Deficit plans are only credible if they have political agreement and deliver on what they promise

Ed Balls MP, Labour’s shadow chancellor, in response to ongoing market turmoil and the US credit downgrade by Standard and Poor’s, said:

“It is the absence of growth – in the US, in Europe and in Britain too – and the absence of a credible plan to get our economies growing again that is undermining confidence and has sent equity markets plummeting in recent days.

“Families, businesses and market investors rightly want countries to have credible plans to get their economies growing and to get deficits down. Without economic growth it’s not possible to get deficits down in a sustainable way.

“Of course public borrowing will need to fall steadily over the coming years. But countries with aggressive deficit-reduction strategies but no prospects for growth now risk finding themselves trapped in a vicious circle of investor flight and slower growth, making it harder to get deficits down, and hitting market confidence.

“As I said in my LSE speech in June, deficit reduction plans are only credible if they have political agreement and they deliver on what they promise.

“In the US, the lack of political agreement in Congress and political brinkmanship over the debt ceiling has cast doubt on whether their plan can be delivered, as the statement from Standard and Poor’s makes clear.

“But the bigger question for rating agencies and policymakers in the US and Britain is whether budget plans will depress consumer and market confidence and choke off recovery or whether they will support growth and so help get deficits down in a sustainable way. That is why I am fearful that Republican Congressional leaders have learned the wrong lesson from the British experience over the past twelve months.

“The problem in Britain is that George Osborne’s plan is not working. By trying to go too far and too fast, confidence has been knocked and last year’s recovery has been choked off.

“Our economy has barely grown for nine months and borrowing is now set to be £46 billion higher than planned. That’s why we have had warnings this week from the IMF and the government’s own budget watchdog.

“The government’s reaction to the credit rating agency’s downgrade is once again deeply complacent. Instead of absurdly claiming that Britain is a safe haven, we need leadership from David Cameron and George Osborne on these global issues and a proper plan for growth in Britain too.”

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Posted August 6th, 2011 by Ed's team