The economy a year since the spending review – interview on The World at One

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.

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Posted October 20th, 2011 by admin