After Cameron & Osborne’s reckless gamble, 2011 is a critical year for British economy

2011 is a critical year for Britain’s economy and public services, and the coming weeks and months will tell us whether David Cameron and George Osborne’s reckless gamble has worked. With no plan for jobs and growth, they have instead staked the whole future of the economy on one card – the fastest, deepest deficit reduction plan in Britain’s peacetime history.

They inherited an economy which was beginning to recover strongly, with unemployment falling, interest rates at historic lows, and the public finances better than the Treasury’s forecasts. Britain had weathered the first economic storm and was on track for jobs, growth and – with tough choices on spending, tax and supporting growth – we were on a credible and sustainable path to deficit reduction.

The Tory-led government has deliberately and needlessly taken Britain down a different path with cuts that go too far and too fast, and tax rises which directly hit family budgets. They have cut jobs programmes, withdrawn government investment from the economy, raised VAT, and cut government support to millions of families. And in the autumn – before the impact of these measures had even begun – George Osborne and David Cameron boasted that their gamble had already succeeded and that strong growth was secure.

Instead, we are now starting to see the real consequences of their decisions: unemployment now rising, economic growth forecast to slow, mortgage lending at a 20 year low, and tax revenues falling. Over the coming months, as the impact of the VAT rise, deep spending cuts and rising inflation starts to hit home, we will be able to gauge the true impact of the Tory economic plan, and see whether their gamble has worked. If they are proved wrong and growth is slow this year, it is millions of ordinary workers, families and homeowners who will pay the price.

Labour’s alternative plan would put jobs and growth first. Instead of doing backroom deals with the banks on the disclosure of their pay, we would apply the bank bonus tax again. It brought in £3.5 billion last year which could be used this year to help create the jobs and growth we need.

The lesson of history is that good economics is good politics. But when Chancellors put political ideology or expediency before economic logic, the country pays a heavy price. This Tory Chancellor and this Tory-led government are repeating the mistakes of the 1930s and 1980s, but they just keep ploughing on. They had a choice about which path to go down, and it is already becoming clear they have made the wrong choice.

It is not too late to change course. It is not too late for an alternative. And if they do not provide it to the British people, Ed Miliband and I will. Of course we do not oppose every cut, but the Tory-led government is cutting too far too fast. And over the coming weeks and months, we will hold them to account for the reckless gamble they have taken, and the historic mistake they have made.

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Posted January 22nd, 2011 by Ed

18 Responses to “After Cameron & Osborne’s reckless gamble, 2011 is a critical year for British economy”

  1. Geoff Ellis says:

    Well spelled out Mr Balls. I look forward to the coming days (Lord Strathclyde) and months with your staunch attack on hasty cuts and free-market economics. Not to mention the Chapman tapes and Coulsongate. I can smellthe Spring.

  2. Jon Meldrum says:

    I think one of the things I like about Ed’s talking econ, apart from it not being dumbed down, and it according with my own small economics education – is it speaks in educated terms, to why I found the last – and this – lot of Tories unecessarily cruel. I like the pro-market stuff coming through (as distinct from indiscriminately free- or anti-). And I like that I feel here’s someone who’s thought economics through from one end to the other and back, apparently with the question in mind, of how to do some good. I honestly hope he rips the Tories limb from quivering economically illiterate limb.

  3. “mortgage lending at a 20 year low”?

    That’s probably because houses are stupid expensive and people are getting scared to buy. As far as I can recall, under the last Labour government, house prices trebled or something, which is just the flip side of the credit bubble, and when the bubble popped (as they always do) we had what people refer to as “a recession”.

    We can tell you’re a politician because you seem to think that that high house prices are A Good Thing, exactly like Thatcher in the 1980s. The truth of the matter is that high house prices are poison for the economy.

  4. This is typical Labour (opposition) hype; what more could you expect from the leader of the opposition? True, there are tough times ahead and EVERYONE is sharing in them, helping to reduce the overspend our previous Labour Government has bestowed upon us. I think the coalition Government is doing the right thing in tackling this enormous debt that should NEVER have been in the first place.

    Agreed unemployment is rising – but predominantly in the public sector where, if we’re being honest, it is overstaffed anyway. But let us not forget that when David Cameron said each government department should reduce its budget, did he say “sack people”? No, he said look at your budget and find ways to reduce it. Department heads go for the easy option, sack staff and then blame the PM for it.

    The opposition is always quick to blame, accuse and get on their high horse but this problem is a national problem of their making – why not simply accept the blame on behalf of his party and work with the coalition instead of against it? You will win more credibility this way.

  5. Dean Burry says:

    “when Chancellors put political ideology or expediency before economic logic, the country pays a heavy price.”

    Such as Gordon Brown who, advised by you, spent way beyond our means in the good years to keep those voters bribed at the expense of hard working people?

  6. Mary nash says:

    The appointment of Ed Balls as Shadow Chancellor is good for the country. We need a strong Opposition party . Ed balls will explain to George Osborne loud and clear that there is a credible economic alternative to tackle the massive deficits created by the 2008 Global Recession, through reasonable cuts, , growth and job creation instead of the unnecessary cruel cuts and wastage (wasting £100 million on an AV referendum nobody wants, wasting £3 billion on the full scale fragmentation of the NHS and privatisation only a few steps away; why reorganized the NHS when it has the highest satisfaction rate and the second overall ranking in the 2010 Ranking of Countries Healthcare( on quality care, access, efficiency, equity, long healthy productive lives), and mass unemployment esp of young people. Ed Ball is a man of vision and courage. He is a fighter and the country needs him.

  7. Jay Baker says:

    Great post.

    I think this is just a small piece of evidence that Ed Balls is a dream choice for Shadow Chancellor and, with Ed Miliband, is likely to put across a logical, true and tested economic alternative to the British public who so crave it as the Tories adopt policies based on pure ideology.

    Two Eds are better than one!

  8. Sue Marsh says:

    Welcome back Signor Cojones.
    We missed your fire.

  9. Peter says:

    “But when Chancellors put political ideology or expediency before economic logic, the country pays a heavy price”

    The irony of this statement coming from someone who worked with Gordon Brown when he was chancellor is unbelievable. Has the Labour Party learnt nothing from the last decade?

  10. Alan says:

    Ed Balls is so wrong and his ideology of tax and spend will not work, has never worked and never will, Every Labour government has left this country in a mess and always will. Ed believes that you should spend and spend more to get the country out of a mess, the jobs that he created were in the public sector and did nothing for the countries growth long term. He is all short term measures and fiddling the books, such as PFI which is what Enron did, taking everything off the books. He is a second hand car salesman and he will be exposed for getting us into this mess and for nothing having a clue what to do next. Good luck Ed number two as you will be soon.

  11. Andrew Kyle says:

    “The main strategy of Friedmanomics is to wait for a major crisis and use this as an opportunity to sell off pieces of the state to private players while citizens are reeling from the shock – then quickly make those “reforms” permenant.”*
    Sound familar – especially when a senior Tory was quoted recently saying “we like chaos”.
    *See Naomi Klein’s book The Shock Doctrine.

  12. Patrick Boyle says:

    Excellent article Ed,
    As well as bonus tax we need to close tax avoidance loopholes–HMRC estimate is at least 45 billion p.a.lost through tax avoidance–if we recoup this we increase much of the deficit of income versus expenditure. Of course Osborne/Lord Ahcroft/Sir Philip Green at the forefront of tax avoidance –good if they pay!

    Good luck

    Patrick

  13. Tristan Cox says:

    How good it is to see Ed Balls back talking about the economy.

    There is a myth peddled by this government that this is Labour’s deficit. That myth has been expanded upon by the Prime Minister to say that the size of the deficit was “bigger than we thought”. It may come as a surprise that even Mr Cameron’s friends at the Telegraph were quick to call that myth for what it is – wholly disingenuous (http://bit.ly/bmQ63P).

    However, the Tory-led government has other ammunition which it is currently preparing. Ed Balls, as a former Minister for the City, is responsible for the deregulated financial services market which left our economy so susceptible following the financial crisis. For this, Labour will have to find a credible response. Being right on how to deal with the recovery does not mean we will automatically win the argument in relation to Labour having a hand in the economic make up of our country. I hope Ed Balls echoes Ed Miliband’s call for a much broader and more diverse economic base to our country, with small businesses in a whole range of industries thriving as opposed to such a huge proportion of the country’s tax revenue coming from the financial sector.

    George Osborne is a man who has been educated far beyond his intelligence. He is not a robust Chancellor, he – like his shrill Bullingdon pal, the Prime Minister, is a bully. I trust Ed Balls to wipe the floor with Osborne intellectually and not simply attack for the sake of it.

    Finally, and I imagine this will be the view of any Labour supporter (or, indeed, anyone with progressive views who believes a strong opposition to this Tory-led government is vital), I cannot express enough how much I want to see Ed Miliband and Ed Balls work together as a successful partnership. No more briefings, no more factions, no more civil war in Labour. I know they’ve not seen eye to eye over certain issues, but they are our only hope in respect of holding this reckless government to account. For the sake of this whole country, my overriding wish is for Ed M and Ed B to forge a partnership capable of bringing progressive, centre-left policies back into the government of this country.

  14. Bonnie Craven says:

    History has proven that this governments strategy of slash and burn never works. Tax hikes which disproportionately hit those on smaller and middle incomes combined with pay freezes, unemployment and reduction in the welfare state sucks money out of the economy and forces it into a state of decline and contraction.
    Ed B is correct. Economics IS politics and politics IS economics. And we have had a government foistered upon us which does not have the wit or intelligence to understand either.
    The appointment of Mr Balls in this position is fantastic. He is a man well qualified to take the battle to the government and show their lies up for what they are. I’ll willingly bet that Mssrs Cameron and Osbourne are quaking in their boots and look forward to the snap election which will surely be called soon, as the current government are doing a good job at dividing themselves!

  15. Chris Owen says:

    @Tristan Cox “Ed Balls, as a former Minister for the City, is responsible for the deregulated financial services market which left our economy so susceptible following the financial crisis. For this, Labour will have to find a credible response.”

    Own up? Gordon Brown 1997 budget speech “I will not allow house prices to get out of control”. That’s the single biggest issue in the UK economy.

    “bigger than we thought” is clearly ridiculous but “ridiculously big” does describe the deficit pretty well.

  16. Mark Parker says:

    Let’s remind ourselves of the real cause of our current problems: in 2003/4 the budget deficit was £28bn, in 2004/5 it was £33bn, in 2005/6 £31.9bn, in 2006/7 it was £36bn, 2007/8 it was £34bn, in 2008/9 £42.6bn – every year running a negative budget and growing our national debt, then it really took off – in 2009/10 there was a £175bn deficit and in Labour’s last budget in March 2010 they proposed a deficit in 2010/11 of £163bn.

    So Labour were never prudent, even in the good times. We will be generations paying for their incompetence.

  17. Unrepentant says:

    I’m of the Gordon Brown school of ecomomics.

    So long as labour dont talk the economy down, like the tories tried to in 2009, we’ll all be fine. And dont forget to cross your fingers and never walk under ladders either.

  18. Peter Benson. says:

    I am a little sick and tired of the its all is Labours Fault by Orange Book Lib Dems and Right Wing Tories.Mervyn King,head of the Bank of England said it was the Banks Fault.You Know the money men that bought Toxic Debts.It was a Worldwide recession in 2008.And has far as borrowing and gdp goes we have been in worse states many times in the past.At the end of WW11 we were a lot worse of.

    Danny Alexander,the Orange Book LibDem turncoat that stated before the election that ATOS,the Insurance Gangsters that sadly Labour initially employed to attack the Sick were wrong.There was a programme on Prime Time Scottish TV about Sick people being kicked of the Sick even though very ill.Danny Alexander feigned outrage.But now he is a Tory in all but name like Nick Clegg his boss.I wont be Voting for AV thanks to this bunch of cowboys.

    The fraud rate for DLA is .06% yet the Condems are going to throw 20% of DLA.What are your thoughts on this Ed.I like your arguments but are you going to follow the ConDems in hounding the Sick.Or the Unemployed when unemployment is at a all time great again.Pick on the poor is the Mantra of the Condems.What will you do to stop this Ed.

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