Sky News interview on US growth figures and the eurozone agreement

Adam Boulton: What do you think explains the difference between America’s growth figures and our growth figures which are well under one per cent at the moment?

Ed Balls: In the US, they have taken a more balanced and steady approach to deficit reduction over the last couple of years and they have actually made up all the loss of output in the recession. Here in Britain we are still four per cent below the level of output before the financial crisis. In the last year, America has grown by 1.6 per cent on the basis of these figures and the UK by zero per cent. We will have to see next week what our figures show. The figure today for America in the last quarter is 0.6 per cent for the quarter which is 2.5 per cent over the course of the year. 0.6 per cent is pretty disappointing for America. People here, I think, are pretty worried. That is why there is a big debate about the need for a jobs and growth plan being driven by the President.

In Britain, simply to get back to the Chancellor’s previous forecast, he would need that twice that level – 1.3 per cent – and to get to the OECD’s more pessimistic figure [he would need] 0.9. If we don’t see those kinds of numbers then I’m afraid the prospects are for sluggish growth, higher borrowing and for higher unemployment as well. That’s why I think, as in America, the case now in Britain is even more clear: we need a more balanced approach to deficit reduction and to adopt what I’ve called Labour’s five point plan for jobs and growth.

AB: Everybody is trying to reduce their deficits though. What I can’t quite understand about your plans is whether you would now be raising and spending more money than Alistair Darling would have done if you had won the election?

EB: What’s happened, because of the fact that in the last year our economy has not grown at all and unemployment is rising again, is George Osborne is going to have to be borrowing £46 billion more than he planned and that goes to the heart of this. The choice isn’t ‘do you reduce the deficit or do you have a jobs plan?’ You need to have both.

AB: My point is exactly that. The government hasn’t managed to reduce or have this austerity programme in cash terms that perhaps it had hoped for so it is ending up spending more money, which is what you want you want to do, and yet as you have just been outlining that’s not helping our economy very much?

EB: Part of the reason why spending is higher is because unemployment is higher, growth is low. That means less tax revenue and more people getting unemployment benefits instead. That is the wrong way to get the deficit down.

AB: But you’d be spending even more to generate those jobs?

EB: Yeah and this goes to the heart of the argument. Unless the economy is growing and unemployment is falling, it is harder to get the deficit down. The argument you hear from George Osborne is if I cut faster and raise taxes more, surely that makes the deficit plan easier to achieve. No. It makes it harder to achieve because the flat-lining economy and rising unemployment is the opposite of –

AB: [Interrupting] – How much more would you be spending? How much more would you be increasing the debt by?

EB: I have said that we should have a five point plan. Some of those would pay for themselves. We would repeat the [bank] bonus tax and use that to pay for youth jobs. I have also said, though, that the VAT rise this year was the wrong tax and the wrong year and has pushed up inflation and has hit confidence.

AB: How much more? What would be the difference?

EB: If we reverse the VAT rise for a year that would cost £12 billion, a £12 billion boost because we get less tax revenue coming from the VAT rise. But the argument is that, if the effect of that is to get people more confident, unemployment falling, you end up with lower borrowing not higher borrowing. George Osborne did the VAT rise. He’s cut spending faster and what’s happened? He’s got borrowing £46 billion more. If you haven’t got growth and jobs, you end up with higher borrowing. A sensible plan now to boost demand to get our economy growing is the best way to get the taxes coming in and the deficit coming down. That’s true in Britain. That’s true in America. It’s actually true in the Eurozone as well. If we get stuck in this mindset that if you cut faster and tax more, it’s better for the deficit, I’m afraid we are going to end up in a really, really dangerous place in the world.

AB: OK, on the Brussels deal, do you think the outcome was a good deal for Britain?

EB: I think that anything which gets the Eurozone sorting out its problems and growing is a good deal for Britain. And I think today we have got to be cautiously positive. It wasn’t announced until two or three in morning, this deal. I think the most important thing in the markets today is that the European Central Bank has actually intervened and bought Spanish and Italian debt and that shows that the ECB is doing its job. But fundamentally will there be the scale of financial backing for sovereign countries like Italy? We don’t know. What will the actual details of this plan be? We don’t really know. What is going to be the bank recapitalisation? We don’t know. Will the European economy grow next year? That’s really in doubt.

AB: You would support George Osborne and David Cameron in saying that there is going to be no payment by Britain into the European fund and no contribution from Britain via the IMF into the fund?

EB: I don’t think it’s sensible for Britain to make bilateral contributions to a euro bailout fund. The ECB should be doing this job.

AB: Or multilaterals through the IMF?

EB: I think the IMF has got a job to do supporting countries round the world. I support that but what I think is a problem is if the IMF – and this is the argument we had with George Osborne earlier in the year – if the IMF steps in to put money where Europe is unwilling to spend its own money, I think the IMF should wait to see whether there is a really proper commitment from the Eurozone to this bailout fund. I’m in favour of the IMF doing its multilateral role but not funding a bailout fund.

AB: So you are on the same page as George Osborne who is just wondering why in that case Labour opposed the increase in funding to the IMF if you think it’s such a great institution?

EB: I was the Chair of the deputies of the IMF for a number of years. I’m a huge supporter of the IMF. But it was quite wrong, in my view, in the summer when the Eurozone had not sorted out its bailout plan, to start saying let’s fund it through the IMF instead. George Osborne, I’m afraid, has been a bit equivocal on this. The Eurozone needs a bailout plan. That’s the way to do it. We said we shouldn’t be putting through a rise in our IMF contributions until the Eurozone has sorted out their issues and that was in doubt.

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Posted October 27th, 2011 by Ed's team