The eurozone and the case for fair tax cuts to boost growth – Andrew Marr Show transcript

Andrew Marr: You were hostile to Britain joining the euro, what do you think should happen now with a country like Greece where they are absolutely up against it and really serious rising anger about other people turning the screw on them?

Ed Balls: Well it was the right decision for Britain not to join the euro. That is something that William Hague and I can agree on and I think …

AM: What about Greece?

EB: …and it was the wrong decision for Greece to join the euro because I am afraid that Greece was at a different stage of development, not integrated enough into the northern European economy and they are paying a huge price as a consequence. The problem we have got is there is now no easy way forward. I’m afraid simply to say Greece should just leave the euro doesn’t solve the problems for the eurozone, potentially it is very dangerous and destabilising. But for Greece to stay in the euro – and the same is true for Ireland, for Spain, for potentially Italy too – means a long and protracted period of slow growth, high unemployment, at a time when the German economy is not really willing to pull its weight. The Germans aren’t doing what needs to be done.

AM: The politics of that are lethal aren’t they?

EB: I think it is a very dangerous situation. We have been here before, countries locked together in a deflationary environment, years of slow growth and high unemployment. We saw it in the 1930s, I think we are seeing history repeat itself and it is important to learn lessons for that here in Britain, but also in the euro area.

AM: So although there is no good outcome for this, would you agree it is pretty much inevitable now that Greece is going to have to leave the euro?

EB: I don’t think it is inevitable. I think the reality is that Greece is not really engaged in the global economy at the moment, they are propped up by public spending resources from the rest of the euro area, that can carry on, it won’t make it easy for the Greek economy to adjust. I think the real question though, the real policy question is what happens in particularly Spain and Italy. A messy Greek default which raises questions in the markets well are Spain and Italy next, at a time when Germany and the European Central Bank are not able to face up to the common obligations you need in a single currency, that could lead to a crisis of the eurozone which would be very dangerous indeed. If that crisis doesn’t happen though what is the consequence? A long, in my view, protracted period of slow growth, high unemployment, the political problems …

AM: So better to have a crisis in some respects? Better the crisis than the endless no growth, slow growth and political despair?

EB: Well the reality is that over the last two years European leaders have failed to face up to what needs to be done. They have kind of got to the edge of a crisis and then pulled away. Our government, in my view, has not been giving the lead to try to get this sorted out. They’ve seen it as a convenient excuse for Britain’s own self-made problems.

AM: As I understand it, Labour’s policy is we will join the euro when the time is right, do you think it is time to go beyond that and say actually in my lifetime “no”?

EB: Well I think it is inconceivable that in this generation the UK will join the euro. Ed Miliband said that, Douglas Alexander said that, I’ll say it as well …

AM: So for the next 25 years we are out of it?

EB: I don’t think in my political lifetime there is any possibility of Britain joining the euro. Nor should we because I don’t think in the end the institutions, the consensus, the framework is there to make the single currency work properly. At least not at the moment, but certainly not for a country which is quite different in some aspects of its economy to Germany, to Luxembourg, to the Netherlands, to even France. So I don’t think we are going to join the euro and I think it was one of the most important decisions we made in the last ten years not to join the euro.

AM: And we shouldn’t be contributing another big tranche of money to an IMF bailout either should we?

EB: Well it depends what it is for. I am a big supporter of the IMF. If the IMF goes in to help with a Greek adjustment or a Spanish difficulty then we will support that. But if the IMF funding is supposed to go in to substitute for the funding which should come from the European Central Bank because Germany says we are not willing to fund the European Central Bank, that would be not only the wrong thing, it would be completely counterproductive. You can’t go to China or the IMF and say: please come and give us funds to support Italy and Spain because we are not prepared to do that. So that isn’t …but it goes to a deeper issue which is, politically, I don’t think Germany in particular has faced up to the reality; it is in a single currency and there is collective obligations in a single currency. They joined it, they have now got to make the best of it and that is not happening at the moment.

AM: Let’s talk about tax cuts in this country. You said today there is in your view a strong case for tax cuts and you would like to focus of course on VAT and people on the bottom. What about the argument that if you want to create growth you have to look at corporation tax, you have to look at even the 50p rate because that is what is going to drive more growth and get the jobs the country desperately needs?

EB: Well look before you jump straight through my whole argument on to the how, can I just make the argument as to why this is important. And there is a parallel with the eurozone. We are not in the euro, but we are still imposing upon ourselves an austerity which has turned out to be self-defeating. You and I can agree there is now a big problem of growth and jobs, it is leading the government not to borrow less, £158bn more borrowing than they planned. George Osborne says, “There is nothing I can do, I’m trapped by the credit rating agencies, do nothing”. I say to him that it is complacent and irresponsible and you should act. Let’s now debate how we can act. I’ve proposed a temporary VAT cut. The Liberal Democrats say raise the personal allowance, David Davis is saying cut capital gains tax. We need some stimulus into our economy to get the economy moving, to get growth and jobs back. It is the only way to get the deficit down. I don’t think to be honest that capital gains tax would do the job.

AM: Does the stimulus that you suggest not mean that the debt problem gets even worse and the triple A rating is dead? And wouldn’t the triple A rating have gone by now had the country been following your policy?

EB: Look we have discussed this many times and let me have another go. You can get your deficit down through tax rises, spending cuts and growth and jobs. If you do your tax rises and your spending cuts but, as a consequence, you crush and destroy growth and unemployment rises, your borrowing doesn’t come down, it ends up staying high. And George Osborne is borrowing £158 billion more than he planned a year ago because of no growth or jobs.

AM: So if Tory backbenchers were rally to around the idea of a cut in corporation tax would the Labour Party support them on the basis that any tax cut at this moment, any stimulus was better than none at all?

EB: David Davis talked about money leaking out of the country. You’ve got families under real pressure with their living standards falling, hit hard by a VAT rise which is hitting them for £450 a year. That is why confidence is down, unemployment is rising, businesses aren’t investing. I don’t think a corporation tax cut or a capital gains tax cut or a tax cut for people on incomes above £150,000 is going to give the injection into our economy which we need. Actually the VAT cut is the fastest and fairest way to do a temporary boost to demand, to get confidence moving. You could look at personal allowances, you could look at a rise in tax credits; I think there is a separate debate about long-term reform, but you need action now and nobody thinks a cut in corporation tax now is going to get families spending and businesses investing. They have had a corporation tax cut and they are not investing at the moment.

AM: If you take power at the next election it will be in a situation where there is no money, what is the Labour Party for in that situation?

EB: First of all, whether or not there is money and the state of the economy entirely depends on the decisions George Osborne makes right now. And that is why I am going to continue to press him to not bow to pressure from backward looking credit rating agencies, but to do the right thing for growth and jobs to get our deficit down. That will determine whether the inheritance is stronger or weaker. Secondly, if we carry on the way we are, we are going to have high unemployment and a weaker economy. The Labour Party is about a strong economy, but also about making decisions which will be fair in difficult times whether that is on energy bills, the bank bonus tax for youth jobs. There’s many things which we can do, what we can’t do now is make promises about three year’s time because we don’t where we will be.

AM: What is slightly odd is that the economy is in trouble and yet your leader is not popular, if he did step down would you put your hat in the ring?

EB: Look I don’t think our leader is going to step down. He is going to win the next general election for Labour. I fought the leadership election, Ed Miliband won, I am going to back him 100%. The reality is, whether it is on phone hacking or on …

AM: It is very disappointing for us all, we are hoping for a story there …

EB: Yeah, yeah, yeah …pop round for lasagne and I’ll chat with you about it Andrew! Phone hacking, responsible capitalism, he has set the agenda. He’s made the argument you can have fairness in tough times, he has said it is not responsible to carry on with excess at the top when families are suffering. That is why we are saying look even if George Osborne …

AM: Alright, from the lasagne king, we have run out of time.

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Posted February 19th, 2012 by Ed's team