‘There is an alternative’ – Ed Balls’ speech at Bloomberg

The case against the ‘growth deniers’ – how Labour can win the argument that there is an alternative

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INTRODUCTION

I am very grateful to Bloomberg for giving me the opportunity to come here this morning to respond to the bullish speech given from this same platform by George Osborne 10 days ago.

That speech is the clearest articulation of the Cameron-Clegg Coalition strategy for this parliament.

In it, their Chancellor repeated his claim that fiscal retrenchment through immediate and deep public spending cuts to reduce the fiscal deficit would build financial market confidence in the UK economy, keep interest rates low and secure economic recovery by boosting private investment.

And the Chancellor once again declared that his was the only possible credible course ahead – dismissing anyone who doubts that fiscal deflation on this scale and at this delicate stage in the economic cycle is necessary or wise.

I was in America when I read about the speech, travelling across New England.

And after seeing first hand the worried and increasingly pessimistic mood in the US – in the media and in conversation with friends – it jarred to read the British Chancellor saying he was “cautiously optimistic about the economic situation”.

The prevailing attitude I saw in America was not optimism but fear.

Every newspaper I read highlighted people’s worries about their business, their jobs or their home and the growing concerns of US policymakers and business leaders and financial analysts at the emerging signs of a double-dip recession – and not just any recession.

They fear what Americans – especially on the Eastern seaboard – like to call a ‘Perfect Storm’.

A perfect storm where continued de-leveraging by banks and the private sector meets premature fiscal retrenchment from governments and a drastic tightening of consumer spending… as tax rises, benefit cuts and rising unemployment hit home.

And it is these fears – not just in the US but round the world – which in recent days have caused equity markets to fall sharply, bond markets to surge, well summed up by Wednesday’s Financial Times front page headline ‘Market jitters over growth’.

This is a risky and dangerous time for the world economy. History teaches us that economic recovery following a large-scale financial crisis can be slow and stuttering.

In the US, the debate is not about fiscal tightening but whether further stimulus is needed to prevent a double-dip. And the world will be watching closely when Federal Reserve Chairman Ben Bernanke speaks this afternoon in Jackson Hole to see what message he sends about the future course of US monetary policy and whether he can revive flagging confidence in the US recovery.

Here in Britain we have seen, in recent days, MPC member Martin Weale warn of the risk of a double-dip recession as a result of the current fiscal tightening.

But whether our economy continues to recover or slips back into sustained slow growth – even recession again – is not just a concern for Treasury ministers and financial analysts.

Whether our leaders make the right calls now on growth and jobs, the deficit, public spending and welfare reform will determine the future of our country for the next decade or more and shape the kind of society we want to be.

I do believe we face a choice as a country – on the economy and the future of our public services and the welfare state.

And today I want to respond to what I believe was a fundamentally flawed speech ten days ago:

- wrong in its analysis of the past;

- reckless in its diagnosis of the current situation; and

- dangerous in its prescription for the future.

This week’s IFS analysis of the June Budget has confirmed what we already knew – that the Coalition’s economic and fiscal strategy is deeply unfair.

In this speech I will argue that it is also unnecessary, unsafe for our economy and unsafe for our public services too.

Of course we need to deal with the deficit and there is no doubt that we must cut waste where it is found. There is no dispute about that.

We do need a credible and medium-term plan to reduce the deficit and to reduce our level of national debt – a pre-announced plan for reducing the deficit based on a careful balance between employment, spending and taxation – but only once growth is fully secured and over a markedly longer period than the government is currently planning.

I believe that – by ripping away the foundations of growth and jobs in Britain – David Cameron, Nick Clegg and George Osborne are not only leaving us badly-exposed to the new economic storm that is coming, but are undermining the very goals of market stability and deficit reduction which their policies are designed to achieve.

Far from learning from our history it is my fear that the new Coalition government is set to repeat the mistakes of history – and that George Osborne’s declaration of ‘cautious optimism’ on this platform a fortnight ago may go down in history alongside Norman Lamont singing in his bath.

But it is not too late to change course.

So today I will set out the building blocks of an alternative economic strategy that is rooted in economic history and analysis as well as our country’s shared values.

POLITICS, ECONOMICS AND HISTORY

First, let me say why I think it is so important for me – and indeed every other candidate who seeks to lead the Opposition – to stand up now and challenge the current consensus that – however painful – there is no alternative to the Coalition’s austerity and cuts.

Because as someone who was at the heart of the decision on whether Britain should join the Euro, it seems incredible to me that such fundamental and far-reaching economic decisions are being taken by the coalition government with so little debate and – let us be clear – with no mandate from the British people for their rise in VAT or immediate and deep spending cuts.

Yes, there is plenty of discussion up and down the country about where the axe should fall on public services – as my opposite number Michael Gove has discovered.

There are intense disputes, not least within the Conservative Party, about whether welfare reform can deliver the impact and savings claimed by Iain Duncan Smith.

And there are very important arguments taking place about the universality of benefits, and the age at which pension-related entitlements should kick in.

These are all important debates.

But the fundamental questions we face now – Is it right to be cutting billions of pounds from public services and taking billions of pounds out of family budgets this financial year and next? what will that do to jobs and growth? and ultimately, what will that mean for the deficit? – are almost ignored.

Yes, there are some important warning voices – Anatole Kaletsky, Paul Krugman, Lord Skidelsky, David Blanchflower to name a few – who have written powerful critiques on the comment pages of the broadsheets.

But for the most part, the political and media consensus has dictated that the deficit is the only issue that matters in economic policy, that the measures set out in the Budget to reduce it are unavoidable, and that there is no alternative to the timetable the Budget set out.

Interviewers look aghast when I tell them that cutting public spending this financial year and pre-announcing a rise in VAT is economically foolish, when growth and consumer confidence is so fragile. ‘But what would you cut instead?’ they demand.

So strong and broad is this consensus that a special name has been given to those who take a different view – ‘deficit-deniers’ – and some in the Labour Party believe our very credibility as a party depends on hitching ourselves to the consensus view.

I am not one of them.

The history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgements were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored.

In 1925, Chancellor Winston Churchill decided to return sterling to the ‘gold standard’ on the grounds that there was no credible alternative which the financial markets would support and that a return to gold would boost confidence and private investment.

He was supported by the broad mass of economic opinion – including the Governor of the Bank of England, Montagu Norman and the leadership of the Labour Party. Only John Maynard Keynes stood out against the consensus at the fateful 11 Downing Street dinner where Churchill made the decision.

But Keynes famously lost the argument and, as he correctly predicted in The Economic Consequences of Mr Churchill, the result was deflation, rising unemployment, the general strike and then Conservative election defeat.

In 1931, two years after the biggest financial crisis of the last century, Labour Prime Minister Ramsay MacDonald said spending cuts were unavoidable to slash the deficit, ease pressure on sterling and satisfy the markets, in the hope of triggering a private sector led recovery.

He wrote: “We are compelled to devise special measures to meet the temporary difficulties. The critics will have to face facts and deal honestly with the interests of the country.”

Labour MPs rebelled, and MacDonald formed a national coalition government with the Conservatives to drive the plan through with broad media support.

Again, Keynes stood outside this consensus, writing that: “Every person … who hates social progress and loves deflation … feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.”

And the result of MacDonald’s plan?

The promised private sector recovery failed to materialise. Unemployment soared. Debt rose. Britain faced years of low growth. The parallels with today’s situation are striking.

Again in 1949 and 1967, the decisions of the then Labour governments to resist and delay inevitable devaluation was widely supported by both the press and the Conservative opposition.

In 1981, Geoffrey Howe and Margaret Thatcher told the country: “There is no alternative” as they proposed dramatic hikes in interest rates and taxes to tackle inflation and strengthen the public finances, even as 364 economists famously wrote to The Times newspaper to criticise the plan.

And the consequences? The deepest recession since the Second World War, massive social unrest, five years of rising youth unemployment, 3 million jobs lost in Britain’s manufacturing industries and whole communities scarred for a generation.

And finally in 1990, Margaret Thatcher and John Major decided to join the European Exchange Rate Mechanism in the face of heavy financial market pressure, a decision supported by the CBI, the TUC, the Governor of the Bank of England, the leadership of the Labour Party – and widely acclaimed by the press.

Again, there were one or two voices – Alan Walters on the right, Bryan Gould on the left – who stood against the tide, but they were largely ignored.

And the result? Interest rates stuck in double figures as the UK suffered the longest recession since the war.

So the first lesson I draw from history is to be wary of any British economic policy-maker or media commentator who tells you that there is no alternative or that something has to be done because the markets demand it.

Adopting the consensus view may be the easy and safe thing to do, but it does not make you right and, in the long-term, it does not make you credible.

We must never be afraid to stand outside the consensus – and challenge the view of the Chancellor, the Treasury, even the Bank of England Governor – if we believe them to be wrong.

But there is a second lesson too – which is also very pertinent at the present time for the Labour opposition and those of us who aspire to be the next Labour leader: it’s not enough to be right if you don’t win the argument.

For – as Keynes found in 1925 and 1931 and Alan Walters found in 1990 – being right in the long run and well-judged by history is no great comfort.

Up to now, this is Labour’s current predicament. Only last week the Guardian ICM poll reported public support for Coalition action to cut the deficit.

Of course, the impact of immediate cuts to public spending on jobs and the recession has not yet fed through. And while it is one thing for the public to support deficit reduction when they are told that it will come from cutting “waste” in public spending, it is quite another when the cuts mean local school building projects stopped, or a new local play facility cancelled.

As the impact of deflation on jobs and the economy feeds through over the coming months, and the reality of the Government’s cuts programme, tax rises and benefit cuts begins to bite, I have no doubt that public opinion will become increasingly concerned.

But, in my view, to sit back and wait for the pain to be felt is a huge trap for Labour.

Because in the meantime, the clear strategy of the Coalition Government is to persuade the public both that there is no alternative, and that – however much George Osborne boasted of his own fiscal austerity before this audience – all their decisions are the fault of the previous government.

In my view Labour cannot sit back and allow this to happen.

Leadership is about changing and leading public opinion rather than being driven by it.

That is why I say it is time for Labour to take on and win the argument with David Cameron, Nick Clegg, George Osborne and others who share their views.

Not through warm words and wishful thinking.

And not only by highlighting that the VAT rises and benefit and spending cuts are unfair – because if the Tories can persuade people they are both unavoidable and Labour’s fault, we won’t win that argument either.

The last Labour government succeeded when we combined our values with economic rigour, when we were both radical and credible in our approach.

When I made the case for Bank of England independence, sticking to Tory spending plans in 1997, not joining the Euro, or raising tax to pay for the NHS I did so based on sound analysis – and we won the argument over time.

That is why we need now to win the argument for an alternative economic plan that is rooted in economic history and analysis, as well as our values and principles.

And I am clear that we cannot start waging the argument for a credible alternative path for growth, jobs, continued recovery and the eventual reduction of the deficit without first setting out why we believe the new government has got it so fundamentally wrong.

That is why it is vital that we first show that the Tory cuts are not just unfair, but both unnecessary and economically-unsafe.

THE OSBORNE BLOOMBERG SPEECH

So let me turn to George Osborne’s speech and his triumphant espousal of the current consensus.

In his speech he makes four main claims:

- that the current economic situation – and the decisions he says he must now take – are all Labour’s fault;

- that the demand from the international money markets for fiscal consolidation is so strong that Britain and other countries must cut the deficit to avoid a ‘Greek-style’ financial crisis;

- that – as a direct result of his deficit reduction plan – Britain is re-entering a period of sustainable growth, with the private sector, in his words, “confounding predictions that [it] cannot generate jobs”;

- and that anyone who argues for a slower, less steep plan for reducing the deficit is a ‘deficit-denier’ who would ‘wreck’ recovery.

1. ‘All Labour’s fault’

So first, is the current economic situation all Labour’s fault, the consequence irresponsible levels of public spending and borrowing in the early part of the last decade?

And Labour’s fault too for increasing the fiscal deficit during the financial crisis by nationalising the banks, cutting VAT and boosting public spending.

First, no matter how George Osborne seeks to re-write history for his political ends, it is a question of fact that we entered this financial crisis with low inflation, low interest rates, low unemployment and the lowest net debt of any large G7 country – and the second highest levels of foreign investment too.

Yes, we borrowed in the last decade to invest in the transformation of our public service infrastructure – and rightly so – but where we needed to raise money to pay for increased current spending on nurses, doctors and the New Deal, we raised the taxes to pay for them – the NI rise for the NHS, the windfall tax on the privatised utilities. And when handed the windfall from the sale of the 3G mobile spectrum, we used it to pay down the national debt.

Of course we did not get everything right. We should have ignored Tory and City claims that we were being too tough on financial regulation and been much tougher still. And there is no doubt that house price inflation was rising too fast in 2007 – despite the actions we took to implement the Barker report.

But in the main I believe that our decisions were far-sighted and responsible, which was why we were the government that made the Bank of England independent and the only government in British history to maintain and meet our fiscal rules for more than a decade. The increase in the trend growth rate was confirmed by the National Audit Office. And there was no significant structural deficit in the public finances until the collapse of tax revenues from the City of London in 2008.

Moreover, even despite that loss of revenues, our low debt position, our low inflation and low interest rates meant that we were the only government in post-war British history which – faced with recession and deflation – had both the will and the means to fight it through a classic Keynesian response.

Everything we did was intended to pump money into the economy, protect jobs and support household finances: stopping the banks collapsing; subsidising mortgages; cutting VAT; funding new apprenticeships and job opportunities; giving people cash incentives to buy new cars; supporting viable businesses; postponing tax payments; bringing forward public spending; quantitative easing by the Bank of England.

And as a result, we came through that storm without seeing the spiralling rates of inflation, interest rates, unemployment and repossession which have accompanied previous British recessions.

Not only that, but our actions led the world to follow suit, stopped the collapse of the global banking system, and took us back from the brink of depression.

And the effects of our actions are clear to see from the data on jobs, growth and the public finances from the first half of this year, before George Osborne’s ‘Emergency Budget’:

- faster than expected economic growth in the second quarter of the year;

- unemployment falling not rising;

- and public borrowing now markedly lower than Alistair Darling forecast back in March.

But rather than continue with a strategy that was working, George Osborne is doing the exact opposite.

As the second storm looms on the horizon, everything he is doing is designed to suck money out of the economy and cut public investment, while his tax rises and benefit cuts will directly hit household finances at the worst possible time. It is the exact reverse of the policy which allowed Britain and the rest of the world to weather the first storm.

George Osborne was fond of saying – wrongly – that the Labour government had failed to fix the roof while the sun was shining. What he is now doing is the equivalent of ripping out the foundations of the house just as the hurricane is about to hit.

2. ‘Satisfying the markets’

So what of George Osborne’s second contention – strongly supported by Nick Clegg – that the demand from the international money markets for fiscal consolidation is so strong that Britain and other countries must cut the deficit to avoid a ‘Greek-style’ financial crisis?

On this platform, the Chancellor went so far as to say that “the biggest downside risk to the recovery” was a loss of market confidence and a sharp rise in market interest rates. And he claimed that this risk had now been averted as a result of his Budget package for deficit reduction.

I do not have to tell this audience that what matters for credibility is not how tough politicians talk, but if their plans work and can be delivered.

Above all, stability requires a credible medium term path for fiscal sustainability and stable growth. What undermines confidence is uncertainty over whether a sudden fiscal adjustment is deliverable and over the impact it will have on consumer and investor confidence.

Time and time again in recent years, we have seen the markets lose confidence – usually in emerging market economies – because they see fiscal adjustment plans which look tough but lack credibility and end up being self-defeating. A vicious circle begins of slower growth, investor flight, further reduced projections for growth, a worsening fiscal position, and further loss of market confidence.

Hence Spain’s decision, announced earlier this month by Prime Minister Zapatero, to reverse cuts in infrastructure spending and put back in place some projects that were suspended – a decision designed to support growth, jobs and confidence.

In Greece the markets have looked at the draconian spending cuts that the rest of Europe has demanded from the Greek government, seen the resulting general strikes and riots in the streets, decided that those spending cuts are undeliverable, that the Greek economy will struggle to grow within the Euro area, and have lost confidence accordingly.

The Greek crisis may have started with concerns over the government’s ability to service its debt, but it is now a more fundamental question about whether its economy can grow and its society can remain stable.

By contrast – outside the Eurozone and with long-term real interest rates at record lows for both 10 year and 30 year bonds – Britain faces no difficulty servicing its debts as recent debt auctions have demonstrated – and the term structure of our debt is long thanks to the brilliant work of the Debt Management Agency.

As US economist Brad DeLong said last month:

“History teaches us that when none of the three clear and present dangers that justify retrenchment and austerity – interest-rate crowding-out, rising inflationary pressures on consumer prices, national overleverage via borrowing in foreign currencies – are present, you should not retrench.”

And yet in recent months, as Britain has followed the rest of Europe down a reckless commitment to immediate deficit reduction, we are now seeing very real worry in financial markets as fears of stagnation or even a double-dip recession grow.

Before the general election we were told regularly by the Conservatives – and also by some newspapers – that the UK economy was at grave risk of being ‘downgraded’ by the international credit rating agencies because the deficit was not paid down fast enough.

Last week Moody’s raised the prospect of downgrades for economies across Europe – including the UK – for precisely the opposite reason: because of the threat of lower growth and higher unemployment on deficits.

The fact is that savage cuts that hit the economy or are politically undeliverable won’t achieve sustainable deficit reduction or build market confidence. A slower, steadier plan, which does not put jobs, growth or services at risk, is more likely to succeed and have market credibility.

3. ‘The prospects for growth’

Which brings us to the issue of George Osborne’s cautious optimism.

In the Bloomberg speech, his third, and definitely his boldest contention, was that – as a direct result of his deficit reduction plan, and indeed impossible without it – Britain was re-entering a period of sustainable growth.

He said:

“The much-needed rebalancing of our indebted economy – away from government and towards the private sector, away from consumption and towards business demand, away from imports and towards exports – is beginning.”

I would like him to point to the precedent from British economic history which says that, with slowing growth in our main trading partners and companies de-leveraging, it is possible for public sector retrenchment to stimulate private sector growth and job creation.

The 1930s and 1980s proved the opposite. And indeed, the new government economic forecaster, the OBR, has admitted the cuts will depress jobs in both public and private sectors – starting with the loss of jobs building new schools.

The data for the second quarter for GDP may have been strong, but the signs are not encouraging for the second half of this year.

Even in the days since the Bloomberg speech, we have seen increasing signs of economic slowdown in Britain, and UK consumer confidence, business optimism and mortgage starts are all down.

For all George Osborne’s talk of ‘deficit-deniers’ – where is the real denial in British politics at the moment?

We have a Chancellor who believes that he can slash public spending, raise VAT and cut benefits – he can take billions out of the economy and billions more out of people’s pockets, he can directly cut thousands of public sector jobs and private sector contracts, and none of this will have any impact on unemployment or growth.

Against all the evidence, both contemporary and historical, he argues the private sector will somehow rush to fill the void left by government and consumer spending, and become the driver of jobs and growth.

This is ‘growth-denial’ on a grand scale.

It has about as much economic credibility as a Pyramid Scheme.

For George Osborne read Bernie Madoff: he’ll take your money and take your job, but don’t worry – if you wait long enough, he promises you’ll get it all back from someone else.

4. ‘There is no alternative’

Then – having blamed the Labour government for his cuts plan, and insisted the markets are guiding his hand – George Osborne went on to make a further bold claim.

I have argued that the Coalition’s plans for rapid deficit reduction now are not just unfair but also unnecessary and economically very risky indeed.

The Chancellor says that there is no alternative to his timetable for deficit reduction, and that anyone who argued for a slower, less steep plan for reducing the deficit was a deficit-denier, someone who wanted to “wreck the economy” and condemn it to “ruin [and] disaster”.

George Osborne includes in his charge Alistair Darling and David Miliband, who have suggested the lesser plan of halving the deficit over four years.

I told Gordon Brown and Alistair Darling in 2009 that – whatever the media clamour at the time – even trying to halve the deficit in four years was a mistake.

The pace was too severe to be credible or sustainable.

As both history and market realities teach us, the danger of too rapid deficit reduction is that it proves counter-productive:

- tipping us back into recession, unemployment rising and the deficit and debt getting worse into the medium-term.

- and requiring cuts to public spending which would hamper our long-term economic future by cutting university places or scientific research and development; or be deeply unfair, dismantling the very basis of the NHS and universal welfare state that the Attlee government established.

Yet George Osborne is planning to go £40 billion further and faster this year than even Alistair Darling’s plans.

If I have explained this morning why I disagree with the Cameron-Clegg strategy and why I believe their economic plan is a prescription for disaster, it does beg the question: what is the alternative?

It was never enough for Keynes just to rail against the government of the day and their ill thought out plans. He wanted to argue the better course of action.

So it is Labour’s responsibility to set out a clear plan for growth, a more sensible timetable for deficit reduction, and a robust explanation of why that will better support our economy and public finances.

Even halving the deficit over four years represents comfortably the biggest and fastest cut in the deficit since the period after the Second World War, but without the peace dividend to fund it.

In a recent article in the Financial Times, the historian Niall Ferguson wrote:

“People are nervous of world war-sized deficits when there isn’t a war to justify them.”

But this is precisely the case I made to Gordon Brown and Alistair Darling last year – we have just experienced the biggest global financial crisis in a century, an event as momentous in historical and financial terms as war, famine or a natural disaster.

Our economies were saved from catastrophe only by government intervention to nationalise banks and to absorb huge financial liabilities from the private financial sector. To attempt to repair the damage of such an event and return the national debt to its previous level in just a few years is not only dangerously incredible in the eyes of financial markets but places an intolerable burden on current users of public services.

Just think if Clement Attlee’s government at the end of the Second World War had decided that the first priority was to reduce the debts built up during the war – there would have been no money to fund the creation of the NHS, no money to rebuild the railways and housing destroyed in the Blitz, no money to fund the expansion of the welfare state.

All the things the Labour movement is proudest of about that post-war government would have been jettisoned.

And why weren’t they?

Because they recognised that when a country has been through an once-in-a-generation event – like the Second World War – where the costs involved are a second thought next to equipping the armed forces and saving people’s lives, homes and freedom – then the government needs a once-in-a-generation approach to the resulting debt: a slower, steadier pace of reduction which meant they could also fund the improvements in health, education and welfare that the post-war generation demanded and deserved.

So when George Osborne says that there is no alternative to their timetable and that anyone who disagrees is a deficit-denier, I say this:

If it was possible for our post-war government to have the wisdom and foresight to recognise the benefits of a slower, steadier approach to reducing an even bigger debt, then it does not behove you to close off all debate.

As for the argument that by taking a longer period to repay the debt, we unfairly burden future generations, Nobel prize-winning economist Paul Krugman puts it well:

“People who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.”

That is why – on the grounds of prosperity and fairness – I believe Labour does need a credible and medium-term plan to reduce the deficit and to reduce our level of national debt, but only once growth is fully secured and over a markedly longer period than George Osborne is currently planning.

For the medium-term, a credible and pre-announced plan for reducing the deficit needs a careful balance between employment, spending and taxation.

We need to do more to raise taxes fairly – such as starting the top rate of tax at £100,000 and reversing the cancelled part of the NI rise. I support an international transaction tax and think David Miliband is right to propose a new wealth tax on the largest estates.

And we will need to set out tough spending cuts in some areas, as I did in the schools budget where I identified in detail the savings which could be made in school and non-school budgets alike while protecting frontline service delivery.

But by far the biggest influence on deficit reduction and the balance between taxation and spending is economic growth and the number of taxpayers in jobs paying their fair share.

That is why the priority this year and next must be growth and jobs.

The Coalition should act quickly and aggressively to reverse George Osborne’s cuts in support for the economy, and his increases in household bills.

We need to reinstate vital investments now which support jobs and recovery:

- the Future Jobs Fund

- the September school leavers guarantee

- the youth jobs guarantee

- the Building School for the Future capital programme

And we need urgently to revive the G20 process to support global growth and accelerate progress on international coordination of financial regulation.

THE BIG SOCIETY

But whatever our competing visions for the economy, growth and deficit reduction, there is also a wider and more fundamental issue at stake which could be easily forgotten or postponed as we focus on how best to protect the current status quo in terms of growth, jobs and living standards.

It is the fairness of our society.

How we confront the current financial storm and whether we can reduce the deficit and preserve a universal welfare state and strong public services will, in my view, have a profound impact on how we can tackle the greatest long-term economic challenge we face: the rising inequality in every developed nation in the face of technological change and international competition.

And this is why the debate we must have about when and how to reduce the deficit is not just about economics and jobs but about the future of our country and the competing visions of our political parties.

David Cameron and George Osborne – and Nick Clegg too – are using their crusade to cut the deficit to make a wider ideological argument that the post-war welfare settlement – of universal public services and universal benefits – has somehow failed: a symbol of the over-spending Labour government which must be scaled back, dismantled and replaced with more private provision and co-payments for services.

With Conservative colleagues from the Thatcherite right – and Orange Book liberals too – they have an excuse in the deficit for the programme they have always wanted to pursue for ideological reasons: to shrink the state and leave 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.

It will not surprise you that I have a very different vision and take a very different view of the importance of sustaining public services and protecting those on lowest incomes as we ensure borrowing comes back down.

David Cameron has a narrow view of the role of the state – that it stifles society and economic progress. I 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 opportunity.

He has a narrow view of justice – you keep what you own and whatever you earn in a free market free for all. My vision of a just society is a wider view of social justice that goes beyond equal opportunities, makes the positive case for fair chances, recognises that widely unequal societies are unfair and divisive and relies on active government and a modern welfare state to deliver fair chances for all.

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 peoples’ side after all.

Labour’s next leader needs a much stronger, clearer vision of the fairer Britain we will fight for – very different from the unfairness and unemployment the Coalition’s savage and immediate cuts will cause.

So over the coming months, it is not just an economic argument we need to win: over the pace and scale of deficit reduction; over how to protect jobs and growth in our economy; and over Labour’s responsibility for the situation we find ourselves in.

It is also an argument over fairness and the role of the state to deliver economic strength and social justice in the 21st century.

It is my contention that our opposition and our vision for government must be credible as well as radical and based on our values.

We must make clear that vision of a better Britain is rooted in a robust and credible economic analysis and an alternative economic plan.

We must persuade people in their heads as well as their hearts to come back to Labour again.

And by comparison, we must expose the Coalition’s plans as heartless and wrong-headed.

That is the challenge for Labour’s next leader.

ENDS

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Posted August 27th, 2010 by Ed's team

33 Responses to “‘There is an alternative’ – Ed Balls’ speech at Bloomberg”

  1. william says:

    the howe budget of 1981 and the exit from the erm were both vindicated by subsequent events, in a recovery of the private sector and a return to growth which is already underway, in any case.this debate about the risks of current government policy is not helped by not clarifying the fact that the extra £40 billion cut takes place over a number of years in which government expenditure still goes up.clearly, the electorate will decide who was right in four years time.in the meantime,it is utterly incomplete, for any labour leadership candidate, to ignore the fact that sticking initially to the inherited 1997 expenditure plans worked and the subsequent ballooning of public expenditure above gdp growth combined with, in hindsight , a disastrous lack of regulation of bank lending were two important factors, for which the government were entirely to blame,which caused the mess the uk ended up with.for labour to produce an alternative economic plan, it must first go back and reexamine, in a credible economic way,the mistakes it made along the way.this includes the destruction of private sector pensions,the unaffordable public sector pensions bill,over employment in the public sector with many bogus jobs, uncontrolled property lending leading to a housing bust that is still underway,dumbing down of school standards leading to low if not non existent skills in the indigenous workforce, and , finally , a belief that a whitehall command and control machine can deliver social justice.

  2. Danny blanchflower says:

    A great speech. I couldn’t agree more.

  3. Mary nash says:

    Brilliant speech. We need a Labour Govt ASAP. We hope that after the leadership campaign all 5 leaders in the hustings will present a united and formidable opposition and save our country from this impending disaster to be imposed on all of us by this so called Coalition govt without a mandate.

  4. Sue Denim says:

    So basically to run a country the recipe is to spend lots of money you haven’t got to keep everyone happy

  5. Ed I think what the UK public need is this type of engagement. MP’s writing down their thoughts, albeit you’re running for Labour leadership, and looking for feedback is becoming more and more rare. The Internet is here to stay and MP’s should embrace this, not with sterile generic websites which have banal topics such as “A typical day of an MP” and the like. What the current generation need is their MP’s commenting on events in the news they feel will interest their constituents and then allowing debate on the matter through comments section like this.

    The above aside, my main interest, which I think will improve your standing within the labour party, is to look at ways which will empower people to start dealing with their debt problems rather than having agencies deal with all their self inflicted problems. This will engage people to take a greater interest in their own finances and also encourage them to reconsider their current financial position and examine ways in which it could be improve.

  6. Nicholas Howley says:

    Fantastic speech. Really hits the nail on the head, and dismantles the coalition’s ideology. It is nothing more than a cruel, blind attack on the vulnerable under the guise of a specious economic argument – which we all know to be misinformed. I’ve a lot of respect for you, Ed Balls.

  7. Mike says:

    Great job Ed, well done.

  8. Toby Neal says:

    Finally a coherent response to this Tory government’s ideology. I’ve been struggling to decide how and who to vote for in the leadership election. I support what you are saying and believe it is the correct analysis of our situation. I think you’ve made my decision easier.

  9. Meg says:

    Reading this has convinced me to definitely put Ed as either my first or second choice for Labour leader (wasn’t going to before). Keep up the good work, Ed!

  10. william says:

    unfortunately,mary nash the coalition does have a mandate.they have a majority of mps, and of voters, and no libdem mp has resigned because of the coalition. might i politely suggest that we look for a leader untainted by brown. what about andy burnham?

  11. Stephen Lupton says:

    This is a politically astute , cerebrally cohesive speech which tramples over the fragile arguments of Osborne. It demonstrates Ed’s previous “right calls” and his courage in articulating brilliantly how we should be moving in an entirely different direction. Thank you, well done and why is this not yet on You Tube?

  12. Mary nash says:

    Savage cuts, raising vat , full scale reorganization of the NHS etc etc were not in either the Conservative nor Lib Dem manifestos. The Coalition has no mandate to carry out these measures. No point insulting our intelligence by saying that they are pursuing these scary measures in the name of Coalition gov’t bec our country is in peril and that there is no alternative.

  13. claire stanbridge says:

    thank you very much Ed Balls, just what i needed to hear/read to lift my spirits! give the King of Darkness hell.

  14. Matthew Bond says:

    A great speech illustrating how daft and cynical Osborne, Cameron and Clegg’s plans are.

  15. Julian Tucker says:

    The most coherent rebuttal of the Tory tissue of lies I have read. Well done, Ed, you’re showing the clear sighted intelligence and mastery of the facts that deserve to win the election. The key to an early general election is persuading liberal democrat MPs they have a public duty to renounce the pup they have been sold and a personal interest in ditching Clegg, their woebegone and desperately out of his economic depth little sir echo.

  16. Lee Warrener says:

    Here we go again making the same old mistakes, Ed balls is undoubtably a talented and intelligent man, unfortunately the vast majority of the voters in this country are not. Most of the people i speak to are absolutely ignorant as to what decisions are being made by the conservatives, and they wholeheartedly believe the headlines in the tory press, the Labour Party need to create its own headlines and expose the unfairness of these decisions at every opportunity, we lost the last election because we did not react quick enough to hysteria being whipped up by the press, Immigration fears, Benefit culture, Anti social behaviour etc etc these issues were being addressed but we need to convey that message to the ordinary people. I found myself skipping through parts of Eds speach, and i am intersested in politics, how on earth can we appeal to the voters if we dont get our message across clearly and concisely. We need to learn from our mistakes.

  17. Alan Doel says:

    But we are in debt as never before, interest payments are equal to our education budget, so when is the Labour party going to face that fact and lead on SOCIALISM WITH A SMALLER PIE ?

  18. Bonnie says:

    Ed, you had my vote anyway, but this is a fantastic speech. I have spent months wondering when someone from the Labour Party would point out these facts to the public, and am thrilled that someone has. Thank you!

  19. Tony Dalton says:

    Ed great speech and you are right as always and as a labour party member appreciate your intellect and would love to have you as my leader.
    The genuine concern I have is the small majority in your constituency.
    My fear is the Tory press would capitalise on this and flood your constituency with bogus vote splitting candidates. Like the loony above.
    I can see the headlines now “rudderless ship etc..”
    Have you thought of this ?

  20. Chris says:

    I am broadly supportive of this argument. But Labour has to bite the bullet and make a strong case about what exactly happened with the global financial crisis – and why that was not the fault of Labour alone. Even amongst politically aware friends, there a serious disconnect between opinion and understanding over this matter. I would love to see a list of policies that the tories failed to identify as contributory to the global debt crisis.

  21. william says:

    good morning ,mary nash.it was our chief secretary to the treasury,liam byrne,who left a note saying,’there is no money left,’a point not mentioned in our manifesto.this could haunt us for a long time.

  22. admin says:

    Hi Tony – Ed answered this very question early on in the campaign in an interview with Labour Uncut website – see here: http://labour-uncut.co.uk/2010/05/27/the-ed-balls-interview/

  23. Elisabeth says:

    I am neither a politician nor and economist, but I am a member of the Labour Party. I have just received from Ed Balls a very comprehensive campaigning leaflet through the post, and read the above speech attentively.
    I am hugely impressed by the comprehensiveness of his vision, and by his ability to deliver such a relevant speech just prior to the Labout party leadership elections. To limit economics to the banks and fiscal policy measures is like sticking your head in the sand. Ed Balls is taking a healthy holistic view. Though he doesn’t mention Third World issues, politicians these days need to be aware of the pressure from under-developed countries – huge forces from the deprived countries of the World, pushing to assert global equality, and driven by economic need. Social issues are clearly linked to economics, here as well as all over the World. The rise of the Internet has made economics quite a different ball-game, and the economic strategy of a country cannot be compared to the way a private individual manages his own finances. I am delighted to see that Ed Balls takes a holistic view, and has the conscience to speak out for fairness and justice. And for these reasons I am inclined to vote for him in the leadership elections.

  24. Andrew Jennings says:

    I have been undecided up until I read your speech but now you have my vote. I believe that our party and ultimately our country will be in safe hands with you at the helm. An honest, decent, intellectual man unafraid to stand against the tide to campaign for and do what is right. Sounds like a proper Labour Party leader and Prme Minister. Well done Ed Balls.

  25. Bob Campbell says:

    Ed your arguements are good and well founded – even refreshing – I’ve been agonisising over the leadership election because I have been waiting for someone to say this, but you took too long geting to the point: many people will of given up before they reached your main points – you need to be more concise and more gripping in a media age! You ended better than you started and you assumed that people would read/ listen to the end. You need to change your approach – or you’ll be right and still loose the arguement. Also people are turned off my economics and history – use them to support your arguement – but make your arguement in plainer language as you did at the end.

    I was pleased to hear you defend quite elegantly the record of our last government – I want to see more of that: you could add that we had promised the end of boom and bust and that we delivered 9 years of continuos economic growth – the longest in UK history and only brought to an end by a World recession – brought about by corruption in the banking sector: the inevittable conclusion of a capatilist economy – which has greed as its primary motivator and too few controls. And to which a capatalist government that rewards corporate greed – is not the solution: The fact the Tories quickly lapsed controls on banking has not been exploited enough: I grimised as a spokesman on the news on TV in June this year said that the banking crisis was 2 years ago and the public have forgotten all about it. I was disappointed at our lack of response to that.

    Labours approach was right: Remember the old business adage “You have to speculate to accumulate”. If you don’t invest in an economy – it can’t grow!

    Tories invented the term ‘Deficit denier’ – we need to make it something to be proud of: something you’d be crazy not to be!
    Lets start with – the deficit is a Tory lie: Our government invested in banks to stop the banking sector collapsing and now the banks are growing and booming – we own shares in them which 1. the government as a shareholder recieve divideds as well as taxation from and at the point when we sell the shares we will recoup much more than the money we originally invested. Its like buying a house, complaining that you have a mortgage and are now in debt and forgetting that you own the house. Businesses use balance sheets to evaluate their worth at a specific point in time which include their assets – the net worh of the UK government did not decline when we bought shares. If we can sell the FACT that the Tories and LibDems LIED to us we will destroy their credability – that’s exactly what we need to do. There is no deficit and the monies being robbed from public services are being used to line the pockets of the bankers who fraudulently created the problem. Your the only potential Labour leader close to thinking along those lines just now and fighting the Tories for just being wrong.

    Everything else you said – re we had lowest intrest rates, unemployment and deficit etc of all of the G8 countries going into recession supports that arguement. I am alarmed then that your article says “Of course we need to deal with the deficit and there is no doubt that we must cut waste where it is found. There is no dispute about that.” Stop drip feeding the news that the Tories have it right – it undermines your arguement!

    Look more closely at the UK economy too:
    The UK has large salary expectations that can’t compete with developing countries in the manufacturing of goods. This is nothing new. Raleigh bikes for eg were determined to keep their manufacturing base here while their competators didn’t – the consequence of that was that their competitors made larger profits, invested more in R&D and Raleigh once the giant in the bicycle industry is now a small fish in that sea. Raleigh realised that they needed to move over seas to survive at all. UK salaries are too high to retain most types of manufacturing. It’s brutal, but its true. A reliance on UK industry in a global market place will see UK taxation supporting British owned businesses that will take the investment and move overseas, benefitting only a small number of very wealthy individuals at the expense of the taxpayer. Thats not what I pay my taxes for.

    80% of UK industry is in the service industry and a very large proportion of those rely wholely or in part on public contracts. Cutting the public sector will hit all of those businesses. With people loosing and being worried about their jobs people spend less – hitting the retail sector too and as no-one invests in uncertainty – British (& overseas) investors will invest their monies in other countries because of the uncertainty that the above creates in the UK economy. This brings about direct economic decline as money is moved out of our economy. The Tory/ Lib Dem plans – we all know are blatently devastating. Making these views understood will give Labour a landslide victory at the next election. The Tories are giving us “Pain and No Gain” that is politically and morally unjustifiable.

    Our future is in green economies, high tech, high skilled areas and that is why we simply MUST educate our children to a higher standard. We may no longer be the best education system in the world – but we are still the one which is regarded the most highly – we need to build on that, invest in that and to do that we need to stop slamming the fact that more of our kids are getting continually higher results as a dumbing down – and recognise that it is as a result of children working harder than they ever have and because of Labours investment in education: My sons primary school – under Labour had no class sizes greater than 20, a teacher and classroom assistent for each class and unrivaled access to new technologies & trips out. We now need to get more people through Uni – we need to go back to free Uni education and grants for students to help them through. Schools for the future is brilliant – an investment in the future – next we need to do that at Uni level: Not just for our own kids but to build on our reputation as the best place in the world to educate your children and consequently for R&D – putting us also in a stronger commercial position in the global market. We also need to exploit our rich heritage more attracting much more tourism to the UK – again this generates economic growth and business opportunities.

    Thank you (beyond this speach) for your call on Lib Dems to defect – all we need to bring that next election forward is to undermine the coalition in this way: Highlight to lib dem MP’s that they are destroying (have destroyed) the future of their party and that they have an alternative – keep it up.

    With the right approach we could take a landslide victory – but we can only do that with the approach that you’re advocating. You have it right – dictate and don’t just follow concensus strategically for the benefit of society and for those who need the greatest support and concentrate on selling the blatently obvious to the public at large – wholesale.

    Good luck in the leadership contest

  26. Tom Jupp says:

    Many thanks for a really well argued contribution to the economic debate. Can other leadership candidates please join it?
    But the real challenge is to get the Toies to respond. Ed is right. There is no real debate.

  27. Heather Richardson says:

    Ed fantastic speech.
    I look on the deficit and compare it to “taking out a mortgage” on your 1st home.
    When you take out a mortgage you don’t “panic” and think “Oh my God I have all this debt, I must pay it off asap”
    No, you are sensible and pay back the mortgage at affordable payments over a set amount of years, you don’t sell off the furniture in your home or cut off the gas and electric because you have a mortgage, you might cut back on non-essentials for a while until your income improves but you don’t sell off all the family belongings!!
    I think we need to take this sort of approach towards the deficit. It is not necessary to go at the deficit “hammer and tongs” as the coalition are doing.
    I think Labour has done a lot for our country over the past 13 years which has not always been appreciated.
    I wish you all the best in the election but now you have me in a quandry!!
    I had my candidate picked out but reading your speech and your various e-mails is making me rethink my position!!

  28. Peter Jenkins says:

    Thanks…Ed . I’m tempted to go in your direction as I like the way you have been attacking the coalition over the last few months/weeks and we need to be strongly arguing our case and heard with the argument against their positions and their policies.
    BUT …1) can you do charming and pleasant as well? ….a bit of T Blair even! Seems essential these days…. alas poor Gordon!:-(
    2) where do you stand on faith schools ? Someone has to come out strongly against …..and Labour could/should.

  29. Hi Jim,Long time no see.
    I phoned the BBC this morning on0800 044 044 and complained that they were misrepresenting us by only mentioning the Millibars. I told them that as a member ,and a ward chairman whose members supported Ed we were all very upset and annoyed at this misrepresentation. As were other constituencies who supported other candidates.

    I think that we should get more people to do likewise.

    Best wishes to Ed.

    Doug Northcott

  30. Mervyn Hyde says:

    I have been a Labour member from 1974 until I could not support the disingenuous New Labour platform any longer, anyone who heard Tony Blair amongst other things defending the indefensible by supporting the condems economic policies will understand why I left the party.

    I have since rejoined in the hope that we can elect a leader who does not see themselves as a leader but a representative of a democratic party, I joined the Labour party all those years ago to defend labour against the onslaught of right wing attacks of labour’s achievements since the last war. As I was born a month after the war ended, I have benefited from a welfare state which has produced the standard of living that I enjoy today.

    The right in this country have long recognised the economic advantages gained by ordinary people from the welfare state and deliberately undermine it in order to maintain the power base of the minority elite.
    This is of course is the real crux of economic policy, how do we challenge this elite, who use the financial institutions and industrial might to increase their wealth and power?

    Whilst Ed Balls has produced a coherent attack on the condem coalition, the real problems are being ignored because they mean challenging the institutions which have repeatedly created the crisis we are having to pay for. ( which we should not pay in any case, that is reduce our standard of living so that these people can carry on where they left off.) The Banks are now so say virtually out of the woods and the cry is to put them back into private hands, the very people who delivered the crisis in the first place. We should use the profits from these banks to invest in public enterprises that can create more profit for more investment. To rely on on the failed private sector to achieve these ends is to hope on a wing and a prayer.

    The numb belief in private enterprise has seen decline in this country ever since Thatcher proclaimed the idea “there was no such thing as society”. None of the candidates in this election have recognised the need to create public financed industries as did our predecessors after the war, in order to expand the economy which if allowed to continue as has been in the recent past will be doomed to failure. The naked reliance on financial institutions which are founded on gambling and speculation speaks volumes about what kind of society we have become.

    I have worked in the private sector all my life and witnessed nothing but incompetence lies and deceit, which has fundamentally undermined and destroyed our manufacturing base. In order to reverse that decline we need to build publicly owned industries that will raise standards which the private sector refuse to do, saying it is all too costly, that is to say it will take money off the bottom line, therefore not worth considering. I worked for a multi national company who had 40,000 workers in 1986 and now boast they have 6,000 at our last pensioners dinner. You don’t have to tell me where the black hole in pension funds come from.
    This can be globally repeated throughout the country and no doubt many of you are witness to this decline, Hawker industries, ICI, Plessey and hundreds of others to mention but a few.

    I do not believe we have candidates in this election who come any where near the kind of vision our forefathers had at the beginning of the last century, but to say that Ed balls appears to be the best of a bad bunch.

  31. Dean Fenwick says:

    Ed Balls has all the right ingredients for a very fine Labour Chancellor, his naturally forceful style will suit us very well in opposition and he has the knowledge coupled with the force of character requisite to drive through his convictions. Hence I believe he will also make a very solid addition to the cabinet as and when Labour is re-elected. However, I’m unsure whether his attack dog style will endear him to the wider public, a vital component of our shadow cabinet yes, but the face and mouthpiece of labour? i’d have to say no. Lets have it right the Conservative stratergy leading up to the election was to say very little and Brown bash as much as possible (although Gordon did not do himself any favours), in fact they seemed quite content to try and win by default, and to me that is what this current govt is, winners by default. In fact they didn’t secure a clear majority at all, despite all of Labour’s fudging of the run up to the election. This tells me that if Labour can successfully prosecute the case against the current macroeconmic measures in place and simultaneously provide a viable alternative then I see no reason why we will not see a Labour govt re-elect in 5 years. Now, as much as a can see Ed Balls providing such an alternative I cannot see him effectively couching this case in a way which will ‘get people believing again’. In short i see in Ed Balls the makings of a fine Chancellor, but not a future Labour Prime Minister.

  32. Nick J says:

    Good speech, very strong on dismantling the tory arguments. Even if the Coalition cuts narrowly avoid dragging us into a double-dip recession, it should soon become clear that they are making life considerably worse for many communities. At that point, it will be realised that the high public investments under Labour in school building, NHS, sure start, employment services (new deal etc), were the very things that made British society slightly better and fairer over the last 10 years than it had been before.

    Prior to the financial crisis, the main gripes with the Labour government were over foreign policy (principally Iraq), while domestically the government managed to combine impressive economic growth and low unemployment with a range of public investments which dragged society back in the direction of fairness and opportunity (no mean feat) if not always delivering 100% value for money. The ballooning of the deficit under the strains of the financial crisis has undermined the sustainability of the model. But Balls is right that the Tories are using it to heap blanket scorn on all Labour policies, unjustifiably so.

    Once the economy gets back on track (less likely under sharp Tory reduction plans) we need to return to the sort of model Labour operated prior to the crisis, with a new accompanying focus on financial regulation and a new understanding that house prices and private debt cannot be allowed to rise so sharply. But we must spell out that the bulk of Labour policies helped to improve society, in terms of the quality of public services and the quality of life for British people. And that while we cannot overspend, higher taxes long term (e.g. maintaning the 50p rate) are the right price to pay for the fairness that strong public spending can bring. We need to defeat the perception that public spending is merely the redistribution of money from rich people to poorer ones (e.g. through benefits) and refocus on how it delivers investments at the service of everyone. Not just NHS/schools, but also public spaces which make life better, libraries, parks, countryside, town centres etc – anything which otherwise falls between the cracks of private investment.

    Milibands are both good leadership candidates too, would like to see Ed Balls as next chancellor.

  33. hey dear friend
    I think we need to take this sort of approach towards the deficit. It is not necessary to go at the deficit “hammer and tongs” as the coalition are doing.

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