Politics Show interview transcript

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.


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Posted October 9th, 2011 by Ed's team