Ed Balls and that budget surplus target

There have in the last few weeks been a number of key announcements from senior Labour figures about policy, and they are beginning to conform to a well-established pattern.  Controversial policy lines begin to appear in the media a few days before the speech, leading to furious cries of “sell-out” on the left, and then when the actual speech is delivered one can see that what is being promised is something altogether more nuanced, and more radical.  I’m guessing it’s a tactic; the answer, in every case, is to read the speech.

This is especially true of Ed Balls’ speech to the Fabian Society yesterday.  Billed in advance as being about Labour committing to a budget surplus by 2020, it’s actually about far more, and offers a much more subtle narrative about deficit reduction than you would guess from reading the social media outrage.  Today, it’s the promise to reintroduce the 50p top tax rate that’s producing the outrage – a response that is indicative of who many in the media and the political class speak for.  No doubt it was intended that way.

But it’s worth unpacking what Ed Balls said about deficit reduction a little.  Here’s the key section from the speech:

After three years of economic stagnation and with the sustainability of the recovery still uncertain, we stand to inherit a very difficult fiscal situation in 2015.

As Ed Miliband said last week, deficit reduction alone does not make for a successful economic policy.

But both of us know it is a necessary and important part of it.

With the deficit we inherit currently set to be nearly £80 billion and the national debt still rising, it will be up to the next Labour government to finish the job.

This means that delivering change – on living standards, on skills and innovation and on jobs for young people, while safeguarding our NHS and vital public services – will be more difficult than at any time in living memory.

Certainly more difficult than at any time since the post-war Labour government of 1945.

So let me be clear.

We are determined to deliver the change we need to make our economy work over the long-term and to build a fairer society that rewards hard work and protects the vulnerable.

But we must make sure the sums add up.

We cannot and will not duck the hard choices ahead.

Without fiscal discipline and a credible commitment to eliminate the deficit, we cannot achieve the stability we need.

But without action to deliver investment-led growth and fairer choices about how to get the national debt down while protecting vital public services, then fiscal discipline cannot be delivered by a Labour government – or, in my view, by any government

[…]

The government’s day-to-day spending totals for 2015/16 will be our starting point.

There will be no more borrowing for day-to-day spending.

Any changes to the current spending plans for that year will be fully-funded and set out in advance in our manifesto.

And we will insist that all the proceeds from the sale of our stakes in Lloyds and RBS are used to repay the national debt.

Alongside these commitments, Chris Leslie, the Shadow Chief Secretary to the Treasury, has already begun our zero-based review of public spending.

By examining every pound spent by government from the bottom up, we will root out waste and inefficiency.

And we will look at new ways of delivering public services suited to tougher times – while ensuring that they continue to make a huge contribution to the strength of our economy and the fairness and stability of our society.

Even those departments or areas of government spending which we chose to ring-fence will still be subject to this review because it is vital that we get maximum value for money for every pound spent.

So we have already gone further than any Opposition has at this stage in setting out a clear and disciplined approach.

But I want to go further still.

So I am today announcing a binding fiscal commitment.

The next Labour government will balance the books and deliver a surplus on the current budget and falling national debt in the next Parliament.

That’s a very different view of the world from that promoted by the coalition. Balls is saying, explicitly, that reducing the deficit depends on having a strong economy – in contrast to the coalition view that reducing the deficit is a precondition of achieving a strong economy. Far from endorsing Tory economic policy Balls is turning it on its head. And he’s placing public investment at the heart of that approach to recovery.

Moreover, look at the wording carefully.  Balls is committing to a surplus on current spending, not on the budget as a whole. He’s making the distinction that appears to elude so many coalition apologists between deficit and debt – and that’s enormously important.

Ultimately, then, this is not the speech that Labour’s opponents are saying it is.  I actually feel it’s regrettable that our economic discourse has become so warped that Balls feels he has to make these statements about targets; I am of the Paul Krugman school that says that, yes, in the long term deficits can matter but at the moment they’re not the main issue. Moreover it seems to me that it is private debt, driven by the Help to Buy scheme, that is the biggest immediate economic threat.  And I often worry that Ed Balls’ language betrays the fact that he has spent so much time in the Treasury, and often appears to be accepting its logic as gospel.

But the point is that in this speech Ed Balls talked about far more than committing to a budget surplus.  I read the speech as a commitment to investing and to using the power of the state to drive forward the economy. As a Labour Party member I’d personally argue strongly that Balls should be more fiscally ambitious; but I also understand the political context.  And I think the speech shows very clearly just how different Chancellor Balls would be from Chancellor Osborne.

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