The eurozone crisis makes the case for changing course in Britain even stronger – my Tribune column

For several months now the government has tried to use the eurozone crisis as an excuse for inaction on jobs and growth here in Britain and a reason to stick stubbornly to an economic plan we now know is hurting, but not working.

But last week’s report from the Office for Budget Responsibility actually revised up growth in the eurozone while UK growth was downgraded again. In fact the positive contribution of net trade – exports minus imports – was the only thing which has prevented our economy from contracting this year.

Our recovery was choked off last year, well before the recent eurozone crisis, and the OBR’s gloomy forecasts for future years are based on “the assumption that the euro area struggles through its current difficulties” not on a worsening situation. By ripping up the foundations of the house – with spending cuts and tax rises that go too far and too fast – our economy has been left badly exposed to the storm that is coming our way.

Because if – by failing to take action to stand together so that the European Central Bank can act as lender of last resort and rushing to policies of collective austerity when Europe desperately needs a plan for jobs and growth – our main trading partners were to now slip into recession, and we are no longer able to rely on exports to fuel economic growth, then where will growth and jobs in Britain come from in the coming years?

That is why I say the eurozone crisis, and last week’s autumn statement, make the case for changing course in Britain now even stronger. Because we now know that George Osborne’s plan A is not only on failing on jobs and growth, but on the deficit too. The government is now set to borrow £158 billion more than planned: extra borrowing not to support the economy through difficult times, but the bill for the economic failure, higher unemployment and bigger benefits bill that this reckless Tory plan has created. As we warned, deep spending cuts and tax rises have proved to be utterly self-defeating in getting borrowing down.

So with the government’s plan having failed, Britain now needs a plan that works. Of course the government’s failure to get the deficit down means that the next Labour government will have to take tough decisions on tax and spending. And as Ed Miliband and I have said we will need long-term reforms of our economy if we are to deliver social justice in straitened times. But to successfully get the deficit down we also need action now to boost jobs and growth, as Labour’s five point plan clearly sets out.

Any British government would be borrowing now. The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a better, fairer way.

If we let a year of flatlining become a decade of stagnation, what price will our country pay in the long term? That is why Labour believes it makes sense to act now with temporary tax cuts and investment in jobs and growth to save ourselves from the future bills of failure.

Not acting now to support the economy will not only condemn hundreds of thousands of people to unemployment and risk thousands more businesses going under, it risks long term damage too. The trend growth rate of the economy is not fixed – so this isn’t just about growth postponed versus pain deferred. Months – or years – of slow growth aren’t something that will be quickly repaired.

As I said in my lecture at the LSE earlier this year, it risks leaving a permanent dent in our nation’s prosperity – relative to how prosperous we might have been and how prosperous we are relative to other countries. The longer we spend with no or slow growth, the longer the road to recovery becomes, the greater the pain that will have to be endured and the further we fall behind.

That is why this out of touch government should listen not just to Labour, but the IMF too, and change course. It’s now clear that George Osborne’s plan has failed. We must now show that Labour has a better way to boost jobs and growth – which will be a fairer, better way of getting the deficit down too. Enough of excuses, it’s time to act.

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Posted December 9th, 2011 by Ed