and taking with the other.

How are these new growth measures paid for? By hitting families and savers Mr Speaker.

Let me ask the Chancellor:

How much will his cut in tax credits cost a working family on average incomes?

And with inflation so much higher, is the Chancellor still meeting the Prime Minister’s pledge to deliver real terms rises in NHS spending in this Parliament?

And as a result, and taking into account pre-announced measures in his budgets and spending review, is the Government:

Still hitting women harder than men?

Are they still increasing child poverty and not reducing it?

And given that he has already cut childcare support by £1.6bn, is he helping women who want to go out to work or is he making it harder?

Mr Speaker, if we are all in this together, why with this Government is it always families, women and children who pay the price?

CHANGING COURSE

Mr Speaker, it is clear that this Chancellor’s plan is not working.

The OBR knows it, the markets know it, the IMF knows it, we know it, so, increasingly, do the Chancellor’s coalition colleagues. His arch-rival the Mayor of London certainly knows it Mr Speaker

But we all know why the Chancellor cannot change course.

We know why he cannot accept the IMF’s advice.

We all know why, even as the Euro crisis deepens, even as he is borrowing £158 billion extra this oh-so-political Chancellor will not budge.

Because to change course now would be to admit that he has got the key economic judgments of this Parliament absolutely catastrophically wrong.

Mr Speaker, if after eighteen months his plan is leading to falling growth, rising unemployment and £158 billion more in borrowing, the country either needs a new Chancellor or it needs a new plan.

A balanced and credible plan on jobs, growth and the deficit.

We need real tax cuts.

Real investment.

A real plan for jobs, growth and deficit reduction, Labour’s five point plan for jobs, growth and deficit reduction.

Real action now before it is too late.

Protecting our economy, businesses, jobs and family finances is more important than trying to protect a failed plan.

For his sake, for his party’s sake and in the national interest, the Chancellor needs to change course and he needs to do so now.

Today is judgement day for David Cameron and George Osborne.

It is the day when we will find out that their reckless gamble with our economy has backfired. Families, pensioners, young people and businesses are already paying the price.

A year and a half ago the new Tory-led government told the country that cutting spending and raising taxes further and faster would help the economy, create private sector jobs and get our deficit down. Many people believed and hoped that it would work, even if it hurt.

Mirror readers certainly know that the plan is hurting: the price of everything is going up and up, one million young people can’t find work, unemployment is at its highest level for 17 years and the economy has now flatlined for a year.

But today’s judgement from the government’s independent budget watchdog will tell us whether or not it’s working to fix the economy and get the deficit down.

I’m afraid the signs aren’t good. The OECD said yesterday that our economy will continue to flatline, or worse, well into next year. And the government is already set to borrow £46 billion more than they planned – the bill for the economic failure and extra unemployment they have created. If that figure rises even further today – and we see billions more borrowing than expected – it will be a huge blow to the government’s credibility.

And after blaming the snow and even the Royal Wedding, the Chancellor’s latest excuse is to blame the rest of Europe.

Of course if the eurozone continues failing to sort out their problems, it will have an impact here. But Britain’s economic recovery was choked off over a year ago – well before this recent crisis. And out of 27 countries in the European Union, only Greece, Portugal and Cyprus have grown more slowly than us in the last year.

Like every other country we’ve got to get our deficit down and that means tough decisions on tax and spending cuts. Everyone is agreed on that. The question is not if you do it, but how you do it. As Labour and others warned a year ago, if you try and cut spending and raise taxes too far and too fast you risk making things worse not better.

If you throw hundreds of thousands of people on the dole – claiming benefits rather than paying taxes – you just end up wasting billions of pounds on a rising benefits bill. That doesn’t make economic sense.

Ed Miliband and I are determined to show there is a better way – to get our economy moving again, create jobs now, build a better economy for the future and so get the deficit down.

We know that isn’t an easy task. Labour has a big job of work to do to regain people’s trust on the economy. The biggest global financial crisis since the 1930s happened on the last Labour government’s watch. It’s only a year since the British people decided to give a new government a chance.

And while Labour did many good things in government – getting NHS waiting lists down, improving school standards and cutting crime – we made some mistakes too. We didn’t spend every pound of public money well. We should have adopted tougher controls on migration from Eastern Europe. And we weren’t tough enough on the banks here in Britain and around the world.

I also know that many people still hope and think that the government’s plan will work. But when the evidence is piling up that the government’s plan is not working, the country can’t afford to have out of touch Ministers sitting on their hands and saying that we’re a ‘safe haven’.

Businesses are crying out for a plan for growth. Even Tory MPs are now saying Labour is right to call for tax cuts to help hard-pressed families. And the independent International Monetary Fund said earlier this year that if things got worse the government should change course.

The time to change course is now. Labour’s five point plan for jobs would not fix things overnight – but it is a better way to help hard-pressed families, create jobs and support small businesses.

And by getting our economy moving again, it will also help to get the deficit down – and do so in a fair way. Because it cannot be right to borrow tens of billions of pounds to keep people on the dole, when we could be investing to get people back to work.

George Osborne needs to get his head out of the sand. Instead of excuses or waiting for things to get even worse, we need action and a new plan. And we need it now.

Labour’s five point plan for jobs and growth

1. Jobs for young people

One in five young people are now out of work – a record high. If we don’t do something we risk creating another lost generation like we saw in the 1980s. That’s why Labour says we need a £2 billion tax on bank bonuses to fund 100,000 jobs for young people – which they would be required to take-up – and build 25,000 more affordable homes.

2. Get building again

Let’s genuinely bring forward long-term investment projects – like the hundreds of new school buildings cruelly cancelled last year – to get construction workers back to work and strengthen our economy for the future. It’s what businesses want and it’s good for our economy too.

3. A tax cut for families and pensioners

January’s VAT rise has been a disaster – sucking money out of the economy just at the wrong time and hitting families hard. We should reverse it now for a temporary period: a £450 boost for a couple with children and around a £275 a year for a pensioner couple. It would give the economy a shot in the arm and help our struggling high streets too.

4. Help for home owners

A one year cut in VAT to 5% on home improvements, repairs and maintenance will help homeowners who can’t afford to move and help struggling small businesses too. It will create jobs and clamp down on the black market economy. This plan is backed by organisations from the National Trust to the Federation of Small Businesses.

5. Support for small businesses

Small firms are the life-blood of our economy. A one year national insurance tax break for every small firm which takes on extra workers would help small businesses to grow and create the jobs we desperately need. And it could be paid for using almost £1 billion of money left over from one of the government’s failed schemes.

Andrew Marr: Before we turn directly to the Autumn Statement, let’s just talk about Wednesday’s strike. Is this something that you would urge the unions to call off even at this last hour?

Ed Balls: I would urge the government to get round the table, give some ground and sort this out. It is terrible that we are going to have a strike on Wednesday. I don’t think anybody wants it. It will be hugely disruptive for families, for businesses. But I also have sympathy for those low-paid public sector workers who are seeing their contributions go up and their pensions cut. We are talking here about dinner ladies, teaching assistants, paid under £15,000 who are being hit really, really hard. The government has got to give some ground. So have the unions. There has to be a deal. It takes both sides to sort this out.

AM: It’s probably fair to say that you have more influence on the union side than on the government. They are more likely to listen to you. So would you urge the union to give enough ground and perhaps delay this or call it off?

EB: I would urge the union leaders to say we’ll give ground and we’ll talk. I think Ed Miliband was right in June to say that it was the wrong thing to do to be striking in June when the government was still talking. But they [the government] made clear two weeks ago that they were going to give no more ground. Even John Hutton has said this is very risky, the three per cent rise in contributions. It is also deeply unfair and in these circumstances there are loads of very low paid workers, three quarters of a million paid under £15,000 predominantly women who are going to be retiring on pensions of £3,000 or £4,000 a year – not a month, a year – who are going to be hit really, really hard and I think people don’t think that’s fair. The government should give some ground. I have to say, I think David Cameron and George Osborne have always been clear in their mind that they wanted this confrontation.

AM: Both sides are quite close to agreement in different areas. There are unions and employers in different government departments not so far apart and coming together. A lot of people would say it’s inevitable, any government, a Labour government, would end up having to deal with the cost of public sector pensions. It was always going to be painful but there has to be a compromise and having a strike like this doesn’t help.

EB: A Labour prime minister would have had to sit down and negotiate. The trade unions would have had to have given some ground. But David Cameron said a few weeks ago to the Daily Telegraph he was privately delighted the trade unions had walked into his trap. No Labour prime minister in the last 13 years ever sat around saying ‘I’m privately delighted at strikes and confrontation’. I think that is deeply, deeply irresponsible and the disruption on Wednesday to many families and businesses with whom I have got great sympathy could be avoided if David Cameron decided he wants to act and he hasn’t. His intransigence and his opposition to progress are causing the problem here.

AM: Let me put a proposition to you about the Autumn Statement and the argument around it. If you look at a lot of the things that the government has recently announced and looks likely to announce, they are not so different to the kind of things that Labour would be doing, when it comes to youth unemployment, when it comes to struggling small and medium-sized firms, when it comes to helping commuters. When people look at the exchanges in the House of Commons with all this finger-stabbing and shouting and so on, actually things are now too serious for that and it would be welcome to have the opposition saying, ‘do you know what? On all of these measures, we are with them, we agree and we are going to help them get them through the House of Commons quickly’.

EB:                  I would love a consensus on the way forward with George Osborne, David Cameron and the Liberal Democrats. I would love it and I think it would be better for Britain. And you are completely right: Nick Clegg now is announcing the reintroduction of the Future Jobs Fund in a rather smaller form, which should never have been abolished in the first place by the government. They are now saying let’s put back 10 per cent of the housing spending they cut. They are now saying let’s put back some infrastructure, let’s do more for small firms lending, building on something Labour did which they should have done earlier. But fundamentally, Andrew, there is a bigger issue here which is that George Osborne and David Cameron said a year and a half ago, and we disagreed, they said if we go faster on deficit reduction – £40 billion more cuts, fastest cuts of any country – they said it would lead to private sector jobs, to growth, to confidence, to falling unemployment but it hasn’t worked.

AM: Clearly, we are in economic troubles at the moment.

EB: Of the government’s own making.

AM: If their deficit reduction system hasn’t worked, why is it that the British government is able to borrow money at four and a half per cent or five per cent below what it is costing the Spanish and the Italians and others? Britain has a triple A rating and gilts are going at a very good price. Our international reputation seems to be pretty strong and the government would say that is down to our deficit reduction plan and it is sticking to it.

EB: Well it would and that has been the fantasy they have peddled for the last year. Let’s take these points in turn. First of all, they say we have low interest rates because of deficit reduction even though fundamentally it’s because we are not in the euro and because we have very low growth. America in August had its credit rating downgraded and its interest rates didn’t go up, they went down too because America is not growing. Secondly, they say that we have got credibility with the financial markets because they have got a deficit reduction plan. But George Osborne is going to borrow billions and billions of pounds more than he planned. Why? Because unemployment is going up because his plan has failed.

AM: And the truth is the difference between you is now infinitesimally small. It’s a third of one per cent. You would be doing much the same, if you are still sticking to Alistair Darling’s original plan. You still are?

EB: Yes of course.

AM: If you are sticking to that plan then the difference between what you are doing and what the government is doing is really not enormous. It’s not the difference between slump and prosperity.

EB: I am sticking to the plan in the sense that we would have done Alistair’s plan in government. George Osborne didn’t. He ripped it up. He went £40 billion faster including the VAT rise and it hasn’t worked and he is trying to blame the snow, or Labour or the euro. It was his decisions which choked off the recovery. But listen, the IMF said a few months ago – the IMF who George Osborne used to boast about supporting him – they said that if the economy undershot growth plans, if it wasn’t growing, the sensible, balanced thing to do was to slow the pace of cuts, to reverse and do some tax cuts, get the economy moving, boost growth and jobs, get unemployment down to get the deficit down. The IMF is right and I back the IMF in their proposals. George Osborne doesn’t. If he moves to a more balanced plan we will support him. If he doesn’t, I am deeply fearful, deeply about what this will mean for growth for jobs and for deficit reduction in the next few years.

AM: So what you would do that’s different is that you would for instance reverse the VAT rise and you would slow the cuts. Now that costs you a lot of money pretty much straight away. Where do you find that money?

EB: It’s a five point plan for growth and jobs that you set out and you mentioned two elements there, also repeating the bank bonus tax for youth jobs. But we would agree with the IMF the right thing to do –

AM: [Interrupting] That tax, it is said, you have spent nine times so far on different projects.

EB: Andrew, the Conservative Party says that. It doesn’t make it true. It’s a lie. The only proposal we are making for spending the bank bonus tax is for youth jobs. We have a five point plan, which the IMF has said if there’s no growth you should slow the pace and move to a more balanced plan. George Osborne says that will lead to more borrowing and that would be irresponsible. He is going to borrow in the next five years, according to his own independent forecasts, over £100 billion more than he planned. He is borrowing for unemployment and failure. I say get the economy moving, get some help for families, some help for businesses which will get growth and jobs moving and get the deficit down. It’s a massive choice. It’s a very, very big choice. It’s not just trivia and inconsequential.

AM: Realistically, you would both be borrowing a great deal, you would both be facing an extremely difficult international situation and you would both have economic plans for growth which aren’t the same but they are not a million miles apart. I just ask again whether the heat and the aggression between the parties at this time of national crisis is appropriate?

EB: I think it is fundamentally necessary because when the government is making a catastrophically wrong decision and people are fearful and angry, the opposition has got to stand up for the alternative, as happened in 1929, 1930 and 1931 in a similar situation after a financial crisis. I have been on this programme many times when you have said to me that what I am proposing would not work, would be irresponsible. You can’t now say it’s the same as George Osborne’s plan. There was a big choice a year ago. We were out on a limb in advocating a different approach. Actually, increasingly, the IMF, the OECD, business organisations, Conservative MPs are all seeing that the George Osborne and David Cameron’s plan hasn’t worked. It has led to more borrowing. We need a different course and a long-term reform of our economy too.

AM: So if we see the credit easing plan for small companies that we read we are going to, that is something presumable that you would be pleased by?

EB: If there is a credit easing plan, that would be a good thing. It should have happened earlier. If they reintroduce the Future Jobs Fund, good. If they don’t go ahead with the freeze in fuel in January, good thing. I think they should actually do a temporary cut in VAT which would be more. If they do more to help get down child poverty, we’ll support that.

AM: If we see this credit easing, you would back it? That is my question.

EB: We will look at the detail. I don’t quite know how it’s going to work. But I think it’s very similar to the small firms’ guarantee scheme which has been around for years. But the issue is, why is the economy not growing, why are firms not borrowing, why is confidence slumping? Because the fundamental strategy isn’t working. And George Osborne is going to want to placate here and rather desperately push aside here and on his big issue he is totally in denial until he gets his head out of the sand and sees it’s failing, it’s not going to work.

John Humphrys: Do you like the sound of this housing idea?

Ed Balls: I think it is a good start it at last shows recognition from the government that we need action now to get the economy moving and to start building houses, get people into jobs. I am afraid it is rather small beer in its scale, it is a £400m boost, but George Osborne last year announced a £4bn cut in housing spending, and we have proposed building 25,000 homes this year and next using the bank bonus tax which would be a considerably bigger boost to jobs in the construction sector. But at least it starts to show that David Cameron and George Osborne have realised that unless you act to get growth and jobs in our economy you can’t get the deficit down and so I think it probably does show that at last the government is starting to shift.

JH: Where would your money come from?

EB: Well for that we would repeat the bank bonus tax for a second year, raise £2bn and use that to get 100,000 jobs for young people – with youth unemployment very high that is essential – and also to build 25,000 homes across the country and I think most people would say that with bank bonuses still very high repeating that tax for £2bn and using it in that way would be a much better way to spend the money and a good boost to jobs and housing.

JH: The trouble is there is no guarantee it would actually create those jobs is it, I mean the government can’t as you well know can’t actually create jobs, I mean it doesn’t work quite like that does it?

EB: No, but when you have a record high level of youth unemployment and when the economy is seeing its overall level of employment falling government has got to act. And we had a thing called the Future Jobs Fund that was abolished, since then, at the beginning of this year, since the beginning of this year there has been a 60% plus rise in youth long-term unemployment. That is a disaster. We all lived through the ‘80s and saw what happened in the 1980s when you allowed long-term youth unemployment to take hold. We can’t make that mistake again, a lost generation of young people now will be disastrous for them and for our country.

JH: But if you look at other countries in Europe, they are at least as badly off as we are in that respect and some, look at Spain for instance, are desperately, desperately worse off than we are, the number of youth, young people out of work is staggeringly high in somewhere like Spain.

EB: And we heard from your financial analyst, the bond trader, just 10 minutes ago on your programme, the reason why where is a crisis in Spain as well as being in the Euro was because growth was depressed, sentiment is down, confidence is low. And I warned a year ago in Britain that if we allowed consumer and business confidence to fall and you over-laid upon that the biggest cuts in the public spending in a generation or more the danger was in Britain we’d have spiralling confidence, low growth, flatlining economy, rising unemployment and all that happened even before this latest bout of Euro crisis. So I’m afraid you have got to learn the lessons of history, you have got to act to get growth and jobs moving in economies. Unless you do that you have falling confidence and you have rising borrowing.

JH: Do you have to go back into history or can you just cross the channel and look at what is happening in some of the countries, like Italy, Spain, Portugal and so on…

EB: Well fundamentally, they are different though John, because they are in the eurozone and that makes…

JH: Well they are indeed but the essential is the same which is they borrowed more money than they can afford and the markets have lost confidence in them and that is not happening in this country, that is the important thing isn’t it, we borrow money at a very, very low rate, a tiny fraction of what they pay in Spain, Italy, wherever?

EB: Well look I think you have to be very careful with these arguments because in the 1990s Japan had very low interest rates for years, it was a lost decade of complete stagnation, their interest rates there were very low because people said: the economy is not growing, inflation is low there is no prospect of rising short term interest rates. The same thing is happening in Britain and in America. The Eurozone is different and the reason is because with their exchange rates fixed together in a single currency there are now lots of fears about Greek default, or Spanish default, contagion running rife, that is why they have got high interest rates. But it is deeply, deeply foolish to take comfort from our very low long-term interest rates in Britain. I’m afraid this is a sign, a very clear economic sign, of stagnation low growth and rising unemployment…

JH: It is not foolish in the sense that we, all governments have to borrow money, obviously, we have to borrow a huge amount. Partly, the argument goes, because of the debts that your government left behind, but the fact is the debts are there. We owe a lot of money, we have to service that debt, we have to pay interest, if the debt was higher it follows, even to those of us who are not economists that we would have to pay more money for it and, add to that the lack of confidence in the currency because people say ’ah, their debt isn’t coming down’ and then it builds on itself. Whether you are in or out of the eurozone, that is what happens, Argentina wasn’t in the eurozone for instance, it happened in Argentina, one example.

EB: That is a, you know, an interesting piece of economics but I think…

JH: It is accurate isn’t it, I mean broadly, I know it is simplifying it, but it is broadly true…

EB: If I am honest with you John it is not because it misses out a fundamental component: the Chancellor next week will announce in his autumn statement a downgrading of growth, higher unemployment, and as a result, not only that he will borrow next year and the year after but he is going to borrow billions and billions of pounds more than he planned because unless you have got growth and jobs in your economy, you don’t get your borrowing down, it stays stubbornly high. That was the lesson of Japan in the 90s, it was the lesson of the world in the 1930s, I’m afraid it is the lesson now of Greece and Spain and Italy. Unless you have got growth in your economies and unemployment is coming down, your borrowing doesn’t get better. David Cameron is saying today at the CBI, his two elements for a plan, a deficit reduction plan and the plan for growth, but if in the last 18 months he’d had a plan for growth and jobs, we wouldn’t be in the mess we are in now: flatlining economy, rising unemployment and borrowing to be revised up not down.

JH: But the logic of your position, and some would argue that this is a very sensible thing to do is that you go out and give money away, you quite literally give money away, go out in the street and give everybody £100 quid in cash and tell them to go and spend it. Which is a bit what you have done with your VAT cut…

EB: The great right-wing economist Milton Friedman talked about helicopters dropping money from the sky and I am not proposing that but my point is…

JH: Well the VAT cut that you do propose is something along those lines, not quite the same I grant you, but it is along those lines.

EB: But my point is John, next year George Osborne is not only going to borrow billions of pounds, he is going to borrow billions of pounds more because growth is low and unemployment is high. Isn’t it better, not to be borrowing more for unemployment, but borrowing more to act to get confidence, to get growth…

JH: They are… [inaudible] public sector jobs, they are giving money to, at least they are encouraging private companies to do things, we see in the papers this morning, partly to build houses but also to build toll roads, useful stuff, infrastructure stuff…

EB: But John you know a year ago, with such confidence on this programme the Chancellor said ‘we will cut the public sector jobs and the private sector will more than compensate, private led recovery,’ what has happened? An overall fall in employment, hundreds of thousands of fall, rising unemployment because the private sector, consumers and businesses are gripped by a lack of confidence, a flatlined economy well before the eurozone crisis. Unless you get some leadership from this government, some action which goes beyond gimmicks and small pots of money here and there and says ‘ok look, let’s be honest, we have got this wrong, it has not worked, let’s change course.’ We have set out a clear five point plan for jobs and growth. George Osborne, I hope, will adopt all of them but just two or three would be a step forward.

Businesses want urgent action and leadership from the government to get our economy moving again. That’s the clear message I’ve heard from companies around the country in the last few weeks.

In York on Friday, the main concerns amongst business leaders I met were the difficulties in getting credit from the banks and a wider lack of confidence – something which risks getting worse if the eurozone crisis deepens, but has been a growing issue since the start of the year. And in Southampton there was frustration that a flagship government scheme to help new businesses excluded the whole of the south east, as well as London and the east of England.

With consumer and business confidence slumping now for a year and getting worse, businesses are crying out for a plan for jobs and growth from this government.

Major business organisations like the CBI and British Chambers of Commerce are calling for infrastructure investment to be brought forward – a key part of Labour’s five point plan for jobs to boost demand now and help strengthen our economy as we build a better economy for the future.

The Federation of Small Businesses is also backing Labour’s proposal to use the unspent money in the government’s £1 billion failed national insurance holiday for new businesses and extend it to all small businesses who take on extra workers – and in every part of the country. The CBI has proposed something similar, focusing their tax break on businesses large or small who take on one of the million young people now out of work.

Labour’s call for a temporary VAT cut to boost demand and help hard-pressed families and pensioners has been echoed in recent days by the Financial Times’ Sir Samuel Brittan and Nobel Prize winner Christopher Pissarides. And our one year cut in VAT to 5% for home repairs and improvements to help small businesses and homeowners is backed by a coalition of organisations from the National Trust to the Federation of Master Builders.

The government insists it will not change course, regardless of the evidence – more of which we saw this week – that their reckless plan has choked off the recovery, pushed up unemployment and will mean billions more borrowing than planned.

Ploughing on regardless is deeply irresponsible and Ministers are running out of excuses for inaction.

First, over the past week, the government has tried to blame the eurozone crisis. But while a deepening crisis in the eurozone will clearly affect our economy going forward, our recovery was choked off well before the recent crisis.

Now my fear is that the Chancellor is eyeing up the planned strikes over public sector pensions the day after his autumn statement as the next thing to distract attention from his economic mistakes.

As Ed Miliband said on Thursday, there is a huge responsibility on both sides, even at this late stage, to stop the strike happening. Both unions and government need to give some ground. The strike can still be avoided if both sides are willing to negotiate.

But there has been no movement on the crucial issue of the 3 pence in the pound rise in contributions, which the government imposed without negotiation and before Lord Hutton’s important report had even been published. And despite the government’s claims in recent weeks about protecting the lowest paid, more than 750,000 workers earning less than £15,000 – mostly women in part-time work – will face a big rise in contributions.

It seems that the government is happy to see a disruptive strike. As the Daily Telegraph’s deputy editor wrote this month: “Mr Cameron is privately delighted that the unions have rejected the deal. The view in Number 10 is that they have been craftily manoeuvred into a trap.” That is no way to approach the long term needs of the country and of low paid dinner ladies and nursing assistants who have worked hard for many years and are approaching retirement.

There is a responsibility on unions and government alike to do everything they can to avoid these strikes, protect low paid workers and deliver long-term reforms that are fair to taxpayers.

Rather than trying to use the strikes to distract attention, the Chancellor must make the right choice in the autumn statement in ten days time. He can plough on regardless with a plan that is hurting, but not working to get the deficit down. Or he can stop blaming everybody else for his own mistakes and change course.

There is a better way: a plan for jobs and growth – like Labour’s five point plan – will get Britain working again and get our deficit down too.

DERMOT MURNAGHAN: Now to the economy and slashed growth forecasts, record youth unemployment and a continuing political and economic crisis in Europe, things couldn’t look much gloomier for the economy and this before planned national strikes here next weeks. In a moment I will be speaking to the Shadow Chancellor Ed Balls… Well let’s say a very good morning to the Shadow Chancellor, Ed Balls joins me now from Leeds and can I just start Mr Balls with the issue of the capture of Saif Al-Islam in Libya, all this discussion about a fair trial, given that Labour was in power during those years of rapprochement with Libya, many contacts of course with Saif Al-Islam who I suppose so to speak was the points man in Europe for many of the meetings between Labour Ministers and the Libyan regime, do you have anything to fear from what he might say in open court?

ED BALLS: Well I remember being in government and at the meetings at the time when the intelligence breakthrough occurred, and there is no doubt that Tony Blair and Gordon Brown and our intelligence experts at the Foreign Office thought this is a very positive step forward for the world, for the prospects for disarmament and they went into it with open eyes but the possibility of progress. Now clearly Colonel Gaddafi ended up breaking agreements, not making progress and I don’t think a Labour government or any government should have anything to fear from open disclosure because I know at that time the motive was the right motive, for disarmament and progress on peace and that was the right thing to do then. Clearly events have turned out in a very different way and we have had a very important campaign in the last few months which the Labour Party has supported wholeheartedly so I think we have got nothing to fear at all.

DM: There were meetings about investments weren’t there, social meetings as well, were you ever in the same room as him?

EB: No, never.

DM: OK, but there were those contacts, as I say, that extended beyond disarmament and bringing them back in from the cold.

EB: Look, there is no doubt that there were also business discussions and investment discussions, there were a number of important British companies trying to pursue projects, that wasn’t anything that I was ever involved in directly or indirectly so therefore I can’t comment on the detail. But I think it is the right thing for the British government to do, to try to make sure you ensure investment and jobs but the motive of opening up dialogue in the middle part of the last decade was a potential breakthrough on disarmament. Look, in the end governments have to be completely open and accountable, there will be full disclosure, I have no reason to believe there is anything to hide at all and I think ministers were motivated by good and sound motives throughout that period.

DM: You mentioned jobs and growth, let’s get on to that, Labour’s five point plan to achieve that. I mentioned the pretty dire economic circumstances we seem to be facing but you’re sticking to this five point plan which, to boil it down, given the fact that we’re running the third biggest budget deficit in Europe at the moment, bigger even than Spain’s, you want to borrow more to fund growth. It is high risk isn’t it?

EB: Well last week we had the news from the independent forecasting experts for the Chancellor to borrow £100 billion more than he was planning and the reason is because our economy has flatlined, unemployment is rising, there are fewer people working, employment is down and if you have got people out of work not paying tax that makes it harder to get the deficit down. The rational thing to do here is to say: what is the balanced approach to the deficit in the economy? And as I said for a year or more, if you try to go too fast on deficit reduction and destabilise confidence in the economy, you end up with higher borrowing not lower. So therefore it is not about do you not have a deficit reduction plan, I one hundred per cent want one, but it has got to be balanced and sensible and at the moment we’ve got to get this economy moving. The government is cutting too fast, the VAT rise was the wrong tax rise this year and we’ve got five different ways to get the economy moving and creating jobs to get the deficit down and there is growing support to different elements of our plan right across business and more widely – a five point plan for jobs and growth to get our economy moving, people back to work and get the deficit down.

DM: But as Shadow Chancellor you are noted for liking the number, you mentioned there that on the government’s projections and if the growth figures aren’t hit, you estimate that they will have to borrow £100 billion more over the course of the parliament, how much would you …

EB: That wasn’t me, that was the independent guys.

DM: OK, but how much would you have to borrow above and beyond that, presumably it would be more, before the growth kicked in?

EB: Well the 100 billion extra borrowing is over the next few years based upon the Chancellor having to have much lower growth and rising unemployment and I don’t think it has to be that way. Yes, now, right now, I say a £12 billion boost to the economy through reversing that VAT [rise] temporarily. That would be a boost for the economy and that would mean money into the economy but that would get the borrowing down and growth moving. We have also said to have the bank bonus tax for a second year, that’s £2 billion for 100,000 new jobs, that would be money taken from the most rich people in our country who are getting the bonuses to invest in jobs. Now that pays for itself but clearly it would be a boost to spending and jobs in our economy. The question is how much infrastructure can you bring forward at the moment, how much investment which the CBI, the Chamber of Commerce, even George Osborne seems to be saying he would like to do that. But the question is how quickly can you do it and that would make the difference to our overall figure, but yes, you’ve got to get the economy moving now or else you end up with higher borrowing, higher debts and low growth and rising unemployment and that’s a terrible prospect.

DM: OK, we’ve heard the strategy what about specifics. You mentioned infrastructure projects there and a lot of business leaders have been talking over the last few days and weeks in particular about airport capacity. Now in government you supported a third runway at Heathrow, now you don’t, do you support an entirely new airport perhaps in the south-east?

EB: Personally and historically I always supported the third runway at Heathrow but the government has taken that off the agenda, they say it is not going to happen. We in the Labour Party accept that they have now killed that off certainly for the foreseeable future. The question is: are there other places where you can get the capacity into the south-east? I think it is really important for business and for job creation, it is important actually for the northern regions too, that we have extra capacity so we are saying to the government: you have taken Heathrow off the agenda, have a review, we will support you, find the capacity in the south-east to boost airport capacity which is really needed for jobs and growth, and I wish the government would listen. It seems to me to be very anti, not just business but of regions, jobs and growth for them just to turn their face against it.

DM: It sounds like you are backing Boris Johnson on this one.

EB: Well let’s have a look at Boris’s plans. I have to say that backing Boris Johnson is not what I normally do but I’m willing to have a completely open mind look at airport capacity right across the south-east. I think if George Osborne was sensible he would do the same thing, see where we can find the capacity to keep our economy moving.

DM: Where do you stand on money going to the poorest in our society, I was going to say lowest paid but they are not even the lowest paid, it is people on benefits. We have got many bishops writing, being reported in the Observer today, saying they oppose this cap, the £500 cap on benefits to families. There is also the issue of the rating of benefits, that link with the retail price index.

EB: On the former point, the benefits bill of course is going to be going up at the moment because of higher unemployment which we just talked about. We’ve always been in favour of getting people into work and have limits. But as I understand it Eric Pickles, the Local Government Minister himself, has said this benefits cap, the way the government is proposing it is going to lead to 40,000 more homeless people because of the way they have designed it and he has warned the government it will cost us billions of pounds more and not less. I think the bishops have got a point, I don’t think the government has designed this well at all. They have got legislation coming up soon in the Lords which has some really perverse incentives here, let’s not do this in a way which hurts the poorest by throwing them out of their homes.

DM: Okay and the latter point, the linking of benefits to the retail prices index, many people are saying that September’s figure, which is what it is based on, was a blip and that inflation is going to head down quite quickly yet that means benefits will go up by 5.6% if they stick with that?

EB: The reason why inflation has gone so much higher in Britain, higher than any other country than Estonia in Europe, is because George Osborne put VAT up to 20% in January. It was an own goal from him and now he is saying that the poorest in society have to pay the price.

DM: But do you think the link should remain?

EB: Well the link that was made on Friday … I think we should wait to see what he is going to propose but I have to say that the idea that people with disabilities, with kids, should pay the price for his mistake on VAT, I think that’s pretty unfair. He is now saying that’s the only way to pay for freezing fuel duty but he told us before if oil prices were high he would do it anyway. I think that’s the right thing to do, that he should freeze fuel duty in January, but I think he should cut VAT now to get fuel prices down and ease inflation. The idea instead that he is going to hit the poorest in our society, that seems to be pretty unfair. Let’s see what he proposes, and I’m not going to comment until I see his actual proposals rather than leaks, but I think it is pretty unfair to hit the poorest.

DM: And finally, Shadow Chancellor, can I just ask you, you are using your hands pretty expressively there in this interview, have you been told to sit on your hands so to speak during Prime Minister’s Questions? Particularly that flatlining gesture you tried to use so effectively against Mr Cameron, so as not to upstage your leader?

EB: The reason why I’m moving my hands is because it’s freezing here in Morley and the fog is right around us and it’s the only way to keep warm. But the fact is, as you said, well before this eurozone crisis, the economy has flatlined. It has been flat as a pancake. That’s why unemployment is rising, that is why our borrowing is going up and what we’ve got now is a government cynically trying to divert attention either by talking about hand gestures or the eurozone crisis or trying to provoke a strike a week on Wednesday by hitting the poorest paid workers in the public sector. David Cameron is saying the unions have walked into his trap on this strike is deeply cynical and very, very unfair and I am going to keep saying to him it’s the flatlining economy which is the biggest problem.

DM: OK, we’ll take it as a yes then, the hand gestures are there to stay. Shadow Chancellor, thank you very much indeed, Ed Balls there.

EB: Thank you very much.

Jane Hill: If you were in government, what would concern you more: the unemployment figures or the growth forecast?

Ed Balls: I think the unemployment figures are really, really dangerous. I am here in Kent talking to young people who at the moment are finding it really hard to get jobs. We’ve now got the highest level of youth unemployment since records began and the danger is that we have a whole generation who lose a chance to work and get skills but also it’s a big burden on the taxpayer too because you can’t get the deficit down if the economy has flat-lined and unemployment is rising. And that’s why at this very uncertain and difficult time we are saying very loud and clear to the Chancellor: it’s not working, your plan, you have got to change course. We’ve got to get the economy moving and get jobs being created. Labour’s setting out a very clear five-point plan for jobs and growth and I’ve been talking to young people here and saying we would repeat the bank bonus tax and use that to get 100,000 jobs for young people. It’s what we need. If we don’t do this soon we are going to pay a very long-term price in our country.

JH: We have talked about your five point plan before but you will know as well, and Vince Cable reiterated here in the last hour, that the government has plans too. He will tell you time and again about the apprenticeships, about the other job creation schemes for 16 to 24 year-olds. He will say the government is not sitting on its hands and it’s aware of the problem of youth unemployment and is doing something about it.

EB: We have had a 160 per cent rise in long-term youth unemployment here in Chatham since the beginning of the year. It’s the highest level since records began and the reason is because the private sector is not creating jobs, the public sector is shedding jobs really fast and the government abolished important things like the Future Jobs Fund which was about getting young people into work. I’m afraid Vince Cable can’t talk his way out of the facts. The economy has flat-lined, unemployment is rising and the government is not only not doing enough to make it better, they are actively making it much worse. We keep hearing from the government in the last few days it’s all the fault of the euro crisis. It’s not true. We have had slower growth than any other major economy except Japan. We have had big rises in unemployment and our recovery was choked off well before this latest crisis. From Vince Cable, from the government, it’s enough of excuses. They have got to act. They are the government now. They have got some responsibility to get help for young people, help for women, help for jobs, help for families and to be honest, if we don’t do this, we’ll find out from the Chancellor in a week or so, not only is he revising down his forecast for growth but borrowing will be higher than he planned as well. This is not a plan for deficit reduction. It’s making things worse and the government has got to do something on jobs. That is why I am here talking about Labour’s five point plan.

JH: The bond markets in this country though are not in the parlous state that they are in an awful lot of those other eurozone countries and the argument is that is precisely because of this government’s deficit reduction plan.

EB: That is the Conservative Party-Treasury-Liberal Democrat argument. I have to say, economically, I think it is a threadbare argument. There is no doubt that us not being in the eurozone is very important because we haven’t got the single currency default risk problems of Spain or Italy or Greece. But the reason why our long-term interest rates are so low is not good news. It’s because the Bank of England is not going to be raising short-term interest rates anytime soon because the economy is flat on its back. If the government were right in saying this is all about bond market confidence then when America’s interest rates fell in August after a downgrading, they should have been going up. The reason why they have gone down in Britain and America is because our economies are flat as a pancake. The strategy has backfired. This is not good news, these very low interest rates. It’s a symptom of the problem. We need less spin, less excuses and more substance. I don’t care what George Osborne calls his plan. He doesn’t have to adopt all the elements of my plan or even any of them, but he’s got to have a plan and quickly because if not families up and down the country and businesses and young people are going to pay a very, very heavy price.

-ends-

Today’s figures show that only Greece, Portugal and Cyprus have grown more slowly than Britain over the last year. And the eurozone has grown by 1.4 per cent over the last year compared to just 0.5 per cent here.

Of course the slowdown in other EU countries in recent months is very concerning. But instead of wrongly blaming events abroad for his own mistakes at home, David Cameron needs to realise that our economy has flatlined for more than a year – well before the recent eurozone crisis.

We repeatedly warned that cutting spending and raising taxes too far and too fast risked choking off the recovery and would be like ripping out the foundations of your own house as a storm was brewing. The Government thought they knew better, but their reckless policies over the last year have now left us in a much weaker position. Slow growth plus more people out of work means government borrowing is set to be £46 billion higher than planned.

Before things get any worse for struggling families, pensioners and businesses here in Britain, we need to see a change of course in the Chancellor’s autumn statement. Instead of excuses we need urgent action to get our economy moving again and so get our deficit down, like Labour’s five point plan for jobs.

And we also need real leadership to deal with the eurozone crisis, including political backing for the European Central Bank to act as lender of last resort, and a real plan for jobs and growth across Europe. That is the way to stop this crisis getting worse, but it should not be an excuse for complacency and inaction at home from this increasingly out of touch Government.

Ed Balls: Well it’s a funny kind of safe haven to live in when you have unemployment rising to a seventeen year high and when growth has flat lined. I think, look, there’s no doubt that Britain, America, Germany actually, not being in the core of the Euro going wrong are not seeing the higher default premia in their interest rates. But the reason why interest rates are so historically low in Britain isn’t good news. As the head of the National Institute has said, the reason is because our short term interest rates are expected to stay very low indeed because our economy is flat lining, unemployment’s rising and there’s no prospect in the short term of the Bank of England changing course. So the government says we’re a safe haven because of these interest rates. I think most people will look at that, and especially experts who understand these things, and say that’s just another piece of spin from a government trying to divert attention from what their policies have done.

Jon Sopel: Well it’s not just the government spin is it? I mean Standard and Poor’s one of the world’s leading credit agencies have said that – issued a pretty clear warning – that ‘our triple A rating could come under downward pressure if the coalition’s commitment to fiscal consolidation falters.’

EB: Well look, we have to get into a debate here about whether the credit agencies lead the debate or follow. Go back to August when the US had a downgrade from a rating agency, on your argument their long term interest rate should have gone up. Actually, Jon, they fell. And the reason is because people said the American economy is not going to grow. The IMF itself has said, if Britain has a prolonged period of stagnation, undershooting, the government should change course on the deficit. The idea that they are still not doing so and using now this safe haven argument is frankly laughable. A year ago the spin from the government was: our plan will work, the private sector will deliver growth. We’re now in a position where David Cameron, George Osborne, Nick Clegg are desperately trying to tell people a new message that however bad it is it’s all the Euro’s crisis. It won’t wash and it’s very important that you, the BBC, the wider world don’t fall for this argument. The fact is…

JS: Hang on. Are you saying that the Euro – the Eurozone crisis is having no impact?

EB: No, I didn’t say that. Of course it’s having an impact. I warned a year ago if there is a global hurricane you should not undermine the foundations of your house and there is a hurricane going on. But the test is: are the policies of the government making things better or worse? And the fact is they’ve made things much worse because our slowdown happened before the Euro crisis, we’ve grown slower than other European countries, we’ve got bigger rises in unemployment, we are weaker and less able to withstand this latest crisis because of what the government has done. Our exports to the Euro area have gone up by 17%. It’s consumers and businesses who are losing confidence and being hit by this very, very foolish rapid contraction in fiscal policy, trying to cut too far and too fast. They’re the ones who are really, really feeling the heat and the longer this goes on the bigger the pain’s going to be and I don’t think that they should be bailed out by people falling for this argument.

JS: Hold on a second. We have heard from Vince Cable there talking about the need to get growth back into the UK economy. We read in the papers today that there may be £50 billion of investment brought forward for infrastructure projects like roads etc. Do you welcome that?

EB: Well, if it’s true I welcome it. Your first question to Vince Cable was that this is the equivalent of a war in the economy. That is quite right, but after the Second World War we took a number of years to repay our much higher level of debt. The government and Vince Cable have tried to get this done in one Parliament and it is backfiring. It’s leading to higher borrowing as well as flatlining growth. We’ve set out an alternative five point plan which is more balanced on the deficit and actually acts now to get growth and jobs moving. If it is the case the government is now adopting one of those planks by bringing forward infrastructure investment then good. But it’s got to be real. It’s got to actually have a stimulus to the economy. And George Osborne’s talking about 50 billion pounds, as far as I can see he’s saying that’s all going to come from private investment. We had this for a year, this idea that you can cut public jobs, cut public investment and the private sector will take over. They’ve not done it…

JS: I just want to ask you about your plan, how much will your growth plan cost?

EB: Well, we’ve been very clear that one of the elements would be a temporary cut in VAT.

JS: For how long?

EB: Which if we did that for one year would cost 12 billion pounds. We said repeat the bank bonus tax for a second year -

JS: So do you think it should be for one year or five years?

EB: Well, look, it all depends how long it takes this recovery to get moving. I think that if we act now we could get the recovery moving over the next year. A year ago we had a recovery and falling unemployment. Poor Vince Cable, was ignored, the Liberal Democrat manifesto was torn up and the government then decided to go faster.

JS: I just want to stick with your plans, because I’m sure you’d like to talk about your plan. Right, 12 billion pounds from VAT, what about the rest of it? How much will that cost?

EB: The second thing would be a repeat of the bank bonus tax for a second year, raising two billion pounds from bank bonuses to spend on a hundred thousand jobs for young people and housing. That obviously pays for itself. We’ve called for a cut in National Insurance for small firms taking on new employees, which would boost job creation. And, look, the government had a scheme and it’s failed. There’s half a billion for that, that would work very well there. We’ve also said cut VAT for a year for repairs and maintenance to get help for small companies. People think that might cost half a billion pounds, although if you get more growth and more jobs that would then pay for itself. Finally, I’ve said bring forward shovel-ready projects. But you can’t have public investment projects which don’t affect borrowing, which somehow rely upon the private sector. George Osborne is saying 50 billion, there is no meat there. This is deeply irresponsible, the spin won’t work, Jon. We’ve got to hold him to account, we need a change of course, a Plan B, Labour’s plan for jobs and growth, and we need it right now.

JS: One other question, and that’s on executive pay, that Vince Cable is talking about possibly introducing legislation in the new year. Will you be backing him?

EB: Well, if he brings forward legislation we’ll look at it. I have to say I thought Vince Cable was deeply confused in his interview about the past as well as the future. We actually introduced in government legislation, which is on the statute book, which says that every person paid more than a million pounds, their pay and bonus should be made public. The Conservative-Liberal Democrat government have refused to use that legislation. Vince doesn’t need a new Bill, he could do that right now. Why doesn’t he just act rather than prevaricate? We’ve also said – he’s now talked about legislation – to have worker representatives on boards, to have more transparency, voting by shareholders. Quite right, but just get on with it. You can’t sit there and say, I’ve got a problem but then prevaricate about action. On executive pay, on the bank bonus tax, on jobs and growth, on a plan B, we don’t want these interviews which are sort of all over the place and confused. We need some action to get jobs and growth moving and to get our deficit down and we need it quickly. And I’m afraid from that interview today I didn’t see any signs of leadership, action. Just excuses.

Britain faces an economic emergency, but out of touch ministers are just sitting on their hands and blaming everybody but themselves.

David Cameron might be glad there won’t be Prime Minister’s Questions on the day of the unemployment figures this Wednesday, but we will not let this Government off the hook for the economic mistakes they are making. 


Families and pensioners feeling the squeeze, young people out of work and businesses on the edge are crying out for a better way. During the House of Commons recess this week Labour MPs will be in every part of the country showing that there is an alternative – a five point plan for jobs – that will get Britain back to work and help get our deficit down too.

Of course what is happening in Italy and the eurozone will have a serious impact on our economy if it remains unresolved. But David Cameron and George Osborne need to understand that our recovery was choked off a year ago, and unemployment started rising again, well before the eurozone crisis of recent months. By reckless cutting spending and raising taxes too far and too fast our economy has now flatlined for a year, leaving us badly exposed as this eurozone crisis deepens. 



The government also needs to realise that slow growth and more people out of work, claiming benefits rather than paying taxes, means borrowing more money. In fact the Chancellor is already set to borrow £46 billion more than he planned because his policies aren’t working. 


That’s why we need to build a better economy for the future and Labour’s five point jobs plan to help struggling families, get young people into work, support small businesses and so get the deficit down.

Labour’s five-point plan for jobs:

1. A £2 billion tax on bank bonuses to fund 100,000 jobs for young people – which they would be required to take-up – and build 25,000 more affordable homes. 


2. Bringing forward long-term investment projects – schools, roads and transport – to get people back to work and strengthen our economy for the future.


3. Reversing January’s damaging VAT rise now for a temporary period – a £450 boost for a couple with children – immediate help for our high streets and for struggling families and pensioners.

4. A one year cut in VAT to 5% on home improvements, repairs and maintenance – to help homeowners and small businesses.


5. A one year national insurance tax break for every small firm which takes on extra workers – helping small businesses to grow and create jobs.

Tribune’s editorials have been holding our party’s leadership to account since the paper was born in 1937, alongside news pages with stories that would otherwise go unreported by the mainstream press and, of course, a vibrant letters page that gives voice to individual party members and trade unionists.

Many of us feared last month that Tribune would not see out its 75th year of publication. But, like the thousands in our movement who have written for and read Tribune for many years, I sighed with relief when I learned it is to live on as a co-operative.

And as I said in my Nye Bevan Memorial Lecture last week, I am sure Nye – who had been a board member at Tribune’s launch – would also be celebrating the news that the magazine’s future had been secured.

Of course, Nye fell out with Tribune, as he did with many of his supporters, when he argued against unilateralism at the 1957 Labour conference, famously saying it would be like sending the Foreign Secretary “naked into the conference chamber”.

As I argued last week, Bevan knew Labour had to be both radical and credible. He was a visionary pragmatist: a man who always understood that principles and values required political power to make a difference.

Just look at his crowning achievement – the creation of the National Health Service. His vision of healthcare – free at the point of use, based on need and not ability to pay – was born of his experience of hardship in the valleys of south Wales. And it was radical, challenging and difficult to come to terms with – for foes but also for friends too anxious at seeing local municipal hospitals nationalised.

But Bevan the NHS architect was also a self-confessed pragmatist. After a long, complicated process of negotiation with the vested interests of the healthcare system, Bevan put aside purity, giving the BMA important concessions on earnings and pay beds, but without ever compromising the founding principles of the NHS.

That same Bevanite combination of vision and pragmatism is relevant on the economy too. Bevan entered Parliament in 1929, the year of the Wall Street Crash, the second biggest financial crisis of the last hundred years, the trigger for a decade of stagnation and rising unemployment.

His speeches are highly instructive for today’s economic debate. From the outset, Bevan – a fierce opponent of the National Government – argued that, at a time of financial meltdown, to do nothing, to fail to take a lead, to blindly accept the consensus and pile austerity on austerity, was a complete abdication of the responsibility of political leadership.

Over the past year, I have regularly said that we must learn the lessons of the early 1930s – the mistaken austerity, the misplaced policies of the coalition National Government, the failure of international cooperation – if we are not to repeat the mistakes of those years.

We must set out how a steadier, fairer and more balanced deficit reduction plan is more likely to succeed than today’s coalition Government’s attempts to cut spending and raise taxes too far and too fast and have market credibility too.

There is an alternative and, following in the tradition of Bevan and John Maynard Keynes, it is Labour’s responsibility to set it out: a clear five-point plan for growth and jobs, a more sensible timetable for deficit reduction, and a robust explanation of why that will better support our economy and public finances.

We do need to set out distinctive values, ideas and vision for the future. But the risk is that we talk only of our values and visions and fail to focus on the economic realities we face and persuading people. That is why we must set out spending discipline and tough new fiscal rules alongside action now for growth and jobs to get the deficit down.

In the 1990s, the challenge for Labour was to win people’s heads as well as their hearts. After 13 years in power, we lost too many hearts. We have to win them back. But in the process we also have to win their heads with a credible and radical programme for government.

That’s how – drawing upon a Bevanite combination of vision and pragmatism – I believe we combine our values and the pursuit of electoral success so we can put them into practice too. And I am sure Tribune, as it lives on for another generation, will continue to rightly hold us all to account.

Nicky Campbell: We were speaking earlier on to an expert on the Greek economy and he made the point that politicians need to stop their petty politicking and point-scaring and get on and sort it, do you agree?

Ed Balls: Totally, totally. And you’re right, it is not just a tough week, it is a catastrophic week we have had. And the reason is because there is not a sense of collective leadership in the eurozone and Europe more widely and in the world, which we need. I’m afraid you have got countries putting national interests before the collective interest, Germany not being willing to support Italy and other countries, the European Central Bank hamstrung. And in this situation people look at this and say this is just going to hell in a handcart and that is absolutely disastrous because it will have a big impact upon jobs and investment in Britain, in America, all around the world. So I completely agree, this is a terrible political problem.

NC: Do you think that the ECB should play a bigger role and over-ride the views of Sarkozy and Merkel?

EB: I think the European Central Bank should be playing a much bigger role. If you have a single currency in these circumstances where contagion is spreading the central bank must be the lender of last resort. The problem is it is very hard when you have a central bank which has got different political leaders in different countries just to say ‘I am going to override’ when the political backing is not there. Germany must say we back the central bank to do what it takes and the central bank must say we will stop this crisis spreading to Italy. Once they have said they will do that, and the market pressures will then ease, then of course there have to be tough discussions with the new Italian government about what needs to be done. What you can’t do in a single currency is say we’ll only give you the support once you have done these things, because in the meantime they are putting at risk stability and jobs all around the world and that is …it is either deeply short-sighted and narrowly political or they don’t understand the scale of the risks that they are running which are bigger now than we have seen in the last two, three, four years in the world economy.

NC: If Greece were to leave the eurozone it would mean a very difficult time for Greece but might it be better in the long run for the rest of us?

EB: Well can I be honest with you, I don’t really think Greece itself matters too much either way for the rest of the eurozone or the rest of the world …

NC: Really?

EB: Not really because it is too small and it has got big problems itself. The discussion about whether or not Greece might or might not leave is a disastrous discussion, but not necessarily simply for Greece itself, but because it raises the question well if Greece today, maybe Spain tomorrow, maybe Italy the day after. And once that discussion arises it is catastrophic to have political leaders talking and speculating about whether a country might leave a single currency …

NC: Or this two-speed Europe or this new core euro, what do you think about that?

EB: Well I think once you start this discussion which is ‘will countries be in or out of the euro in two or three year’s time’ that immediately raises the question well how quickly could it happen and what the consequences would be. And once you start …

NC: Put off investors?

EB: Well exactly, I mean in those circumstances you think to yourself I’ll go anywhere I can other than taking that risk. The small risk that Italy might default is so massive in its financial implications that people think well why would I run that small risk. So American investors have all been saying for months why bother. But the trouble is there is so much debt and exposure from Italian banks to France, to Germany, to Britain and to America that, if people walk away and those debts become in doubt, that destabilises everybody else’s economy.

NC: So the whole of Europe, we were all seduced? I mean you played your part, Gordon Brown played his part, other politicians went along with it across the continent. We were all seduced by the bubble?

EB: Sorry I thought you were about to say Nicky that I played my part in making sure Britain didn’t join the euro which was possibly the most important thing I’ve ever done in my life, if I am being honest with you.

NC: And also William Hague and others across the political spectrum ..

EB: Was he in government at the time?

NC: No but he was very staunchly saying we have got to save the pound, there were many in your party preparing to join but you stood alone?

EB: No, the government made the decision. Gordon Brown and Tony Blair did.

NC: But, you know what I mean, during the boom years going to the altar of the banks and laying flowers and bowing before them, lots of people did it, you did it, they did it across the continent, how foolish does it now look?

EB: Well look, there is no doubt that in Europe, in Britain, in America, in Japan, all around the world regulation of the banks wasn’t tough enough. And what we saw two years ago was an acceptance when we had the huge crises in Nat West and in Lehman Brothers in America that this was a Britain and American…

NC: I’m specifically talking about that, I’m talking about the boom years. We had two booms during Labour’s power, there was the internet boom back in the end of the ‘90s and also the banking boom where credit was being thrown around …

EB: I think part of the problem that happened was that you had …in fact you had four or five different potential crises – there was the hedge fund crisis in ’98, the internet boom, there was a further crisis when the Iraq war was happening and oil prices went up in 2003 – and each time there was a moment of worry and then the markets calmed down again. And I think what happened was policy-makers all around the world, from Alan Greenspan to the European Central Bank and in Britain too, and I accept that, everybody got into the mindset that this would be OK, things would stabilise and then, as I said, you had this financial crisis in the banks which didn’t go away. The problem was I think the eurozone countries thought it wasn’t really their problem, it was an Anglo-Saxon problem. But all that happened was the eurozone stored up what is turning out to be a much bigger debt and banking crisis two years later on.

NC: Lots of people saying we have an opportunity to claw back powers from the EU – fishing, agriculture, human rights, employment law. If treaties have to be redrawn do support repatriation of powers?

EB: Well let me honest with you, I think if there is that debate it is a debate we should engage in. And I have talked in the past about regional policy or migration policy as areas we would need to look at to see whether powers would need to change. I don’t think for Europe that is the most important priority now. I don’t think for Britain the idea that sort of leaving or pulling away is our first priority. I have to say at this particular moment, when the British economy is doing worse than our European partners over the last year, when next year we are going to have catastrophically slow growth, when unemployment is rising and when we desperately need a plan for growth and jobs, that should be the debate. The Chancellor was reckless a year ago to cut too far and too fast. Now what he is doing is, in my view, grossly, grossly irresponsible.

NC: So would you borrow money?

EB: Borrowing has got to come down, the question is at what pace it comes down. If you try and cut too far and too fast when the rest of the world is in crisis, it ends up … we already know borrowing is going to be £46bn higher than he wanted. There is a debate today driven by business leaders on the front of the Telegraph calling for stimulus, they say cut the 50p top rate of tax and bring forward infrastructure and spending. I don’t think that is the right stimulus myself, but I think a tax cut and spending on infrastructure now is the only way to get the economy moving, unemployment down and to get our deficit down and our Chancellor’s head is buried in the sand. The Prime Minister only wants to blame the eurozone. This will not work. It is grossly irresponsible and we need a change of course.

Sir, Contrary to Philip Stephens’ claim (“Our pro-Europeans must prepare for a plebiscite”, November 8), the Labour party supports an increase in the UK’s International Monetary Fund subscription because of the vital role the IMF plays in the global economy.

However, we are also clear that the IMF’s job is to support individual countries with solvency crises, not to solve a structural problem caused by eurozone countries being unable to agree the necessary steps to support and maintain their monetary union. As you say in your editorial “Rescuing Europe” (November 9), “the eurozone has what it takes to save itself”. That is why this summer we said that additional funding for the IMF should be held back until the details of the permanent eurozone bail-out fund had been agreed.

The only way properly to ensure market confidence in the eurozone is for the European Central Bank, alongside the bail-out fund, to be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to.

The IMF has a vital role to play around the world and should have the necessary resources it needs to do that, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and do the job the ECB should be doing.

Ed Balls, Shadow Chancellor of the Exchequer, House of Commons, UK

Presenter: Mr Balls a very good afternoon to you. What was your reaction to what you heard from David Cameron?

Ed Balls: Well the Prime Minster is obviously very frustrated indeed because, for the second time in two weeks, we’ve had a summit which has really failed to come out with any answers at all. There’s no plan for jobs and growth which the world desperately needs. There’s no change of course on these austerity plans which are not working and choking off growth and jobs but also the eurozone crisis is getting deeper and deeper by the day. It’s clear that there’s no leadership now to get this sorted out. The Prime Minister said two weeks ago we needed a ‘big bazook’a but nothing’s happened, there’s no progress. This is so dangerous and it will impact upon jobs and growth in Britain and round the world and to be honest how many more times can we have summits which end up in total disarray?

P: What can he do though? What would you do if you were in George Osborne’s position? They can only apply so much pressure can’t they?

EB: Well, three years ago, to be fair, Gordon Brown and Alistair Darling from outside the euro led then world in sorting out issues then. It’s harder now because we’re not a member of the euro but we’re still members of the European Union and you know a few months ago I think the attitude of David Cameron and George Osborne was, ‘Britain can be a safe haven, not affected, we don’t really need to go to the meetings or try to lead’. I’m afraid that’s turned out to be very mistaken and now they’re not really being taken seriously in the big meetings. The problem is, as we heard in the discussions there, the risk is, the fear is that we’ll end up with American and British taxpayers stepping in to do what the eurozone seems unable to do for itself and that will be absurd.

P: But it could be so much worse. Some of your colleagues wanted to go into the euro didn’t they, so we could be in a much worse position today if that had happened?

EB: Well Britain didn’t join the euro because a Labour government decided not to join the euro. I was strongly of the view for many years that was the right decision. Labour kept us out of the euro, thank goodness we did because many people feared it wouldn’t work and it hasn’t worked very well and we now see that real problem of leadership and these issues around the IMF and its role now are very concerning.

P: What sort of things would you be pressing for then, what do you think we need to see and how quickly?

EB: Well I think all the focus on Greece is missing the point. The real danger now is what is happening across the eurozone area and the spread of contagion to Spain and to Italy. It’s not working in Greece because look, they’ve not grown. Their unemployment is rising, their debts are getting worse because simply having austerity on austerity actually isn’t solving the problem. You’ve got to have a more balanced approach to getting deficits down and you’ve got to get growth and jobs moving. That’s our problem in Britain where our economy is flatlined, it’s a problem in the eurozone too. But secondly there’s a massive crisis of confidence now because the European Central Bank is not willing to stand behind Italy and Spain which are not in the same situation as Greece but are being dragged into this crisis. The German taxpayer, as David Cameron acknowledges, isn’t willing to do what is needed in a single currency to back the [European] Central Bank. The leaders in France and in Germany are not on the case and we’re now in this position where it looks like the IMF may be called in to effectively take over and play the role the European Central Bank should be playing. That is ridiculous. The IMF’s job is not de facto to become the central bank of Europe and I think David Cameron and George Osborne need to be very careful they don’t end up inadvertently or advertently taking us down this road. David Cameron was saying in the press conference there will be no IMF contribution to a bailout fund. But if we end up in parallel with IMF resources going in to support Spain and Italy, then that would be effectively the same thing. The European Central Bank should be doing that, the US Treasury Secretary said today to the BBC’s economics editor that the European Central Bank has got all the resources it needs to stand by European countries. It shouldn’t be for British and American taxpayers to bail out the European Central Bank, the Germans, the French and the stability fund and I very much hope David Cameron is going to be very clear on this point. The IMF resources should not bail out Spain and Italy, that’s the European Central Bank’s job.

P: But you know very well that the reason the ECB isn’t that heavily involved at the moment is because the Germans don’t want them to be?

EB:                  But the Germans are in a single currency. Britain’s not. We didn’t join – quite the right decision. The Germans are in the single currency. The European Central Bank is the central bank for the eurozone. You can’t have a single currency with a central bank which says I’m not willing to play the vital role of lender of last resort. In Britain the Bank of England does it, in America the Federal Reserve does it. You can’t say in Europe, in the eurozone, the ECB won’t do that job because the German people won’t support it and therefore expect…it’s ridiculous. The French President saying to China ‘will you bail out us?’, saying to the IMF : ‘will you bail us out?’. Why should the IMF or Chinese money go in where the European Central Bank is not willing to put its money even though it absolutely can? That is not a central bank which is working in a functional way. It is a single currency area which is descending into chaos and confusion and the result will be a huge impact on the world economy. We can’t have more summits like this which end up in total disarray, no leadership in the eurozone, no leadership I’m afraid from Britain either saying to the European colleagues get this  sorted out, you are taking us down a road to catastrophe.

P: Ed Balls joining us from Leeds, thank you very much.

-ends-

Edward Stourton: What’s your objection to the course the government has set on this matter?

Ed Balls: I think that the eurozone countries themselves are abjectly failing to do what is necessary to get growth and jobs moving in the eurozone, to be clear that the problems of Greece are not going to be allowed to spread to Spain and to Italy, and fundamentally the European Central Bank is not playing the role it should playing saying we will stand behind big countries like Italy and they’re not willing to put up the resources, neither are the big eurozone countries. I fully support the IMF and I support an increase in the IMF’s spending, it’s firepower around the world, but the idea that the IMF should directly or indirectly be used to stand in for the proper role of the European Central Bank or the European Financial Stability Facility in the eurozone, that would be a complete betrayal of the IMF’s purposes. It’s not what it’s there for. To be fair to David Cameron and George Osborne they say that’s not what they intend. We will hold them to account for the detail because it mustn’t be allowed to happen.

ES: Well let me just be clear about what you believe. You say in a statement that you released this morning that the European Central Bank is the lender of last resort. Now that traditionally for the world economy has been the IMF. Is it your position, is it Labour’s position that in the future for eurozone countries it should always be the European Central Bank that’s the lender of last resort and therefore no eurozone country could ever borrow money from the IMF?

EB: Well the lender of last resort in Britain is the Bank of England. The lender of last resort in America is the US Federal Reserve and the lender of last resort in the eurozone should be the European Central Bank and as the US Treasury Secretary himself  has said to your economics editor, the ECB has all the firepower it needs. It can provide whatever resources are necessary to stand behind Italy. It’s being prevented from doing so by a failure of leadership in France and Germany to say we can agree to back the ECB and to put the money up. So you end up with this bizarre situation with the French president going to China trying to get money from the Chinese to back the eurozone or going to the IMF. They should be doing it themselves from the European Central Bank. Now Ed there’s an important distinction here. If you have an individual country getting into difficulty like Greece or like Portugal, in those circumstances it makes sense for the IMF to play that role. When you have a wider liquidity confidence problem, the stopping of contagion spreading to Spain and Italy, there is no justification at all for the IMF, for Italy or Spain, supplanting the proper role of the European Central Bank. British taxpayers’ money, American taxpayers’ money should not be going to that.

ES: At the moment the IMF is, as you say, helping individual economies and that’s what it’s designed to do and the purpose of providing greater funds to do that, to be able to do that in a more widespread way, is so that it can help other individual countries. I mean that surely makes sense? It’s difficult to see exactly why it is that you take issue with the government’s decision to support the idea of increasing its resources?

EB: I support an increase in resources for the IMF…

ES: Sorry? I thought you didn’t?

EB: No I do support, I support an increase in resources for the IMF but what I want to do is make sure David Cameron and George Osborne are clear that directly or indirectly this money will not end up supplanting the European Central Bank and putting liquidity in for Spain or Italy. The reason why we voted against an increase in the summer was because we said to the government we are not clear that you’re not going to end up stepping in and doing what the European Central Bank should be doing and we can’t have the IMF effectively becoming the central bank of the eurozone. It’s not for British or American taxpayers to stand behind Italy or Spain.

ES: Ed Balls, thank you very much indeed for talking to us.

Ed Balls MP, Labour’s Shadow Chancellor, said on today’s G20 summit and the Prime Minister’s statement on funding for the IMF:

“As I said last week on Newsnight, we support an increase in the IMF subscription because of the vital role that the IMF plays in the global economy. But the IMF’s job is to support individual countries with solvency crises, not to solve a structural problem caused by eurozone countries being unable to agree the necessary steps to support and maintain their monetary union.

“That’s why this summer we said that additional funding for the IMF should be held back until the details of the permanent eurozone bailout fund had been agreed.

“The only way to properly ensure market confidence in the eurozone is for the European Central Bank, alongside the bailout fund, to be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to.

“So instead of obfuscating and hiding behind fudged words in communiqués, David Cameron and George Osborne should be clear about what’s really going on. They must clarify, as we have consistently said, that there should be no IMF funding to plug the gap in the bailout fund and do the job the ECB should be doing.

“This summit must also agree a plan for jobs and growth, which is the only solution to the problems we are seeing here in Britain and around the world.”

It is a great honour to give the 10th Bevan lecture:

To pay tribute to one of the towering heroes of the Labour movement;

To speak tonight alongside Geoffrey Goodman, Nye’s close friend and an authority on the man himself;

To join a long and distinguished line of past lecturers including Neil Kinnock, Gordon Brown, Robin Cook and my predecessor as Shadow Chancellor, Alan Johnson who have given this lecture.

And to understand why, 51 years after his death, we are still today celebrating the life and contribution of Aneurin Bevan to Labour and the trade union movement, you just have to look back at those past lectures and the tributes they paid.

But I am not going to start this lecture by quoting from the current generation of Labour greats who have paid tribute to Nye Bevan – but by quoting from one of the next younger generation of Bevanites.

Because I have been helped in researching this lecture by a young Bristol graduate, Ellie Gellard, the young woman who Labour chose to introduce Labour’s last manifesto in a new hospital in Birmingham.

And the name on Twitter she goes by?

‘Bevanite Ellie’

And when I asked her to put into words why Bevan was her hero, she told me:
“Bevanism is the perfect political combination of principle and power.

“Nye was the most vocal proponent of a democratic socialism which actually delivered for the people it sought to help.

“A figure who, still today, shows us that to change society for the better, we need to be true to our roots and our founding principles, but to do anything for the people we represent, we first and foremost need a Labour Government.”

So let me start this lecture tonight with that good news: the legacy of Bevan is alive and well and being taken forward by the next generation of Labour activists.

And tonight, as Shadow Chancellor, I want to explain why Bevan is a hero of mine too.

BEVAN THE HERO

Everyone has a special reason why Bevan is a hero.

For some, there is the fact that he overcame great hardship. Born in Tredegar – the son of a miner – forced to leave school at 13, self-taught, then winning a scholarship to the Central Labour College in London, sponsored by the Miners’ Federation… these were his first step towards Westminster – to become an MP in 1929, make it to the Cabinet and then be Deputy Leader.

For others, there is the fact that – even before he was first elected to Parliament in 1929 – he had established a reputation as a brilliant speaker with that rare gift to inspire and lift an audience.

A great speaker – and such a colourful and controversial and sometimes frustratingly volatile figure – storming out of the Cabinet in 1951, expelled from the Labour party once, and almost a second time; passionately in love with his wife, Jennie Lee, a Labour heroine in her own right; a vocal critic of Winston Churchill, Ernie Bevin, the Daily Mirror, Tory “vermin” – and pretty much everyone else at some point in his career.

Of course, for all of us, it was his passion and compassion alongside his hard work, persistence and patience, delivered the greatest achievement of Labour in power of the last century – the National Health Service – his lasting legacy, renewed and reaffirmed in the twenty-first century by the last Labour government, and now threatened as never before by the current Tory-Liberal Democrat coalition.

And then there is the fact that Bevan never made it to be Labour leader, in part, and aside from that famous volatility, because he put his beliefs before political expediency at key moments in his career – which is, for some romantics, enough of a reason to bestow hero status. But again, he is far from being alone in the history of our Party.

For me, though, there is an extra special reason.

Because Bevan rose to be a senior figure in the Labour Party – and an impassioned platform speaker – despite struggling for all his life with a stammer.

And for Bevan, this struggle was the making of the man.

As John Campbell writes in his biography, this stammer:

“…did not make him hate himself, or in the least degree diminish his self-confidence. Instead it drove him… to public speaking, first at Sunday school, later at lodge meetings, as a technique of mastering the demon by meeting it head-on… he used to practice declaiming large chunks of poetry on walks with his sister, he became adept at using the stammerers’ device of using an alternative word when he might stick on the obvious one…”

Techniques which stammerers everywhere will most certainly recognise.

As Campbell concludes:

“Whatever caused Bevan’s stammer, and whatever scars his stammer left, the determination and ultimate success with which he faced, harnessed and practically eradicated it was the first revelation, and the first exertion of an exceptional will.”

Which is why, for stammerers like me, Bevan will always be a special kind of hero.

BEVAN: A VISONARY AND A PRAGMATIST

But my admiration for Bevan goes beyond the personal.

Because, as I argued at a special Guardian fringe meeting at our Party Conference in 2008 – organised to debate who is Labour’s greatest hero – Nye Bevan combined two important qualities both essential for success.

First, he was a visionary.

As Geoffrey Goodman has said:

“I can think of no one in Labour’s pantheon who evoked and inspired the vision of a socialist society more eloquently and vibrantly than Aneurin Bevan.

And in the words of Jennie Lee following Nye’s death in 1960:

“He was not a cold blooded rationalist…..He was no calculating machine. He was a great humanist whose religion lay in loving his fellow men and trying to serve them.”

Growing up in a mining community in South Wales he saw hardship first hand. For Nye, Westminster was therefore a place to build a better future for the people he represented.

And no task was too big or too daunting. While Beveridge set out the five giants threatening our post-war society, Bevan sought to slay as many of them as possible.

And while slaying demons, Bevan also famously took no prisoners among his opponents – in others parties and also, at times, in his own – coruscating about the economic mistakes of MacDonald and Snowden in 1931, woundingly mocking of Winston Churchill in 1945, and – typical of the rebellious streak that held him back politically – storming out of the Cabinet over the costs of rearmament in 1951.

But second, and despite these outbursts, Bevan was also a pragmatist – who always knew that principles and values required political power to make a difference.

As a Cabinet minister, he compromised when necessary. As a political leader, he was a realist who was prepared to take the tough decisions when that was not the politically expedient thing to do.

As Labour historian Kenneth Morgan has written:

“Bevan had a sense of the compromises and complications that the exercise of power might involve. The language of priorities, the relativism of his political philosophy, were essential ingredients of his outlook no less than the socialist bedrock.”

Or in the words of Bevan himself, at the beginning of the 1945 general election campaign:

“We have been the dreamers, we have been the sufferers, now we are the builders.”

Take the NHS.

His vision of healthcare – free at the point of use, based on need and not ability to pay, one National Health Service – was born of his own practical experience of hardship in the valleys of south Wales. And it was radical, challenging and difficult to come to terms with – for foes but also for friends too anxious at seeing local municipal hospitals nationalised.

But Bevan the NHS architect was also a self-confessed pragmatist.

After a long, complicated process of negotiation with the vested interests of the health-care system, during which the very future of the NHS itself was cast into doubt, Bevan put aside purity, giving the BMA important concessions on earnings and pay beds… but without ever compromising the founding principles of the NHS.

As he famously said, to get the doctors on board, he “stuffed their mouths with gold”.

And on defence and international affairs, too, we see this same combination of vision and pragmatism.

Staunchly internationalist, appalled by the post-war direction of Soviet policy, an early advocate of NATO, famously critical of the Korean War and its implications for Britain…

…  his disavowal of unilateralism at the 1957 Labour Conference again showed his pragmatism in action – famously suggesting the consequence of such a policy would be like sending the Foreign Secretary “naked into the conference chamber”… all in the face of howls of protests from his Bevanite followers.

Indeed, it was disagreement over Bevan’s stance on disarmament which provoked the famously Bevanite Tribune newspaper to part company with Nye, who had been a board member at its launch in 1937.

And as monthly columnist of Tribune myself now for over eight years, I know that Nye Bevan would want me and all of us today to celebrate the news that, despite its financial troubles, an agreement has been reached with the proprietor and staff to allow the paper to continue as a co-operative – I hope securing the future of this august and historic part of the Labour movement.

BEVAN AND THE ECONOMY

Bevan – a visionary and a pragmatist – on the NHS and defence… and on the economy too.

Over the past year, I have regularly said that Britain and the world must learn the lessons of the early 1930s – the mistaken austerity, the misplaced policies of the coalition National Government, the failure of international cooperation – if we are not to repeat the mistakes of those years.

And coming into Parliament in 1929, the year of the Wall Street Crash, the second biggest financial crisis of the last hundred years, the trigger for a decade of stagnation and rising unemployment, Bevan’s speeches are highly instructive for today’s economic debate.

From the outset, Bevan argued, at a time of financial meltdown, that to do nothing, to fail to take a lead, to blindly accept the consensus…was a complete abdication of the responsibility of political leadership.

In his biography of Bevan, Michael Foot describes a conversation between MacDonald and Bevan:

“the premier explained how his economic advisers had told him the crisis had passed its peak, how the unemployment figures would soon be turning the other way, how ‘recovery was just round the corner’, how if the Party avoided internal embarrassments it might soon be able to face the country with renewed prospects of victory. Bevan left the interview in despair.”

Sounds familiar?

And Bevan was deeply disparaging of the new National Government’s attempts to blame everything on the previous Labour government, speaking in the House of Commons in December 1931:

“it would be foolish for hon. members to say, as some have said, that this crisis is due to (2 1/2 years of) Socialist Government. That is too frivolous…it ignores the fact that in countries which have not enjoyed the advantages of a Socialist Government the crisis is even worse… if that were so, the defeat of that Government and the mere coming into existence of a National Government would have resuscitated British industry, and it would be showing signs of immediate revival, whereas it is lying prostate as ever.”

Sounds familiar too?

But while angry in his opposition to the economic failings of the coalition, and desperate for an alternative vision, Bevan’s pragmatism and realism again shines through in that debate:

“If you have a certain purpose in view, you seek for the right instruments to carry out that purpose, and the National Government, if it is to justify itself, must declare its purpose and plan… is it not obvious that the PM is merely fobbing off the House of Commons with one tit-bit after another in the hope that time will come to his rescue? I would prefer to see in power a strong party Government with a party programme, clearly thought-out and boldly executed, than this stalemate, the miserable conspiracy which today is called a national government… Let us face our problems in the spirit of realism.”

And what happened next?

The national Government did not listen to criticism – whether Labour Bevan or the Liberal John Maynard Keynes.  And what followed? The Great Depression of the 1930s, mass unemployment and – yes – the deficit got worse.

As I said to the Labour Conference this year and last: you either learn the lesson of history or you repeat the mistakes of history.

That is why I have argued that, facing a similarly dangerous economic crisis today, we need our political leaders to put ideology aside, demonstrate the same pragmatism and look at the facts.

And in setting out Labour’s alternative five point plan for growth and jobs at this year’s Labour Party Conference, I drew again on the parallel with the 1930s, arguing that our country – the whole of the world – is facing a threat that most of us have only ever read about in the history books – a lost decade of economic stagnation:

-       The aftermath of a worldwide financial and banking crash;

-       Families and businesses fearful about the future, cutting back on spending and investment;

-       Governments all around the world trying to cut spending at the same time;

-       Demand sucked out of the economy;

-       Stock markets tumbling, banks in trouble, economies stalling, unemployment rising – a vicious circle as slow growth makes it harder to get deficits down;

-       Not a crisis of any one country or continent – but a spiralling global crisis – from which no economy can be safe…

-       … Threatening the jobs, pensions and living standards of families here in Britain and across the world.

Not – as the Conservatives claim – simply a crisis of public debt which can be solved – country by country – by austerity, cuts and retrenchment – but truly a global growth crisis which is deepening and becoming more dangerous by the day.

The world must remember the lesson of the 1930s: that there is no credibility in piling austerity on austerity, tax rise on tax rise, cut upon cut in the eventual hope that it will work when all the evidence is pointing the other way.

A conclusion that, for all his – in my view – misplaced antipathy to John Maynard Keynes, I am sure that Bevan and Keynes would today agree with.

BEVAN TODAY

And this Bevanite combination of vision and pragmatism must continue to guide us now – in opposition, and as we develop a credible and radical programme for government. And I choose the words ‘credible’ and ‘radical’ with care.

I believe it would be a profound mistake to now shy away from setting out our values and a radical vision for the future. In the face of a right wing and ideological government, core Labour values of fairness and social justice are more important than ever.

But we must show that we do not hold values for their own sake or for show. Our beliefs and principles are our reference point but we must also show what they mean in practice, how they are relevant to people’s lives in the 21st century and how they will guide our work in building a better Britain in the current economic and fiscal conditions.

And that means our opposition and our vision for government must be credible as well as radical and based on our values. Because we must make clear that part of that vision is rooted in a robust and credible economic analysis – to persuade people in their heads as well as their hearts to come back to Labour again.

The fact is that we do have a radically different set of values and approaches to this Conservative-led government.

Where Margaret Thatcher promised to “roll back the frontiers of the state” and Michael Howard smeared a publicly funded NHS as “Stalinist”, in government we recast Labour’s mission to proclaim: “by the strength of our common endeavour we achieve more than we achieve alone”.

As a matter of ideology, based on their values – whatever the Conservatives say about the responsibility we all have to act together – they will not do what is necessary to deliver social justice and opportunity for all. It is the same old Conservative ideology of small state and deep spending cuts, leaving the vulnerable relying on charity.

So instead of the private and voluntary sectors working alongside an empowering and enabling public sector, the involvement of charities and businesses is being boosted not to enhance public provision but to undermine it. Each new policy, fresh initiative or hasty Bill pushed through Parliament sees the state being withdrawn from support for the economy, the family and public services.

I take a different view of the importance of supporting the economy and sustaining public services and protecting those on lowest incomes as we ensure the deficit comes down in a steady and balanced way – a different view that is as important to our economic success as it is fundamental to our Labour and cooperative roots.

They have a narrow view of the role of the state – that it stifles society and economic progress. We have a wider view of the role of state – a coming together of communities through democracy to support people, to intervene where markets fail, to promote economic prosperity and opportunities.

They have a narrow view of justice – you keep what you own and whatever you earn in a free market free for all. Ours is a wider view of social justice that includes equal opportunities, and recognises that widely unequal societies are unfair and divisive.

Far from thinking that electoral success is based on the shedding or hiding of values, I believe we now need to champion those values and the importance of a fairer Britain – to show we are on people’s side after all. We need a much stronger, clearer vision of the fairer Britain we will fight for – very different from the unfairness and unemployment the right wing coalition’s deep and dogma-driven cuts will cause.

The dividing line at the next election will remain between progressives who believe in rights and responsibilities – strong communities, supported by enabling government with a strengthened voluntary sector guaranteeing fairness and justice for all, and Conservatives who do not accept that there is a collective responsibility and are determined to pursue deep cuts in spending, leaving the vulnerable with less support and charities stepping in.

But it will not be enough simply to set out warm words and wishful thinking. It is not enough to wail that cuts are unfair, because if the Tories can persuade people they are unavoidable we won’t win the argument.

That is why the real lesson from New Labour’s political success was the importance of combining our values with economic rigour and tough fiscal disciplines. That is why it is vital that we show that deep Tory cuts are avoidable as well as unfair.

So my vision for Labour has at its heart an alternative economic plan to the devastating strategy of this Conservative-Liberal Democrat government; an alternative plan that is rooted in economic history and analysis as well as Labour values and principles.

Because just as Ramsay MacDonald and his chancellor Philip Snowdon did after the biggest financial crisis of the last century, David Cameron and George Osborne claim deep spending cuts are unavoidable to slash the deficit and satisfy the markets.

It is the same strategy then and now to ease pressure on sterling and hope that downward pressure on wages would boost competitiveness and trigger a private-sector led economic recovery.

But then as now the promised private sector recovery has failed to materialise as companies themselves retrench, unemployment is rising, and growth is stagnant.

The government says deep cuts are unavoidable – and when I say they are wrong – that the spending cuts and tax rises go too far and too fast and are a political choice, not economic necessity – Cameron echoes MacDonald and calls his critics “deficit deniers”.

They enthuse about a private-sector led economic recovery; they say the governor of the Bank of England; and that the financial markets demand rapid deficit reduction. But that argument was always nonsense - as the stagnation of our economy for the last twelve months has shown.

First, there is no precedent to believe that, with slowing growth in our main trading partners and companies deleveraging, public sector retrenchment will stimulate private sector growth. The 1930s and 1980s proved the opposite. And we have seen in recent months that private sector jobs have failed to fill the gap left by cuts to public sector jobs.

This argument is as specious as the government’s claim that the reason why we have a large deficit is because of Labour’s spending prolificacy. The truth is that Britain started the crisis with lower national debt than America, France, Germany and Japan. It was a global crisis triggered by the irresponsibility of bankers not public servants – it was not too many teachers, nurses and police officers in Britain which caused the Lehman Brothers investment bank to collapse in New York.

Second, while I respect Mervyn King, 1931’s bank governor Montagu Norman also strongly advocated the “Treasury view” that rapid cuts were necessary. Sometimes even bank governors get it wrong, especially when the political and media wind is blowing so strongly in one direction.

And third, the idea that the UK faces a financial crisis if we do not cut the deficit faster is a fiction. Outside the Eurozone and with low long-term interest rates, Britain faces no difficulty servicing its debts, and the main worry in financial markets is now about the absence of growth.

What matters to market credibility is not how tough politicians talk on deficit reduction, but whether their plans are deliverable. Savage cuts which hit the economy or are politically undeliverable won’t in the end achieve sustainable deficit reduction or build market confidence either. In fact, the government is already set to borrow £46 billion more than they planned.

That is why I believe we need a slower, steadier, fairer deficit reduction plan, which does not put jobs, growth or front line services at risk, is more likely to succeed and have market credibility too.

So yes, there is an alternative. And following in the tradition of Bevan and Keynes, it is Labour’s responsibility to set it out: a clear five point plan for growth and jobs, a more sensible timetable for deficit reduction, and a robust explanation of why that will better support our economy and public finances.

We do need to set out distinctive values, ideas and vision for the future. But the risk is that we talk only of our values and visions and fail to focus on the economic realities we face and persuading people.

That is why we must set out spending discipline and tough new fiscal rules alongside action now for growth and jobs to get the deficit down.

In the 1990s the challenge for Labour was to win people’s heads as well as their hearts. After 13 years in government we lost too many hearts. We have to win them back. But in the process we also have to win their heads too. We need a credible and radical programme for government.

That’s how – drawing upon a Bevanite combination of vision and pragmatism – I believe we combine our values and the pursuit of electoral success so we can put them into practice too.

CONCLUSION

So it is clear why Bevan is a hero of mine… stammering, the NHS, defence, the economy – a pragmatic Labour visionary.

But let me return to the argument I made at that Guardian fringe meeting of three years ago, at which the Guardian political columnist Martin Kettle asked me to make the case for Nye Bevan as the greatest Labour hero of the past one hundred years…

Why Nye?

That he is a hero of our movement is beyond doubt, right up there with Keir Hardie, Clem Attlee, Barbara Castle, Tony Crosland, Neil Kinnock and (– yes – )Tony Blair and Gordon Brown too.

But the greatest hero?

What is extra special about Nye Bevan, I argued, is that his passion, his values and his example inspired a succeeding generation of followers, the Bevanites, who were loyal to their hero and determined to nurture his legacy in a way that no other Labour figure has achieved.

Keir Hardie and Clem Attlee were great leaders who paved the way, but who were the Hardie-ites, the Attlee-ites?

Barbara Castle? Well she was a Bevanite, as was Harold Wilson, Michael Foot and Neil Kinnock.

And, unlike ‘Gaitskellite’, ‘Bevanite’ remains a meaningful term – still today invoking a Labour vision of a better and more equal society.

That is why, I argued, Nye Bevan deserves the title of Labour’s greatest hero.

And what greater tribute to the great man than that he is still a hero today – his name evoked by a new generation to describe their approach to politics.

Ladies and gentlemen – just ask Bevanite Ellie…

Thank you

Ed Balls MP, Labour’s shadow chancellor, said in response to today’s GDP figures:

“Today’s figures confirm that the British economy has been bumping along the bottom for the past twelve months – flatlining when we need strong growth to get unemployment and the deficit down.

“As the ONS has said today, growth of just 0.5 per cent over the past year since the Chancellor’s spending review - compared to 1.6 per cent in the US – is a significant slowdown from the 2.6 per cent we saw in the previous twelve months when we were starting to recover from the global financial crash.

“The fact is that our recovery was choked off well before the eurozone crisis of recent months by spending cuts and tax rises which go too far and too fast.

“Already, the stagnant growth and higher unemployment that George Osborne’s failing policies have delivered mean the government is set to borrow £46 billion more than they planned. After today’s figures, the Chancellor will now have to downgrade his growth forecasts for a fourth time later this month - and revise up again his borrowing forecasts.

“These are really worrying times for families and pensioners struggling to pay the bills, young people out of work in record numbers and businesses on the edge. The combination of sluggish growth, rising unemployment, falling confidence and the latest surveys indicating a contracting manufacturing sector and depressed business confidence mean this is no time for complacency from the government.

“We now urgently need Labour’s five point plan for jobs and growth to help struggling families, get young people back to work and support small businesses. The reckless thing to do is plough on regardless with a plan that isn’t working, the cautious thing to do on basis of all the evidence of this significant slowdown is to act now.”

DERMOT MURNAGHAN: Ed Balls, as I say, joins me now from Leeds, a very good morning to you Shadow Chancellor. Is your message ahead of this G20 Summit forget your obsession with debt for the time being now and concentrate on growth?

ED BALLS: Well I think unless you’ve got growth and job creation, then you can’t get deficits down. That’s the lesson of the last year, that’s the lesson of history. I have just come back from America where in America they are debating what more needs to be done to get the American economy growing, to get jobs being created. Over in the eurozone, without a plan for growth and jobs, it’s just not possible to get debts down in Italy and other eurozone countries. Here in Britain we aren’t having that debate because the government is ploughing on doggedly saying whatever happens we’re right and we won’t change course but all the evidence is, and we’ll see more this week, that it’s not working. Our economy is not growing, unemployment is rising, that means borrowing is already set to be £46 billion higher than George Osborne planned. Unless there is a global plan for growth and jobs next week in Cannes and here in Britain, we can’t get our deficits down.

DERMOT MURNAGHAN: Okay, there’s a lot to pick through just in that, first of all the comparison with the Americans, of course discussing growth there and the strategy there, as we are, as the government is in this country, but also having its debt, having its credit rating downgraded because of the size of its debts and almost paralysis in Congress because of debate about what to do with that.

ED BALLS: The interesting thing, after the downgrade in August in America long-term interest rates fell and I think you’re right, that’s reflecting a worry about that political paralysis. There is a debate in America because you’ve got the President saying we need a jobs plan, you’ve got elements in Congress saying ‘no, don’t do anything to stimulate the economy’ and they are deadlocked in America at a time when we need America to be leading. But I have to say Dermot, at least they’re having the debate even if they can’t find a way forward. In the eurozone the most depressing thing last week was there was no plans for jobs and growth as part of the summit discussion. Here in Britain, even though we have now had slower growth than any other country except Japan in the G7, our government says we have just got to carry on. We’ve got on Tuesday the GDP figures, to get to George Osborne’s Budget forecast earlier in the year, he would need 1.3% in the third quarter, even the OECD’s downgraded growth forecast would need 0.9%. And I’m afraid if we had lower growth than that we’re going to see our borrowing coming in higher than expected, unemployment still rising. This is a terrible prospect and there is a choice, it doesn’t have to be this way but you’ve got to have the confidence to say okay, we got it wrong, change course but that is not something David Cameron and George Osborne are willing to do and that’s why we’re stuck as a country.

DERMOT MURNAGHAN: So the choice you’re offering is, and you heard the Prime Minister say last week in Prime Minister’s Questions, they estimate the Labour plan is to borrow £100 billion more over the course of the parliament to attempt to stimulate growth. You would accept that there is no sure-fire formula, if all governments could stimulate growth by borrowing then everyone would be doing it.

ED BALLS: Well that charge from David Cameron is complete nonsense, this idea that we would be borrowing hundreds of billions of pounds but as I said a moment ago, his own plans have seen not just the economy flat line and unemployment rising but £46 billion more borrowing because if you have got more people unemployed, fewer people paying tax, more on benefit, that costs us more. And what I’ve said consistently in the past year, and a year ago there were not many people saying this, I’ve said of course you need a plan for the deficit but do it in a steady and balanced way. If you go too far, too fast, if you are reckless, if you crush confidence, if you put people out of work, it ends up making it harder to get the deficit down. That’s why we’ve set out a five-point plan, an alternative Labour five-point plan for growth and jobs, which would mean immediate action now to create new jobs, to have a temporary VAT cut, things which would get the economy growing, which would get people into work. That is the best way to get the deficit down and at the moment David Cameron and George Osborne seem to say however bad it is for families and for businesses, we’re just going to plough on regardless but that is not cautious, that is a reckless approach to the economy. I think we need some leadership from our Prime Minister, we need some leadership from leaders in Cannes this week, we need a plan for growth and jobs to get deficits down. That is the argument.

DERMOT MURNAGHAN: Let me ask you about another very important part of the British economy, whether you like it or not, which is the City of London, great fears there about a transaction tax on financial transactions which is being discussed amongst the eurozone. Now I know you are in favour of one but it has to be implemented almost globally, is the G20 that forum for those discussions?

ED BALLS: Well yes and it was put on the agenda two or three years ago and I would like to see our Chancellor, George Osborne, making the case in Cannes this week. But let me be clear, we all know the excesses of the City of London and some parts of the banking industry were disastrous for our economy in the last few years and that has been true in financial centres around the world but it is also the case that the financial services industry in Britain is a very important part of our future economy. We need more balance, we need more manufacturing but we will be a service orientated economy. The City is important but it must be properly regulated in Britain and round the world. I am in favour of a financial transactions tax but only if it is agreed in the widest possible realm, it needs to include New York as well as London, you can’t just do this at the eurozone or EU level, certainly not just at the British level entirely. That is why I think our government should argue for this. It would be helpful in terms of pursuing our international goals to have the money from a financial transaction tax but it needs to be closer to global rather than European and it is part of I think London and the financial services industry around the world saying okay, we made some big mistakes and we’re willing to pay a price for that. That’s why I also say, as part of our five-point plan for growth and jobs, repeat the bank bonus tax again this January and use the money to create jobs for young people, to build homes in Britain. With these bonuses so high carrying on in our financial services industry, I think it’s pretty difficult for that industry to argue against making a contribution to getting young people back to work and making a contribution to a global financial transactions tax as well.

DERMOT MURNAGHAN: If you were back in power then as Chancellor, given what you have said about the City, I want to ask you to apply that predator or producer test that we heard from Ed Miliband at your conference. Would you therefore say if the banks for instance and others that are paying these large bonuses continue on that path, you as Chancellor would put them definitely in the predator category and tax them accordingly?

ED BALLS: I think most people would say that if you see another round of huge bonuses this year at a time when unemployment is rising, that is a pretty good case for a bank bonus tax, I think it would be a good thing to say. I have just said to you though that …

DERMOT MURNAGHAN: But would you deem them to be predators, it is this issue of good and bad companies, not just applying to the City but many people are puzzled in industry and business more widely how a Labour administration would define their corporate operations.

ED BALLS: Well I’ve just said to you that I think the financial services industry has got a really important part to play in our future and we need Barclays and HSBC and JP Morgan located in Britain playing their part in the global economy. What we want them to be doing is playing their part in helping to get more investment into industry, here and round the world, in helping to get pensions. If you see instead people trying to simply speculate at the margins to make short term money now in a way that is actually damaging to our economy, well that would be bad, that would be predatory. That’s why you need tough regulation, that’s why the bank bonus tax is the right thing to do. I don’t think it is right to come along and say this company is predatory, that one is long term, it’s about behaviour. And I’ll give you another example, if you find examples of companies who are actually fixing prices, working in cartels, that is predatory and it is right that there are criminal penalties for directors. It is not just against the law but directors pay, that kind of predatory behaviour hurts ordinary companies playing by the rules, doing the right thing. It’s about behaviour rather than about the particular company or the particular sector.

DERMOT MURNAGHAN: So it’s not then just companies you don’t like. I was thinking about the company I work for, BSkyB, in which Rupert Murdoch still has a large stake, not a controlling stake of course. We all know about the well-documented spats you’ve had with News International and News Corporation, I mean would you define a company like BSkyB in the predator or producer category?

ED BALLS: Of course not and I’m on BSkyB because you are a public broadcaster in the public interest. Last week in New York I went to visit the editorial team at the Wall Street Journal, in the News International building, the News Corp building, because the Wall Street Journal is a very important and highly respected newspaper serving the American business community and I wanted to discuss with them what needs to be done to get growth and jobs in Britain and in America, so absolutely not. However, I think you’d probably agree with me that certain journalists in certain newspapers actively phone hacking innocent people like Millie Dowler and that being covered up by particular executives, I think you and I would probably call that the kind of predatory journalism that you would not want to be associated with in any way.

DERMOT MURNAGHAN: A lot of people of course are concerned about predators campaigning, demonstrating, camping at the moment in the heart of the City of London outside St Paul’s. What’s your view on whether they should be moved on or not?

ED BALLS: Well we have a fine tradition in Britain of people demonstrating and it is important to do that within the law. I have just come back, as I said, from America where you’ve seen some terrible violence, some real anger on both sides in these demonstrations, the Vietnam veteran who was hurt in Oakland just last week by the tear gas canister. We’ve avoided that in Britain and that I think shows that we as a society can protest in a way which is peaceful and I hope that can continue. Now there are obviously difficult decisions because the people who want to worship in St Paul’s are finding their life disrupted by the demonstrators. It must be possible in our society to have demonstrations without violence, where people can make a legitimate point and I think there is a legitimate point that some people are saying, that they don’t think the economy has worked in the best interests of all people and it is fine to demonstrate and say those things but not in a way where we’ve stopped church goers, stopped people going about their business. And I think I am right in saying that the senior leaders at St Paul’s are talking to the demonstrators today, trying to negotiate a way through. I hope that can succeed because that is the right way to do things and it’s the way in which we’ve tended to do things in Britain.

DERMOT MURNAGHAN: Okay Ed Balls, thank you very much indeed Mr Balls, Shadow Chancellor there.

ED BALLS: Thank you Dermot.

Adam Boulton: What do you think explains the difference between America’s growth figures and our growth figures which are well under one per cent at the moment?

Ed Balls: In the US, they have taken a more balanced and steady approach to deficit reduction over the last couple of years and they have actually made up all the loss of output in the recession. Here in Britain we are still four per cent below the level of output before the financial crisis. In the last year, America has grown by 1.6 per cent on the basis of these figures and the UK by zero per cent. We will have to see next week what our figures show. The figure today for America in the last quarter is 0.6 per cent for the quarter which is 2.5 per cent over the course of the year. 0.6 per cent is pretty disappointing for America. People here, I think, are pretty worried. That is why there is a big debate about the need for a jobs and growth plan being driven by the President.

In Britain, simply to get back to the Chancellor’s previous forecast, he would need that twice that level – 1.3 per cent – and to get to the OECD’s more pessimistic figure [he would need] 0.9. If we don’t see those kinds of numbers then I’m afraid the prospects are for sluggish growth, higher borrowing and for higher unemployment as well. That’s why I think, as in America, the case now in Britain is even more clear: we need a more balanced approach to deficit reduction and to adopt what I’ve called Labour’s five point plan for jobs and growth.

AB: Everybody is trying to reduce their deficits though. What I can’t quite understand about your plans is whether you would now be raising and spending more money than Alistair Darling would have done if you had won the election?

EB: What’s happened, because of the fact that in the last year our economy has not grown at all and unemployment is rising again, is George Osborne is going to have to be borrowing £46 billion more than he planned and that goes to the heart of this. The choice isn’t ‘do you reduce the deficit or do you have a jobs plan?’ You need to have both.

AB: My point is exactly that. The government hasn’t managed to reduce or have this austerity programme in cash terms that perhaps it had hoped for so it is ending up spending more money, which is what you want you want to do, and yet as you have just been outlining that’s not helping our economy very much?

EB: Part of the reason why spending is higher is because unemployment is higher, growth is low. That means less tax revenue and more people getting unemployment benefits instead. That is the wrong way to get the deficit down.

AB: But you’d be spending even more to generate those jobs?

EB: Yeah and this goes to the heart of the argument. Unless the economy is growing and unemployment is falling, it is harder to get the deficit down. The argument you hear from George Osborne is if I cut faster and raise taxes more, surely that makes the deficit plan easier to achieve. No. It makes it harder to achieve because the flat-lining economy and rising unemployment is the opposite of –

AB: [Interrupting] – How much more would you be spending? How much more would you be increasing the debt by?

EB: I have said that we should have a five point plan. Some of those would pay for themselves. We would repeat the [bank] bonus tax and use that to pay for youth jobs. I have also said, though, that the VAT rise this year was the wrong tax and the wrong year and has pushed up inflation and has hit confidence.

AB: How much more? What would be the difference?

EB: If we reverse the VAT rise for a year that would cost £12 billion, a £12 billion boost because we get less tax revenue coming from the VAT rise. But the argument is that, if the effect of that is to get people more confident, unemployment falling, you end up with lower borrowing not higher borrowing. George Osborne did the VAT rise. He’s cut spending faster and what’s happened? He’s got borrowing £46 billion more. If you haven’t got growth and jobs, you end up with higher borrowing. A sensible plan now to boost demand to get our economy growing is the best way to get the taxes coming in and the deficit coming down. That’s true in Britain. That’s true in America. It’s actually true in the Eurozone as well. If we get stuck in this mindset that if you cut faster and tax more, it’s better for the deficit, I’m afraid we are going to end up in a really, really dangerous place in the world.

AB: OK, on the Brussels deal, do you think the outcome was a good deal for Britain?

EB: I think that anything which gets the Eurozone sorting out its problems and growing is a good deal for Britain. And I think today we have got to be cautiously positive. It wasn’t announced until two or three in morning, this deal. I think the most important thing in the markets today is that the European Central Bank has actually intervened and bought Spanish and Italian debt and that shows that the ECB is doing its job. But fundamentally will there be the scale of financial backing for sovereign countries like Italy? We don’t know. What will the actual details of this plan be? We don’t really know. What is going to be the bank recapitalisation? We don’t know. Will the European economy grow next year? That’s really in doubt.

AB: You would support George Osborne and David Cameron in saying that there is going to be no payment by Britain into the European fund and no contribution from Britain via the IMF into the fund?

EB: I don’t think it’s sensible for Britain to make bilateral contributions to a euro bailout fund. The ECB should be doing this job.

AB: Or multilaterals through the IMF?

EB: I think the IMF has got a job to do supporting countries round the world. I support that but what I think is a problem is if the IMF – and this is the argument we had with George Osborne earlier in the year – if the IMF steps in to put money where Europe is unwilling to spend its own money, I think the IMF should wait to see whether there is a really proper commitment from the Eurozone to this bailout fund. I’m in favour of the IMF doing its multilateral role but not funding a bailout fund.

AB: So you are on the same page as George Osborne who is just wondering why in that case Labour opposed the increase in funding to the IMF if you think it’s such a great institution?

EB: I was the Chair of the deputies of the IMF for a number of years. I’m a huge supporter of the IMF. But it was quite wrong, in my view, in the summer when the Eurozone had not sorted out its bailout plan, to start saying let’s fund it through the IMF instead. George Osborne, I’m afraid, has been a bit equivocal on this. The Eurozone needs a bailout plan. That’s the way to do it. We said we shouldn’t be putting through a rise in our IMF contributions until the Eurozone has sorted out their issues and that was in doubt.

Three years after the Wall Street crash of 1929, and with the world still mired in recession, the US elected a president whose determination to forge a “new deal” rescued America from depression and set an example to the world. Three years on from the global financial crisis of 2008, and with the developed world again mired in economic stagnation, that same vision and “new deal” determination is badly needed across the world.

You either learn the lessons of history or are condemned to repeat its mistakes. And to be fair, in the face of indebted banks and cautious consumers and companies, central banks have striven not to fall in that 1930s trap – providing liquidity to keep credit flowing in the face of very low interest rates. But so far our politics has not responded in kind. Yes, the worst of 1930s-style protectionism has been avoided. But on fiscal policy, where the world needs Roosevelt-style clarity and purpose, deflationary policies continue to undermine jobs and growth.

America, the eurozone and Britain: three currencies stuck with stagnating growth, high unemployment and high deficits; three very different governing “coalitions” facing political deadlock when a change of course is desperately needed.

First, in America we see the most familiar and easy to understand political deadlock. President Obama has made the case for a balanced plan to support jobs and growth alongside medium-term deficit reduction. But his clarity of purpose was badly undermined by Republican political brinkmanship over the debt ceiling this summer.

And this political deadlock is not only a problem for America. Because when the world needs a united US government to tour the world banging the drum for global growth, the President is instead touring US states defusing Republican opposition to his own jobs plan.

Europe, by contrast, has been facing a new and unfamiliar crisis – a political deadlock not within one government but between nation states locked together in the euro. If the euro is to survive, markets need to know and believe that in return for a decisive plan to restore growth and a balanced plan for tough action on deficits, the ECB will, with political support, stand behind the sovereign debts of member states. While this is in doubt, the whole project will remain in doubt – undermining market confidence and growth and leaving banks vulnerable. There are only so many times we can have summits that present a united front, promise a comprehensive solution but disappoint on the detail.

Britain, meanwhile, is facing a very different political crisis to America and the eurozone. Britain’s problem is not the absence of agreement but the nature and rigidity of the agreement forged to bring a coalition together. When no party won an overall majority last year, the cornerstone of the new Coalition Government’s agreement was a rapid deficit reduction plan. The Coalition said that cutting spending and raising taxes further and faster than any other major economy would boost confidence, growth and jobs. The opposite has happened: confidence has slumped, our economy has flatlined for a year and unemployment is at a 17-year high.

Austerity is not working in Britain. But the UK’s peculiarly British problem is that the Coalition is locked into a rigid agreement on the deficit and fears that any change of course might undermine the political foundations upon which it was built – the very reason it came together in the first place.

This can’t go on. The world badly needs a change of course at the forthcoming G20 summit. We need a new deal based on the understanding that collective austerity risks catastrophe and that, as the IMF’s Christine Lagarde has rightly warned, “slamming on the brakes too quickly will hurt the recovery and worsen job prospects”. A new deal that includes credible but steadier, more balanced deficit reduction plans to support the growth and jobs the world needs now – all of which should be agreed when the G20 meets in Cannes next week.

If we are to avoid repeating the mistakes of that 1930s lost decade, then the world badly needs a “new deal” – and soon. But from where will the leadership come? And how long will we have to wait?

This article is based on a speech given at the Buttonwood Gathering in New York last night.

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Andrew Neil: If you were heading for the Brussels summit this weekend, what would you be advising our European partners to do?

Ed Balls: Well I think there are three things you need: you need a plan, you need political agreement for that plan and it has got to be a plan which works. And the problem is none of those things are in place: there is not an agreed plan, the politics in the European Union and in the Eurozone is very divided, no decisions can be made and I fear the danger is that the plan won’t be the right plan. You’ve got to say to the European Central Bank as governments you have got to do whatever it takes to show that Italy and Spain will be supported by the collective in the Eurozone. The quid pro quo has got to be that in Italy there has got to be a clear political deficit reduction plan – the Germans are right to insist upon that – but you won’t have stability unless you say collectively we are going to stand by each other in the Eurozone for now. And that means a very substantial commitment to inject billions and billions of pounds of resources if necessary. Without that I’m afraid the markets will doubt whether or not there is a real political commitment to hold this together. That is where the contagion, the tensions, the low growth, the market worries come from. As I said though there has also got to be a commitment to a balanced plan, and if you try to go too quickly on austerity as you see in Greece, it doesn’t work, if you look at the British example as well. In Ireland it has been, as we were just hearing, they’ve cut VAT recently temporarily, there is a debate now about moving to a more balanced plan, even then, unemployment very high, markets not lending yet to Ireland. Navigating your way through this is very, very difficult, you’ve got to have a plan for growth and jobs, a credible deficit plan and political agreement to implement it. Without those three things you can’t make progress.

AN: But the problem is that no-one is following your advice the Irish haven’t followed your advice, they are cutting the deficit much more quickly than we are cutting ours and the Germans and French are also cutting their deficits, you seem to be a lone voice in your Keynesian stimulus proposals, no-one else in Europe seems to want them?

EB: The Irish government have just announced a temporary cut in VAT…

AN: Yes but the deficit is going to be reduced more quickly.

EB: And you were just hearing the troika saying to the Irish you may need to ease off and move toward a more balanced plan given this more dangerous world situation. What you have got to do is have a credible plan on the deficit. I’ve always agreed with that but it has got to be one which works and if you have flat lining growth, if unemployment is rising what the markets then say is look, it is not working, the debt is going to be going up rather than down, borrowing under pressure. If you look at Italy, their problem is that with the level of debts they have got, twice as high as ours, plus high interest rates, no growth means their debt gets worse, so you have got to have a growth and jobs plan alongside a credible deficit plan. If you say we are going to do it all through austerity it doesn’t work and that has been part of the Eurozone problem. Of course the other part, as I was saying a moment ago, is you have got to have a collective political commitment in the Eurozone and until France and Germany can reach a deal, I have to say David Cameron in my view should have been in Berlin and in Paris this week saying to people in Europe’s interests, in Britain’s interests too, get this sorted out and instead he is just stuck in an internal Conservative Party wrangle. This is so important…

AN: Well he is heading to the European summit on Sunday, along with other European leaders, the problem is that you are a lone voice on this, indeed you are in isolation. Mrs Merkel doesn’t agree with your analysis, she wants to continue to cut the deficit at a high rate, Mr Sarkozy doesn’t, even the French Socialist candidate wants to cut the French deficit, who agrees with you?

EB: So you are saying Andrew, at the moment when we see the chaos of a summit not reaching agreement that I should be following the path being prescribed by Mrs Merkel and Mr Sarkozy?

AN: No, I’m just asking who agrees with you, I’m not saying you are wrong, you are maybe right, you alone in Europe may be right, it has happened before I’m sure, I’m just wondering who agrees with you?

EB: That would be quite a punt to take Andrew, at the moment…

AN: And I did say ‘may’…

EB: … the Eurozone is going into what has been, is probably the biggest political crisis of our lifetimes. Economically it is incredibly dangerous what they are doing, they can’t sort it out, austerity is not working, the ECB is neutered, there is no way of standing behind Italy, so you have got these huge contagion problems. In Britain we’ve got a deficit plan and we have got a political agreement to deliver it, our problem is that it is the wrong plan because it is going too fast and you just have to look at the evidence on unemployment or on growth. But the idea that you can look at the Eurozone and say Britain would be better following their plan, good grief Andrew, I don’t believe you would think that for a moment.

AN: That is what I didn’t say, I asked a much simpler question that people can follow and that is, it seems your position is that Ed Balls is right and everyone else is wrong. Mrs Merkel doesn’t agree with you, Mr Sarkozy doesn’t agree with you, Mr Zapatero in Spain doesn’t agree with you, the incoming likely Conservative government in Spain doesn’t agree with you, the Irish don’t agree with you, the French Socialists don’t agree with you, so I simply ask again who does agree with you?

EB: Look, we didn’t join the Euro Andrew, what a good decision that was, outside the Euro…

AN: I know and you’ve taken the credit on this programme endlessly for that. I’m not arguing about that, I’m simply, it seems to me, as I say again you may be right, you may be wrong but you as you sit there in Sheffield are an isolated figure in the European debate?

EB: Sometimes Andrew you have to have the strength to make an argument which is right and be outside the consensus…

AN: OK…

EB: A year ago I said if we cut the deficit in Britain this fast it would be bad for Britain and the Conservative Party and many commentators said, ‘no we’d get growth, unemployment would come down, borrowing would come down.’ What has happened? A year of flat lining, unemployment going up, markets now doubting whether Britain will get the growth we need. I have to say increasingly it looks as though those optimists of a year ago have got it wrong and I’m saying now in Britain you have got to change course and Europe has got change course as well because austerity and a lack of political consensus is not working.

AN: So let’s for the purposes of the rest of our short discussion assume that Ed Balls is right is and the rest of the world is wrong, so to capitalise on your wisdom let me ask you on this. It would seem to me and you are quite right about the failure of leadership in Europe and this keeps going on and on and they have kicked it into touch again. It would seem to many people that in the longer term the only way for Europe to go is either to break up the Eurozone and kick out the weaker members so you have what economists like you and me would call an optimal currency area in the North or you have, as the British government is proposing, a much stronger fiscal union with transfer of payments and a Eurozone economic policy, which way would you go?

EB: Well I think you cannot make a monetary union work without collective fiscal agreement. There is no doubt about that, that is the direction it has to go in. I personally think that you can make a larger monetary union work across an optimal currency area plus if you have got that political commitment, and the problem is that Italy is probably OK if it gets its deficit sorted out, but the others have got to stand by the Italians and that is not working. So I am for political integration, a step beyond on that and I am for, you know, the things which need to be done to make that happen. The problem this weekend is that the French and German governments can’t really quite face up to that, our government is sitting in London not doing the diplomacy that we should be doing and it is going to end up with jobs and investment lost here in Britain because what happens in the Eurozone really, really matters to Britain.

AN: No, no I understand that, but if you, like the government, are urging a deeper fiscal union for the Eurozone countries with massive transfer of payments and an economic policy for the Eurozone, that by definition redefines our relationship with Europe, it would then change, we would face a 17 country block which would out vote us on every major issue, wouldn’t we then have to change our relationship if the logic of your policy and Mr Osborne’s policy was followed through?

EB: Well look the logic of a monetary union is deeper fiscal integration. Of course that means that that changes over time and Britain has to deal with that. The thing I find really worrying about the Conservative Party is they seem to think the only way to sort Europe out, or our relations out with Europe is essentially for Britain to walk away and to leave and withdraw. That is so defeatist…

AN: Well that is not Conservative government policy?

EB: Well it is the view of very many Conservative MPs who will be rebelling next week and is pretty much what George Osborne hints at and winks at when he is in the House of Commons. We should be leading the arguments for reforming Europe, not walking away, the single market, financial services, the labour market, they matter across the whole Euro area, the whole EU area, not just the Eurozone, us not being in those debates is incredibly dangerous.

AN: Alright, stay with us just for a second Mr Balls, we are running out of time, but let me get some reaction here from our guests. Janan, what do you, if we are urging the Europeans to do what we wouldn’t do ourselves, doesn’t that change our relationship overtime with Europe?

JG: Yeah and I think a 17 country core Eurozone area would effectively be the European Union and would set the terms of economic and fiscal policy and even business regulatory policy for the European Union as a whole and you can imagine therefore in the longer term British membership coming into question as its interests diverge from the core for the European Union. But I do think Ed Balls is right that the ultimate solution to the Euro crisis is some kind of fiscal harmony, that won’t happen for a long time…

AN: It wouldn’t involve us

Janan Ganesh: It wouldn’t involve us and it would be incredibly difficult even for the existing Euro countries to get there but it is the most plausible…

AN: What is your take on it and I will get a final word from Mr Balls?

Vincent Moss: I think people are very depressed by the lack of political leadership. Where Ed Balls is right is people need unity of purpose, they are not getting that, it doesn’t reassure the markets and we have got a position where…

AN: Do you really think the British could make a difference?

VM: I don’t think they could make a huge difference but people would listen if the Party, if the Conservative Party weren’t split down middle on this, you have got the potential of 100 Tory MPs rebelling on Monday…

AN: There will be quite a few Labour MPs as well

VM: Absolutely and that sends out a very, very bad message and it is echoed across Europe, the lack of political leadership in this area is woeful…

AN: Just, I want to come back finally, because it is an issue which will come up in the debate on Monday and it is not a party political point I’d like you to comment on, I’ll just come back to what I’ve said, it seems to me that if the Eurozone does go down the route of fiscal integration and economic harmony and we are not part of that, whatever British politicians say that will enforce a redefinition of our relationship with the EU, can I just get a final reaction to that?

EB: That is right and it is a huge challenge for our generation but I have to say millions of jobs and investment in our country depends on our access to that wider EU market…

AN: There are rules on that, that is all covered by WTO rules Mr Balls you know that as well as I do…

EB: But you also know that the integration of the single market, on financial services for example, goes way beyond the WTO. We are negotiating those things at the moment and Britain is not punching its weight. I have to say Margaret Thatcher, John Major, Tony Blair, Gordon Brown all of them would have been demanding to be at this summit, getting it sorted out, David Cameron has walked away, that is not in our national interest, I want us to be not in the Euro, but in the debates, we’ve got to shape it so we keep the jobs and investment in Britain.

Martha Kearney: Do you support the principle of the Regional Growth Fund?

Ed Balls: I do, we set up the Regional Development Agencies, these budgets are much smaller but it is right that government is supporting business to grow and invest. But as far as I understand, and this was confirmed yesterday by the Business Department, a company in Huddersfield, and a company in Plymouth are the only two countries who have been helped even though there have been 22 press releases announcing the fund. So the Chief Secretary there seemed to be all over the place, he didn’t seem to know what was going on. How can he say money is being paid out every week when only 2 companies have been helped and there are tens of thousands of companies real distress who need that help and who aren’t getting it?

MK: It takes a while to process this money doesn’t it?

EB: Yeah, well maybe the Chief Secretary should get a grip and have a conversation with the Business Secretary who said last night that our economy is now in a weaker state than two years ago. Vince Cable is right, our economy is in a weaker state and this prevarication and lack of information from the Treasury about what is really going on in the economy is very, very worrying Martha.

MK: But, the reason they are saying the economy is in a weaker state is because of what has been happening around the world, particularly looking at the turbulence in the Eurozone, you must accept that?

EB: Well of course that is partly true, it is partly true the world is in a very dangerous place at the moment, America still in a political wrangle, the Eurozone really in a political and economic crisis. But the fact is a year ago today in his spending review the Chancellor said by cutting spending faster than all those other countries we’d be in a stronger place and the fact is we have got higher inflation than any EU country except Estonia. We had rising unemployment when most European countries have seen it falling and we’ve had growth slower than any European country except for Greece and Portugal, and any bigger country except for Japan.

MK: But growth has been hit hasn’t it by what has been happening in our export markets?

EB: Well I agreed with you there, of course it is the case and the Eurozone crisis is making things worse. There is a global hurricane hitting Britain. But we were already in a weakened state because of the fact that the wrong decisions were made a year ago. That is why over 12 months our economy has flat lined, unemployment is up, inflation is up and the thing that you have said just now in the interview with the Chief Secretary, very important, in those circumstances, higher unemployment, more people on benefit, borrowing is already going to be £46 billion higher. And after a while I’m afraid the financial markets are going to look at the UK and say with the high unemployment, with no growth, this starts to look very risky indeed and I’m afraid…

MK: Well I think they would also think that the Labour strategy was very risky. If you look at what the S&P rating agency was saying earlier this month it has said that the British credit rating would be under pressure if the government’s commitment to fiscal consolidation falters

EB: Well people will have to decide who are the better experts on the world economy, Standards and Poor’s or the International Monetary Fund. The International Monetary Fund said two weeks ago if economies are stagnating – as we are – then countries with low yields like Germany and Britain, they said should consider slowing the pace of fiscal deficit reduction…

MK: They weren’t arguing for that to happen now were they, they were saying if poor growth continues… but just back to the point…If you were in power at the moment you would spook the markets wouldn’t you because of what the credit rating agency says, you may decry them but they are important and they would be very worried about your public spending plans.

EB: To answer the point you just made, how much longer do we have to have stagnation, higher unemployment and higher borrowing before the government realises its plan is not working and changes course? What the markets will get worried about and are worried about in many countries is where you have a lack of growth which means that borrowing is coming in higher, not lower, that is…

MK: You still haven’t answered my question about the markets view of your plans and what S&P have said about the need to continue with fiscal consolidation?

EB: Look, a fiscal consolidation is essential. We need a medium term plan to get the deficit down. We need a clear political commitment to that plan but the plan has got to work, and if it doesn’t work – as the IMF said, without growth you can’t have credibility – in the end, a few weeks ago Italy was criticised by the credit rating agencies because austerity and a lack of growth was making their borrowing worse. The same thing outside the Euro is now happening in Britain. How long do we have to go on with rising unemployment and stagnation in our economy before the government realises it is time for some leadership? We’ve set out a 5 point plan for jobs and growth. We will back George Osborne if he changes to a more sensible, sane and balanced approach. The sooner he does so the better for families, the better for jobs and the better for our deficit too.

The evidence is now mounting by the day that the Tory austerity plan – spending cuts and tax rises which go too far and too fast – is hurting but not working.

We learned last week that our economy has not grown at all since last autumn, well before the eurozone crisis of recent months. In the EU only Greece and Portugal have grown more slowly than us since the end of last year. Unemployment is rising again, with around one in five young people now out of work. And at the time of writing this week’s jobs figures are set to add to the grim news.

And what is the government doing about it? There was precious little from either David Cameron or George Osborne in their speeches to the Conservative Party Conference last week.

They are determined to save political face by sticking to their failing plan, even though the slower growth and higher unemployment it has delivered means they are already set to borrow £46 billion more than expected.

Out of touch Ministers don’t seem to understand the real squeeze on families right now and they don’t understand that if you choke off the recovery and put tens of thousands of people on the dole, claiming benefits rather than paying taxes, then it’s harder to get the deficit down.

It’s no wonder families, pensioners and businesses are crying out for a better way. That is why Labour has set out a clear and credible five point plan for jobs – which we challenged the Tories and Lib Dems to support in Parliament this week.

First, repeat the bank bonus tax again this year. The £2 billion that could be raised should be used to build 25,000 affordable homes and fund 100,000 jobs for young people, which they would be required to take-up. It can’t be right to be cutting taxes on the banks when another generation of young people are facing the early years of their life stuck on the dole.

Second, genuinely bring forward long-term investment projects – schools, roads and transport – to get people back to work and strengthen our economy for the future. For example, there are hundreds of cancelled school building projects that are ready to go.

Third, reverse January’s damaging VAT rise now for a temporary period until the economy is growing strongly again. This would be a £450 boost for a couple with children, providing immediate help for our high streets and for struggling families and pensioners too.

Fourth, an immediate one year cut in VAT to 5% on home improvements, repairs and maintenance to help homeowners and the many small businesses that are so dependent on the state of the housing market.

And finally, a one year national insurance tax break for every small firm with fewer than ten employees which takes on an extra worker. This could be paid for using the money left over from the government’s failed national insurance rebate for new businesses and would helping small businesses to grow and create jobs.
This is a real plan to help struggling families and small businesses, get our economy growing and create jobs which are the key to getting our deficit down.

And Labour’s jobs plan would be possible if the government adopted a steadier and more balanced deficit plan – a slower pace of tax rises and spending cuts that allows us to support jobs and growth.

Even the International Monetary Fund is now saying the government should look at slowing the cuts and tax rises if, as they repeated last week, the economy was to “undershoot current expectations and risk a period of stagnation” – as it has been for nearly a year.

We face a jobs and growth crisis in Britain. Labour is setting out a better way with a five point plan for jobs. It’s now time for the government to act. With every day that passes where the government does nothing families, pensioners and businesses will pay a heavy price.

Ed Balls (Morley and Outwood) (Lab/Co-op): I beg to move,

That this House notes that there has been no growth in the UK economy over the last nine months, compared to 1.8 per cent. growth in the previous nine months; further notes that families are feeling the squeeze, unemployment is rising again and the recovery was choked off last autumn, well before the eurozone crisis of recent months; agrees with the International Monetary Fund’s managing director that ‘growth is necessary for fiscal credibility’ and the IMF’s recent report which warned that ‘if activity were to undershoot current expectations and risk a period of stagnation’ the Government should ‘consider delaying some of their planned consolidation’; further notes that borrowing is forecast to be £46 billion higher than planned because of the slower growth and higher unemployment arising from the Government’s policy of cutting spending and raising taxes too far and too fast; further believes that the Government need a plan for jobs and growth if the deficit is to be reduced in a sustainable way; and calls on the Government to implement a steadier deficit plan and the Opposition’s five point plan for jobs, which includes a tax on bank bonuses to fund 100,000 jobs for young people, bringing forward long-term investment projects, reversing temporarily the VAT increase to provide an average £450 increase for a couple with children, implementing a one-year cut in VAT on home improvements, repairs and maintenance to five per cent, and a one-year national insurance tax break for small firms taking on extra workers.

In opening this Opposition debate on the economy and moving our motion urging the Government to kick-start Britain’s choked-off recovery and adopt Labour’s five-point plan for jobs and growth, I shall start by setting out the facts for the House and for the country. Over the past year the British economy has ground to a complete halt. The latest figures show no growth at all since last autumn. Consumer and business confidence has slumped. For three months manufacturing output has been falling. More than 16,000 companies have gone out of business. Employment is falling and today’s chilling news is that unemployment has risen by 114,000 in the past three months alone.

Unemployment here in Britain now stands at 2.57 million people out of work—the highest level since 1994. Unemployment is rising across the country. We have the highest level of unemployment among women since 1988. Most worryingly of all, youth unemployment, which a year ago was falling, is now rising again, up 74,000 in the past three months, with 991,000—more than one in five—young people out of work. There has been a 60% rise in youth long-term unemployment since February, and the overall level of youth long-term unemployment is at its highest for 19 years. What a waste of talent, what a waste of money and what a betrayal of this young generation.

Michael Fallon (Sevenoaks) (Con): The former Home Secretary, Charles Clarke, said yesterday:

“I think the economic proposition that Labour puts at the moment is unconvincing.”

How can the right hon. Member for Morley and Outwood (Ed Balls) convince the House and the country when he cannot convince his former Cabinet colleague?

Ed Balls: Unemployment is rising and growth is flatlining. The Prime Minister said just a few months ago that the only person supporting me was The Guardian leader writer. Since then, what have we seen? The OECD and the International Monetary Fund are saying that the Government should change course. What has happened to The Guardian leader writer? He has become the speech writer to the Prime Minister.

To those who say that these are just the effects of a world economic crisis now hitting Britain—the same people who absurdly claim that the global financial crisis was all the fault of the British Labour Government, but who now want to blame the British growth crisis on the rest of the world—I say yes—

Christopher Pincher (Tamworth) (Con): Will the right hon. Gentleman give way?

Ed Balls: In a minute.

Yes, the deepening euro crisis and the weaker US recovery have made things harder for British exporters in the past three months, but one cannot blame the eurozone or the world economy for the collapse of economic recovery here in Britain when, since last autumn, our economy has grown more slowly than that of any EU country except Greece and Portugal, when we have the highest level of inflation of any EU country except Estonia and Latvia, and when, over the past year, we have seen a bigger rise in unemployment than the EU average, when most EU countries have seen unemployment not rising, but falling. I know the Chancellor does not like it, but those are the facts. The Prime Minister said today, “I accept responsibility for everything that happens in our economy”. I hope the Chancellor will do the same today.

Mr William Cash (Stone) (Con): Does the right hon. Gentleman accept that the trade deficit between ourselves and the 17 countries in the eurozone has gone up from minus £4 billion to minus £38 billion in the past year alone, and that one of the main reasons, both as respects the whole of Europe and as respects the United Kingdom, is that employment and social regulations are strangling small businesses, for which the Labour party was also responsible in Government? I am critical of the present Government, but am I not also critical of the right hon. Gentleman’s party’s performance in the past 10 years?

Ed Balls: The Chancellor’s big boast over the past six months, which we were told regularly, was that between 400,000 and 500,000 more jobs had been created in the British economy, but today’s figures months show that employment has not gone up at all in the past 12 months; it has actually gone down. We were also told that public sector job cuts would be more than outweighed by the rise in private sector jobs, but I am afraid that employment is falling because the private sector has been unable to deliver the recovery we were promised. It has been a complete fantasy.

Christopher Pincher: It is nice that the shadow Chancellor acknowledges the Government’s responsibility for the economy, but it would also be nice if he took some responsibility for the damage he did to it when he was in power. A former Chancellor has said that Labour lacks economic credibility. If the right hon. Gentleman cannot even convince a former Chancellor on his own Back Benches, how can he convince the country?

Ed Balls: The hon. Gentleman will have to convince his constituents because, despite the fact that we were told a year ago that the recovery would be on track, growth has flatlined for a year and unemployment is rising right across the country, which means that borrowing will be higher, not lower.

Charlie Elphicke (Dover) (Con): The shadow Chancellor responds to questions about his failing to convince his shadow Cabinet colleagues and former Cabinet colleagues by talking about convincing constituents, so why have his poll ratings for economic credibility fallen among his constituents and my constituents and across the whole country?

Ed Balls: I would be happy to have a debate with the hon. Gentleman on economic credibility. He said in June this year:

“Employment has gone up in my constituency and unemployment has been falling, which is welcome.”—[Official Report, 22 June 2011; Vol. 530, c. 426.]

The figures show that unemployment in his constituency has gone up by 456 in the past year. Perhaps he should apologise to his constituents for getting it wrong.

Several hon. Members rose —

Ed Balls: I will make some progress before giving way again. A year ago we warned that a global hurricane was brewing and that it was exactly the wrong time to rip out the foundations of the house here in Britain.

Mr Dave Watts (St Helens North) (Lab): Will the shadow Chancellor name one country that has managed to get out of recession without growth?

Ed Balls: By definition, it is impossible to get out of recession without growth, which is why in the past nine months we have seen no growth at all. We were told we were out of the danger zone, but we do not hear that very often now.

Several hon. Members rose—

Ed Balls: I will make some progress before giving way again. I am always very happy to take interventions. It is clear that the Chancellor has a good whipping operation in place today, although good whipping is something he knows quite a lot about.

A year ago, we warned that a global hurricane was brewing and that it was exactly the wrong time to rip out the foundations of the house but the Chancellor disagreed and recklessly decided to raise taxes and cut spending further and faster than in any other economy. The evidence is clear that his plan has not made the British economy better able to withstand the global storm and that by going too far and too fast he has left it badly exposed. Families and businesses up and down the country are asking how many more businesses must go bankrupt, how many more families must see their living standards fall, how many more young people will have to lose their jobs, how much more unemployment and misery and rising child poverty must we see. How much more evidence do the Government need before they finally change course?

Jacob Rees-Mogg (North East Somerset) (Con): Will the right hon. Gentleman give way?

Ed Balls: I will happily give way to my friend over there.

Jacob Rees-Mogg: I am grateful to the shadow Chancellor for giving way, but I wonder whether he has got it the wrong way round. With a global storm brewing, the right thing to do was ensure that the gilt market was secure and that we could carry on borrowing cheaply, which has ensured that a recovery will eventually come. He can no doubt find something I said in 1830 and quote it back to me, but that is not really the point.

Ed Balls: I am not sure about 1830, but if the hon. Gentleman was in the House in 1930—he might have been—he will know the dangers of very low bond yields accompanied by rising national debt, rising unemployment and economies locked in stagnation. I do not know whether he was around at the time, but some forefathers and foremothers certainly were. Let me quote the director of the National Institute of Economic and Social Research, the think-tank of the year, who said:

“The reason people are marking down the gilt yields is because they think that the economy is weak.”

That is the truth.

Let me make a prediction. I do not expect the Chancellor to announce a change of course today, but will we hear him repeat his boast made this time last year that the British economy’s recovery is on track? I doubt it. Will he repeat the Prime Minister’s deeply complacent boast that Britain is out of the danger zone? I doubt that, too. Will he describe Britain as a safe haven that is immune from the global storm? Will he repeat his naive forecast that cutting public jobs will boost private confidence and create more private jobs? Even this Chancellor cannot fly in the face of the facts. Employment has fallen in the past 12 months. On the day when unemployment has risen again, will he give any indication that he understands at all how hard things are for families up and down the country? Is he so out of touch that he really believes that a £1.40 a week council tax freeze can compensate for a £9 a week rise in VAT?

Nadhim Zahawi (Stratford-on-Avon) (Con): On unemployment in manufacturing, why does the shadow Chancellor think that manufacturing was 21% of GDP in 1997 and 12% when Labour left office?

Ed Balls: Well, unemployment has fallen as a percentage—[ Interruption. ] As I said, that whipping operation knows no bounds. I was hoping that the hon. Gentleman was going to repeat what the hon. Member for West Suffolk (Matthew Hancock) said earlier this year. He said that

“manufacturing is expanding under this Government”.—[Official Report, 23 March 2011; Vol. 525, c. 1024.]

The trouble is that manufacturing output has fallen in every one of the past three—[ Interruption. ] I am going to agree with the hon. Member for Stratford-on-Avon (Nadhim Zahawi), who wrote on his blog that

“deficit reduction alone isn’t enough. If we are to smooth the waters of this choppy recovery we need to ensure that we also support sustainable growth in the private sector.”

Where is that growth? Will the Chancellor repeat his claim that—

Sir Peter Tapsell (Louth and Horncastle) (Con): Will the right hon. Gentleman give way?

Ed Balls: Undoubtedly.

Sir Peter Tapsell: As a lifelong Keynesian, I fully understand that growth can be achieved only by increased demand. Every Finance Minister in the western world is grappling with that problem. What are the right hon. Gentleman’s proposals for increasing demand without causing damaging side-effects for the rest of the economy?

Ed Balls: At last, a perceptive intervention from the right hon. Gentleman. I will come to that very issue later in my speech after making a few more points. I will deal with ensuring that getting demand moving is done in a safe, sustainable and careful way.

Geraint Davies (Swansea West) (Lab/Co-op): Does my right hon. Friend agree that it is no surprise that, if the Chancellor announces half a million job cuts in the public sector, those people will save rather than spend and that the people in the private sector, who normally sell things to them, contract and stop taking people on? It is no surprise that that very announcement underpins the lack of growth in our economy and puts the guilt on the Government side of the Chamber.

Ed Balls: I think that the Chancellor will regret talking down the British economy a year ago, because the rise in private sector jobs has been swamped by public sector job cuts. That is why employment is falling. That is why the private sector is not investing. That is why his corporation tax cut has had no impact on private sector investment. Will he repeat his claim made in January 2009 that

“quantitative easing is the last resort of desperate governments when all their other policies have failed”?

Those are prescient words, because we know the truth, and so do his increasingly desperate-looking supporters on the Government Benches.

Let me say what the Chancellor cannot admit: the private sector-led recovery he promised has proved to be a fantasy, as we predicted. In the past year, the growth that he predicted has failed to materialise.

Sajid Javid (Bromsgrove) (Con): Will the right hon. Gentleman give way?

Ed Balls: In a moment.

Unemployment is rising, and a vicious cycle of higher unemployment, fewer people in work paying tax and more people on benefit means that the Chancellor’s deficit reduction plan is going badly off track. We all know the truth, and so does he—plan A has failed.

Sajid Javid: Can the right hon. Gentleman name one country that has got out of a debt crisis by taking on more debt?

Ed Balls: I understand the hon. Gentleman’s point. If, rather than preparing his intervention, he had listened to my last point, he would have understood why borrowing is already set to be £46 billion higher than the Chancellor planned. The reason is that if unemployment goes up, if the economy flatlines, if fewer people are paying tax and if more people are on benefits, you borrow more. In the hon. Gentleman’s constituency, 50 more people are unemployed than a year ago. Perhaps he should be apologising for backing a Chancellor who got it so badly wrong.

This increasingly desperate Chancellor is now relying on plan B—or should I say plan BOE? But quantitative easing cannot work on its own, and any sensible economist can tell him why that is. The new shadow Chief Secretary to the Treasury, my hon. Friend the Member for Leeds West (Rachel Reeves), who is a former Bank of England economist, can certainly explain to the Chancellor why quantitative easing cannot do the job on its own. Whether the current Chief Secretary—the former national parks press officer—could explain to the Chancellor how quantitative easing works is another question. As the shadow Chief Secretary could very well explain—[ Interruption. ] Does the hon. Member for West Suffolk (Matthew Hancock) want to intervene? If so, I will happily take his intervention.

Matthew Hancock (West Suffolk) (Con): As a former Bank of England economist, may I explain to the shadow Chancellor that quantitative easing works only when one has a credible fiscal policy?

Ed Balls: I am so pleased that the hon. Gentleman has made his intervention, because we have missed him for the past couple of debates, and now he is back. Last time he intervened on me, he put this on his website:

“Shadow Chancellor boosts Matthew’s work in West Suffolk”.

I want to do the same again. His campaigns to get more money for schools, to keep Thetford forest safe and to stop cuts to school crossing patrols are going well. The chief executive of his council has been sacked, and the Labour council in Ipswich has intervened and backed his campaign on school crossing controls and libraries. I have a quote from the shadow Chancellor for his press release: “Mr Hancock has been tireless in his campaign against unfair cuts to local services imposed by the Conservative-led Government—cuts which go too far and too fast.” He can leave the last bit out if he likes; I do not mind.

Matthew Hancock rose—

Ed Balls: I will give way, but before I do, let me return to quantitative easing. As these Bank of England economists know well, simply printing money cannot boost demand and keep interest rates low when they are already close to zero. Printing money cannot boost spending when companies are too scared to invest and consumers to spend. QE—the hon. Gentleman should know this—cannot revive a stalling economy by boosting demand in one direction when fiscal policy is working in a contractionary way in completely the opposite direction. As the Bank of England Governor said only last week, and in this respect I agree with him:

“We can do our part in it but we can’t solve all our problems alone.”

I now give way to the hon. Gentleman.

Matthew Hancock: The shadow Chancellor is famous for being a supporter of Norwich City football club, so will he join me in welcoming the decision to break ground on dualling the A11—an investment project that did not get the go-ahead under Labour and is happening under this Conservative Government?

Ed Balls: I think the hon. Gentleman got the name wrong. He does not mean Norwich City—he means premiership Norwich City, which is more than one can say for any football team in Suffolk. I will back his campaigns to stop the cuts and to spend more, and I fully support the dualling of the A11. At last some Conservatives have persuaded some Conservative councils to do the right thing about these proposals, which is very good.

Richard Fuller (Bedford) (Con): It is all very humorous here today, but in my constituency we already have above-average national levels of unemployment and unemployment has increased. It is always interesting to hear an economist debate with another economist. However, may I ask the shadow Chancellor what direct personal experience he has of working in business, helping to create jobs, and knowing what it is like to make payroll each week? If he does not have any of that experience, will he please undertake to this House that he will go out and get some?

Ed Balls: I have worked in Government and at the Financial Times. I have never run a business, but I respect people who run businesses and I understand why they are so worried at the moment. In the hon. Gentleman’s constituency, where unemployment has gone up by over 400 in the past 12 months, there will be some very worried businesses, and it is important that we listen to them and hear what they are saying.

That is why now is the time for our oh-so-political Chancellor to put politics aside and start to do the right thing. Protecting our economy and protecting valuable businesses and jobs is more important than trying to protect a failed plain. We do not have to wait for another month of unemployment rising, or for 46 more days until we finally get the economic and fiscal forecast from the Chancellor, to know what he is going to have to say. He is going to have to downgrade his growth forecast for this year for the fourth time in 18 months and downgrade his growth forecast for next year. As I have explained, we already have £46 billion more borrowing in the pipeline, and unemployment is now rising. He is going to have to admit that borrowing will be billions higher still than at the time of his last forecast. The Prime Minister says:

“You can’t borrow your way out of a debt crisis”,

but he just doesn’t get it. [Interruption.] No, he doesn’t get it. Because with growth flatlining, and with today’s bleak news of rising unemployment, the Chancellor’s failing plan is leading to not lower borrowing but higher borrowing than he planned.

John Hemming (Birmingham, Yardley) (LD): Whatever the Government’s policy, the Opposition’s policy is to borrow more to increase demand. Is there a limit on the borrowing?

Ed Balls: I will return to the hon. Gentleman and his party in a moment. They gave the Government some very good advice 18 months ago, but unfortunately it was not heeded.

Elizabeth Truss (South West Norfolk) (Con): The right hon. Gentleman has talked about infrastructure and the A11. Labour cancelled the road-building programme, whereas we are breaking new ground on the A11. In addition, so much red tape was put in place that we are now 83rd in the world for regulation. Does he think that is helping small businesses in our country?

Ed Balls: To be fair to the hon. Lady, she is half on message, as she was back in January when she called for national police cuts, but not in Norfolk. That is little better than her neighbour over the border, the hon. Member for West Suffolk. I am in favour of the dualling of the A11. I personally wish we had done that, given that we did a lot of road-building and investment, but for some reason Norwich City season ticket holders did not have a strong enough voice in this House. Perhaps Mr Charles Clarke is to blame.

Gavin Shuker (Luton South) (Lab/Co-op): Is my right hon. Friend as outraged as I am by the series of east of England Tory and Liberal Democrat MPs who choose to ignore the massive cuts to programmes such as Building Schools for the Future, which would have rebuilt schools in their own areas?

Ed Balls: My hon. Friend is being unfair. The hon. Member for West Suffolk campaigned to reverse the cuts in Building Schools for the Future, as we know. To be fair to the hon. Member for South West Norfolk (Elizabeth Truss), she has campaigned for fewer cuts in Norfolk. If only she did not take such a regional view.

John Mann (Bassetlaw) (Lab): I congratulate the shadow Chancellor on listening to what I said in this place a year ago and on the major change in Labour’s economic policy in the last three weeks, which has gone unnoticed. Last year’s policy of a permanent reduction in VAT has changed to the far more credible policy of a temporary reduction in VAT, which is precisely what I argued for in this place a year ago. Will the shadow Chancellor listen carefully if I have the chance to make a point about national insurance in this debate?

Ed Balls: My hon. Friend is a leading indicator, not a lagging indicator.

The fact is that the deficit plan is going too far and too fast. As I have said, we should stop putting party political advantage before the national interest. That is why the right thing to do to help struggling families and businesses in the constituencies of Members across the House is to adopt a plan now to get our deficit down by getting our economy moving. We should repeat the bank bonus tax; build 25,000 homes; guarantee a job for 100,000 young people; genuinely bring forward long-term investment projects in schools, transport and roads; temporarily reverse the damaging rise in VAT, which would mean £450 for a couple with children; have an immediate one-year cut in VAT to 5% on home improvement, repairs and maintenance; and introduce a one-year national insurance tax break for every small firm that takes on extra workers.

The Chancellor does not have to wait 46 days. He can bring forward emergency resolutions in this House next week and we will support them. He can call the plan what he likes. If he wants to appease The Spectator, he can call it plan A-plus. That is fine by us. Britain just needs a plan that works for jobs and growth, which is why he should adopt Labour’s five-point plan for jobs and growth.

Jesse Norman (Hereford and South Herefordshire) (Con): While we are on the topic of football, may I congratulate the right hon. Gentleman on his ample use of the substitutes’ bench, although it was of course not him who used the substitutes’ bench? What would be the cost of his temporary cut in VAT, how does he propose to finance it, and what would be the gain in GDP growth as a result?

Ed Balls: “Jesse is the Clark Kent of British politics.” Unfortunately, that was said by the other candidate for the leadership of the Conservative party, Boris Johnson. What an endorsement for the hon. Gentleman to have on his own website! The fact is that the deficit reduction plan is going too far—

Jesse Norman rose—

Ed Balls: Get back in your phone box, I am answering the question. We need a slower pace of deficit reduction, not the £40 billion more that the Chancellor boasted of. An injection now to get the economy growing and unemployment coming down is the best way to get our deficit down. People do not have to take it from me; that is what the IMF and the OECD are advising the Chancellor to do. They say, “If the economy gets into sustained contraction, slow down the pace of consolidation.” I will give the hon. Gentleman another go.

Jesse Norman: We are all enjoying the shadow Chancellor’s vaudeville act, but he has failed to answer the question. I am interested in what would be the actual cost of the VAT cut that he proposes and how he would fund it.

Ed Balls: The hon. Gentleman would know the answer if he listened. I said that attempting to go £40 billion faster in deficit reduction than the plan the Chancellor inherited is not working, but pushing borrowing up. The right thing to do now is to expand demand—[ Interruption. ] Look, a one-year cut in VAT in its own terms would cost £12 billion. The question is what would be the impact on jobs, growth and deficit reduction. I am afraid that the Chancellor is borrowing not £12 billion more, but £46 billion more. The flatlining economy and rising unemployment mean that his deficit reduction plans are going off track. He should take the advice of the IMF and the OECD and change course.

Harriett Baldwin (West Worcestershire) (Con) rose—

Charlie Elphicke rose—

Ed Balls: I will make a little more progress, but I will take interventions from people who have not intervened. Good grief, I have given the hon. Member for Dover (Charlie Elphicke) enough of the wrong type of publicity already and do not want to do his career any more damage.

There is a credible alternative. Why will the Chancellor not act? He used to be so confident that his plan was working. It is patently not working. He and his cheerleaders on the Government Benches claim that however bad things get, he is trapped by the financial markets. He cannot take the advice of the IMF and the OECD and change course because it would lead to higher interest rates and recession. However, the IMF has said that we cannot have credibility without growth.

The markets know that rising unemployment and zero growth are undermining the Chancellor’s deficit reduction plan. One chief economist in the City at Baring Asset Management said last week:

“Growth is essential if the UK is to be able to finance new debt, repay old debt and convince the markets and credit rating agencies there is a modicum of competency in policymaking. The longer we pursue current policies, the more likely it becomes that the UK will be the next target”.

That is the real market view. We know that the credit rating agencies put out their press releases, but the real view, as the IMF has told us, is that having a flatlining economy and rising unemployment is the wrong way to get the deficit down. As I said, even the Chancellor’s friend at the IMF has said that

“growth is necessary for fiscal credibility”.

Britain has no growth. That is why our Chancellor is losing credibility.

Harriett Baldwin: Will the shadow Chancellor confirm that cutting VAT to 17.5% would cost £12.5 billion a year? Would that not simply shift demand from one year to the next?

Ed Balls: The Chancellor’s whipping team really must tell people to listen to the answers before they intervene.

The Nobel prize winner himself, Chris Pissarides, says in the New Statesman tomorrow that a temporary VAT cut is the right way—[ Interruption. ] I say to Government Members that Nobel prize winners who give good advice to the Chancellor should be listened to. Given that 70 more people are unemployed in the constituency of the hon. Member for West Worcestershire (Harriett Baldwin) than a year ago, perhaps she should start to listen too.

Bill Esterson (Sefton Central) (Lab): I know that the shadow Chancellor is aware of the “Cut the VAT” campaign, which wants the Government to reduce the VAT on home repairs, maintenance and improvement work from 20% to 5%. Its analysis shows that when the rate was 17.5%, cutting it to 5% would have injected £1.4 billion into the UK economy in the first year alone. I wonder whether he is aware that the campaign is backed by 49 business organisations.

Ed Balls: I know the details of that campaign, although I do not know all 49 members. I know that it argues for a widening of our proposal.

One business organisation, the Federation of Small Businesses, has said:

“the Government’s growth strategy is just not working…We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.”

The business demand for a change of course is growing.

Robert Flello (Stoke-on-Trent South) (Lab): My constituents, my right hon. Friend’s constituents and constituents across this country are seeing growth—growth in their gas and electricity bills and in their food bills. That double whammy is hitting our constituents on top of the mess that the Chancellor is making.

Ed Balls: Our constituents are seeing growth in VAT and in unemployment as well. The only thing that they are not seeing is growth in growth.

The markets are not the real reason why the Chancellor is determined to cling on to his failing economic policy. There are two obstacles in his way. The first is the coalition agreement. We know how desperate the Chief Secretary and the Deputy Prime Minister are for the Chancellor to stick to the deficit reduction plan, because they steamrollered their colleagues into signing up to a manifesto that explicitly rejected it. The Liberal Democrats’ manifesto stated:

“If spending is cut too soon, it would undermine the much-needed recovery and cost jobs.”

They were right, which is why there are so few of them here for this debate. They all know that their leaders graphically predicted before the election the very calamity that has happened after the election. The fact is, any successful coalition has to have the flexibility to change course when things go wrong.

“When the facts change, I change my mind. What do you do?”

Wise words from Lord Keynes, and he was a Liberal. He must listen to the current incoherent, confused and contradictory ramblings of the Business Secretary and turn in his grave.

Duncan Hames (Chippenham) (LD): The shadow Chancellor is certainly showing flexibility in concluding that in time, it would be acceptable for VAT to reach 20%. When did he reach that decision, and will he be able to persuade his colleagues, who we know are so adamantly against VAT at 20%?

Ed Balls: When I became shadow Chancellor six months ago, I said that I could not responsibly come along here and make commitments on what would be in our manifesto in four years’ time. What I can do is give the Chancellor good advice, and a temporary cut now is the right thing for growth and jobs in our economy.

It is not just Labour Members who support me on this. Listen to the former Liberal Democrat leader, the right hon. Member for Ross, Skye and Lochaber (Mr Kennedy), who said on “Question Time” last Thursday that he was

“more at the Ed Balls end of the argument than the George Osborne end of the argument.”

In saying that—Superman will like this—he joined me and the Mayor of London, Boris Johnson, in urging a change of course. Charles Kennedy, Boris Johnson and me—now that would be a coalition.

It is clear that the plan is not working. The markets know it, and so, increasingly, do the Chancellor’s coalition colleagues, but there is a second reason why this very political Chancellor will not budge. The clue was in the Prime Minister’s speech last week in Manchester. What did he say of the Chancellor? How did he describe his closest political friend? As “the man who would be king”. It was a very strange choice of book, because it is the story of two fantasists who end up stripped, beaten, tortured and forced to beg for their lives. That is some people’s idea of a good night out, but the idea that the Prime Minister should say that of the Chancellor is somewhat odd.

Anyway, there we are—“the man who would be king”. It was not in the printed text of the Prime Minister’s speech but was another slip from him. However, it is so revealing, because those words show why the Chancellor just cannot admit that he has got it wrong, even at a time when, at the weekend, The Sunday Times doubted his judgment. To change course now would be to admit that the Chancellor has got the key economic judgment of this Parliament wrong, and that would be a terrible blow to his ambitions. We therefore see him putting politics before the national economic interest.

Ploughing on with a failing policy is not leadership; it is the antithesis of leadership. It is not the making of King George; it is the madness of King George. A Chancellor without the strength to change his mind is a King Canute Chancellor, who says that he will stay the waves even as the tide turns before him. A man who would be king? He is a Chancellor exposed naked before the crowd, an emperor with no clothes, a Chancellor heading for a fall. I give him some good advice. For his sake, for his party’s sake and in the national interest, he needs to change course and do so quickly. It could be the making of the man.

In the face of the new global slowdown, we desperately need the Chancellor to rise above the here and now and see the need to change course, have a plan for growth and jobs, kick-start our economy and get us out of the slow lane. We need a balanced and credible plan on jobs, growth and the deficit, and action now before it is too late—Labour’s five-point plan for jobs and growth. I commend the motion to the House.

Jon Sopel: Ed Balls is in our Leeds studio. Very good afternoon to you. Thank you very much for being with us. We’ve got a new round of quantitative easing, do you support that?

Ed Balls: I do but I don’t think it can do the work. I think the Governor of the Bank of England himself said we can’t do this alone with monetary policy. The problem is, that while the Bank is trying to boost confidence when interest rates are very low, the government is going in the opposite direction now with fiscal policy, very different to two or three years ago and I don’t think quantitative easing can overcome that fiscal contraction. The problem is when you’re in this kind of big financial crisis, then interests rates are like pushing on a string. They’re so low, they don’t make the difference, they don’t get people spending or investing and the problem is that George Osborne’s plan is choking off the recovery. The fact is that in the last 9 months essentially our economy contracted. It wasn’t just stagnant, we are as close as it’s possible to be to have been in recession the last 9 months.

JS: When city traders heard it the market jumped 4%, TUC like it, I mean everybody likes it, yet you’re the one who’s sort of quibbling with it because you’re saying there aren’t the other measures that go with it. Yet the Governor of the Bank of England has said it’s an inefficient way of circulating money into the economy.

EB: But the question that you asked me was did I support it and the answer is yes, but it doesn’t add up to a proper plan B, it’s just a bail out from the Bank of England and it can’t make the difference. George Osborne said two years ago in his view quantitative easing was the last resort of desperate governments whose other policies have failed. The problem is George Osborne’s policies are failing and a plan B from the Bank of England can’t bail him out. It’s a problem of fiscal policy here in Britain now, the deepest fastest contraction of any major economy in the world which is kind of pushing against quantitative easing. In these circumstances, as we saw in the 1930s George Osborne is wrong to say you can have monetary easing and fiscal contraction, that was the Treasury view of the 20s and 30s which failed. We need a different approach and it’s got to be one which realises the scale and severity of the crisis we’re in.

JS: Mr Balls let me not put the quote to you of George Osborne but what Mervyn King said which is almost in direct answer to the point you’ve just made, he said, ‘Monetary policy can change extremely quickly, unlike fiscal policy, so that’s the right solution. Not fiscal which takes months.’

EB: Well the problem is – look I said a year ago they should change course on fiscal policy and there’s been no change of course, so of course the government is now behind the curve. But in my view, in normal times, the right thing to do is to have a medium term fiscal policy and then a Bank of England which can respond quickly. That’s why we made the Bank of England independent, that’s why we saw monetary activism in the last 15 years. These are not normal times. This is a global growth crisis following a massive financial crisis. In these circumstances – look our interests rates are already barely above zero and it’s not making the difference, our economy is contracting because monetary policy alone is not getting people to spend or companies to invest, but at the moment it’s being swamped by the effect of, as I said, this huge fiscal contraction. I’m in favour of getting the deficit down. We need tough decisions, done in a credible way but the VAT rise in January, the spending cuts which started this spring are in my view catastrophic, because to have such a contraction in government spending, when the private sector in Britain, in Europe, America, around the world is contracting as well, that is going in completely the wrong direction. That’s why we’ve said we need a five point plan now for growths and jobs, it’s why we’ll have a debate in Parliament on Wednesday, it’s why I will get George Osborne to come to the Commons and answer these questions because we do need a change of approach.

JS: And as part of your 5 point plan you’ve said that the government is cutting too far too fast. Do you have the support of business for that view?

EB: Well, the proposal that I made for an immediate [cut to] 5%.. in VAT for home repairs and maintenance was immediately supported by the Federation of Small Businesses. The CBI are worried and has said that there’s no plan for growth. Look – I understand lots of people got -

JS: Sorry to interrupt you, let me just read you what the CBI say because this is from John Cridland, the Director General, in the FT yesterday. ‘It amazes me that even now with all the difficulties we’re having I haven’t got anybody in the CBI membership who wants less reduction in public spending because they know that the triple A sovereign rating is the most important thing and their ability to borrow money at reasonable rates’.

EB: Well look I understand that argument. The argument there was made by the –

JS: Well are they wrong, the CBI members?

EB: Well I don’t think the CBI is right on this argument and I don’t think the government’s right either. A year ago they said that if you cut the deficit faster, if you cut public jobs it would lead to more private sector jobs, it would boost confidence, it would get the economy moving. Unfortunately all those high hopes a year ago – ‘we’re out of the danger zone’ – have proved to be untrue. Partly because of the Eurozone crisis, but also because Britain went in earlier and has a bigger [fiscal] contraction than any other major economy. So I’m afraid John Cridland is not right on this. The pace of deficit reduction is killing confidence, killing growth, killing orders, killing investment and if this carries on we’re going to end up with borrowing. We already know to be £46 billion higher than proposed, not lower, and if this carries on… look in the end I think that sensible rational people who care about our economy and are worried about growth and jobs will have to say on the deficit we’ve got to move to a more balanced plan. I wish the CBI would agree with me, but I think we can win this argument. I just wish we could win it quickly.

JS: Isn’t there something disingenuous about this though because when you were being buffeted by the financial crisis in 2008 and admittedly the Tories were trying to say look, the Labour government have failed you were saying it’s global factors, it’s global factors. Now we’ve got you saying the government has failed and the government saying it’s global factors. It is global, isn’t it?

EB: Look to be fair to me I just highlighted the Eurozone. I talked a year ago about a coming global hurricane, but what I said was the wrong thing to do when you have a global hurricane is to rip out the foundations of your own house and that is what George Osborne did with support a year ago. It’s completely inconsistent for the government to say three years ago it was all Labour’s fault and now say it’s only a global problem. I’m being consistent. There was a global financial crisis three years ago, there is still a global crisis today but Britain is now in a weaker position to deal with it because of the change in the approach on the deficit which isn’t working and what do you see from the government, Jon? Today they should be talking about the global economic crisis and instead in the last few days you’ve had disputes about cats, you’ve now got Liam Fox, it’s a completely dysfunctional government which is not addressing the big issues of the day. If David Cameron’s asking for a report tomorrow about Liam Fox he should be asking for a report from George Osborne as to why his economic policy is failing, why unemployment is going up, why borrowing’s going to be higher, not lower, than planned and what is to be done, because too many people are going to lose their jobs and their businesses until this government changes course.

JS: Are you saying that the Liam Fox issue doesn’t matter?

EB: I’m not saying it doesn’t matter but the thing which is odd is that David Cameron is going to deal urgently with the Liam Fox issue but isn’t dealing urgently with the scale of this global economic crisis. And I’m saying that the government looks to be in complete disarray on issue after issue. A few days ago David Cameron was apparently saying everybody should pay all their credit cards off, and now he’s changed his mind, I think. On Liam Fox we’ve no idea what is going on, but the same urgency which I believe David Cameron belatedly is now injecting into the Liam Fox issue which is to be honest very murky indeed, the same urgency needs to happen on the economy too. We can’t have a government out of touch, sitting on its hands. We’ll have a debate in Parliament on Wednesday and I hope we’ll get some answers from George Osborne because at the moment we just have evasion and a lack of leadership when we badly need leadership in Britain and across the world.

ENDS

850 people joining the dole queue each day. 16,000 businesses gone bust. One in five young people out of work and more women unemployed than since 1988.

That’s been the reality of Tory Britain – even before the crisis in the eurozone.

The Tory-led Government gambled on putting up taxes and cutting spending further and faster. They told us it would work and the pain would be worth it.

But what’s happened? Our economy stopped growing last autumn. Unemployment is now rising again. And we’re getting into a vicious circle because thousands more people out of work – on benefits rather than paying taxes – means the Government actually ends up borrowing more money. £46billion more borrowing than planned on the latest figures.

David Cameron and Chancellor George Osborne are now looking like the Laurel and Hardy of British politics. They’ve gotten us into a fine mess. But this time it’s not funny because they’ve no idea how to get us out of it.

All we got from them this week was a shrug of the shoulders. There’s nothing we can do but stick with our plan, they said at the Tory Conference. Even as the evidence grows by the day that their austerity plan is hurting but not working, they refuse to admit it.

Either they’re so out of touch that they don’t understand how tough life is for millions of people across the country – worried about their jobs and struggling to make ends meet – or they are too scared to admit their economic plan is not working.

Whichever it is, with each day that ministers sit on their hands and refuse to face the truth ordinary people are paying the price with their jobs.

We can’t go on like this. Families, pensioners and businesses are crying out for a better way.

That’s why Ed Miliband and I have set out a clear five point plan to create jobs, help struggling families and support small firms.

Labour’s plan includes tax breaks for small businesses taking on extra workers, a temporary VAT cut which would give families a boost of around £450 and tax on bank bonuses to fund 100,000 jobs for young people.

We can only get the deficit down if we get Britain working again. The sooner David Cameron and George Osborne realise that the better.

Ed Balls MP, Labour’s Shadow Chancellor, said in response to the Bank of England’s decision on a further £75 billion of quantitative easing:

“With our economy stagnated since last autumn David Cameron and George Osborne are now betting on a bai