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Ed Balls responds to GDP figures – “this is no time for complacency and wishful thinking”

October 25, 2012 10:49 am

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Ed Balls has just put out the following statement in response to today’s GDP growth figures:

“It’s good news that, with the help of the Olympics, Britain is finally out of the longest double-dip recession since the Second World War. Our economy desperately needs an injection of confidence. But this is no time for complacency and wishful thinking. 

“Today’s figures show that underlying growth remains weak and that our economy is only just back to the same size as a year ago – twelve months of damaging flatlining which has seen borrowing rise in the first half of this year.
 
“And with living standards falling, more tax rises on the way, small business lending down and the eurozone still in crisis, it would be very unwise of David Cameron and George Osborne to just sit back, cross their fingers and hope for the best. The complacent thing to do now is simply to wait and hope things will get better. The cautious thing to do is to act now to secure and strengthen growth in our economy. 

“Britain needs a plan to secure and sustain a strong economic recovery, including using funds from the 4G mobile spectrum auction to build 100,000 affordable homes, a temporary VAT cut and a bank bonus tax to fund jobs for young people out of work. We also need action to ease the squeeze for people on low and middle incomes, rather than a tax cut for millionaires. And we need long-term changes to make our economy stronger, including a long-term plan to rebuild our infrastructure and radical reform of the banks.

“In the two years since the spending review our economy has grown by just 0.6 per cent, compared to the 4.6 per cent George Osborne said his plan would deliver and growth of 3.4 per cent in the USA and 3.3 per cent in Germany. So the question for the coming months is whether and how we can catch up all the ground we have lost over the last two years and not keep falling behind as other countries move ahead.

“A one-off boost from the Olympics is welcome. But it is no substitute for a plan to secure and sustain the strong recovery that Britain desperately needs if we are to create jobs, get the deficit down and make people better off.”

Related posts:

  1. Balls responds to GDP growth figures
  2. Balls on the flatlining economy
  3. Complacency does not create jobs, only unemployment
  4. VAT, Tories and dangerous complacency
  5. Ed Balls – tax cutter?
  • MrSauce

    Is now the time for a Shadow Cabinet re-shuffle?

  • MrSauce

    Is now the time for a Shadow Cabinet re-shuffle?

  • MrSauce

    Is now the time for a Shadow Cabinet re-shuffle?

  • MrSauce

    Is now the time for a Shadow Cabinet re-shuffle?

  • MrSauce

    Is now the time for a Shadow Cabinet re-shuffle?

    • Serbitar

      For some reason I feel like pointing out that Ed Balls graduated well ahead of the David Cameron in Philosophy, Politics and Economics at Oxford.

      • Winston_from_the_Ministry

         And yet…

        lol.

        • Serbitar

          Never mind the quality feel the width…

      • Jeremy_Preece

        I wonder how well Ed B could have answered questions on the Magna Carta and other topics on live American TV. Cameron’s performance shows that the great expensive Eton education didn’t hack it. I knew more about the Magna Carter and I went to a very ordinary secondary comprehensive school!

        • Serbitar

          Why Cameron agreed to appear on the Letterman Show is baffling. I suppose he couldn’t allow Boris Johnson to do something he didn’t do himself although much less successfully. (Hopefully Letterman didn’t invite him to see his “secret room upstairs”.) Can’t be long now before Sam Cam comes out with a cooking book or similar featuring austerian recipes like: “Take one half a kilo of white truffles…”

  • charles.ward

    Given that Mr Balls thought that there was no structural deficit before the financial crisis and there was actually a structural deficit of over £70 billion (about 10% of government spending) how can he be taken seriously on the economy?

    How can anybody trust him to run the government finances when he was actually spending 10% more than he though he was spending?  If he thought the government was not overspending before the crisis is that based on his belief that there was no structural deficit (as he still believed in 2011) or the reality of a structural deficit of 5% of GDP?

    • PeterBarnard

      ” How can anyone trust him to run the government finances when he was actually spending 10% more than he thought he was spending?”

      Nonsense.

      Labour’s last budget in 2010 forecast a Total Managed Expenditure of £674 bn for fiscal 2009/10  (Table C9); the out-turn was £670 bn (Public Finances Databank, Table B1).

      • jaime taurosangastre candelas

        Peter, if you replace “spending” (last word in your extract from CW) with “raising”, the argument makes sense.  According to your same data source in Table C1, Public Sector current receipts were £511.6 billion for the same year.  So he was overspending revenue.

        I know that I make the same point a lot, but there should be a “balanced budget over the lifetime of a Parliament” law.  It should perhaps better be a ”balanced budget over an economic cycle” to be properly favoured by Keynes, but reasonably recent Chancellors have taught us that they will only try to redefine what is an economic cycle in order to “magic” money from nowhere to try to bribe their supposed natural supporters.  You cannot trust a modern political Chancellor with public money.

        • PeterBarnard

          Jaime,

          What CW was saying was that Labour thought that it was spending about £600 bn, when in fact it was spending about £670 bn, and this (the “thinking”) was not true.

          Regarding your second paragraph, there has been plenty said between us in the past on this and I really don’t feel like recycling the wheel.

          • jaime taurosangastre candelas

            Peter, we will leave out the second paragraph and any identifiable personalities.  But we are still left with the fact that spending in excess of revenues – by all parties – seems to be endemic.  I can fully understand the Keynes’ thinking on economic cycles, and I do not believe it would be at all sensible for there to be a legal requirement every year for the balanced budget, but we currently have no constraint at all except that imposed by the market on any Chancellor routinely spending more than is raised in revenue.

          • PeterBarnard

            As you are aware, Jaime, I am decidedly pragmatic on public sector debt, given its 320+ years history (in the UK) and growth.

          • jaime taurosangastre candelas

            Deficit, not gross debt.  It is deficit that frightens the markets, and the markets are the only source of money for expenditure beyond that raised by revenues.

            People often make the claim that you cannot compare government spending to a household budget (ability to print money, sovereign status etc), but I believe that is wrong, and clearly so when government budgets are examined by reference to deficit and not to gross debt.  It is nothing more than a cash-flow forecast.  My mortgage ( = gross debt) is not something I could pay off tomorrow, but my cash-flow is what counts when the bank decide if I am worthy of advancing the debt.

            (We have not had the real pleasure (sincerely meant – he is always interesting) of Chris Cook on LL for a while, but I suspect that most of my paragraph above he would elicit a CC response involving stock exchange tally-sticks and the retirement of public debt which somehow becomes credit)

          • PeterBarnard

            And that’s exactly what a government has in the future, Jaime : cash flow – the ability to raise money via taxation to service its debt.

            The British people (and “the markets”) have lived with the reality for 300+ years now that the principal won’t be paid off (unlike a personal mortgage), and provided that the debt service level is kept at a reasonable level (it was as high as 5.7% of GDP in 1981-82 and is forecast to be 3.3% of GDP in 2016-17), then basically there is no great problem.

          • jaime taurosangastre candelas

            But Peter, you talk of the “appetite for risk”.  At points in the past, the appetite or acceptance  for risk was greater.  But right now, it is much lower, and that is my point.  The Governments do not exist in a vacuum – they need to interact with the markets. Of course, it is equally fair to ask hard questions of the markets (¿why are they so capricious?), but they are the ones with the money.  ¿If the accepted consensus view is that above 3% of GDP is risky, what can a Government do apart from acknowledge that?

          • PeterBarnard

            Well, maybe, Jaime, but if I may paraphrase F E Smith, “I thought Labour ministers were stupid, but I then met people in finance.”

          • jaime taurosangastre candelas

            Peter, a second thought.  The annual rate of adding to gross debt over time plotted to trailing averages of 5, 10, 20, 30 and 50 year debt addition rates would be a good “yardstick”.  This is 30 minutes on a spreadsheet if I can find the base figures.

          • robertcp

            Jaime, a balanced budget law would be pointless.  Parliament could just vote to get rid of it!

      • charles.ward

        Mr Balls was claiming no structural deficit before the crisis (i.e. in 2007, not 2010).  But I take your point that it could have been a miscalculation of revenue rather than spending (or a combination of the two).

        Either way a £70 billion hole does not indicate fiscal competence.

  • Jeremy_Preece

    Am I missing something here?

    The present government is banging on about not spending, everyone should stop shopping and clear their debts (loans credit cards etc) and government has to cut cut cut. All we see is stagnation and the debt growing (there being less money to repay it) and the economy shrinking, not to mention unemployment rising.

    On the other hand, we have just had a wonderful Olympic games in which loads of people spent spent spent. What is the result of just about a month of people spending money – 1% growth.

    Surely there is the ultimate moral of the story. Spending stimulates growth and austerity which has been tried many times in history has never, suceeded in anything other than causing economic depression.

    So the answer…..

    • Winston_from_the_Ministry

       Did people spend, spend, spend during the olympics?

      • PeterBarnard

        We won’t know, Winston (“Did people spend, spend, spend …?”) until the second estimate of GDP (containing household/consumer expenditure estimates) is released in about a month’s time, and that second estimate will be subject to further revision.

        ONS say (in today’s release/page 4) that “retail showed some strength but there was very little evidence of any significant Olympic effect. Indeed, there was some feedback from online retailers that sales were lower as consumers watched the Olympics instead of shopping online.”

  • aracataca

    Long standing Osborne critic Paul Krugman’s column in the New York Times is always instructive reading.  One NYT reader also made this interesting point:

    “And to think the UK gave us Keynes. What use is producing one of the greatest economic minds in history if your own government disregards everything he taught the world, and everything that eighty plus years of modern economic research has validated? 

    I had a brief talk with someone from the UK today, and he seemed aware of the folly of his own government, but he was more caught up in ours in the US. Unfortunately, he seemed almost as misinformed as American southerners about our political problems. Right away, for example, he mentioned something about China holding so much of our debt. 

    I told him to read Paul Krugman and he’d discover that not only was our debt to China significantly down in the past year, but that Americans held roughly offsetting claims on other nations’ assets, and that the notion that “Americans are deeply in hock to foreigners was all wrong.” I was glad that I could say that with confidence, since I heard if first from Paul Krugman, but people everywhere are still more concerned with other people’s problems than their own. Obsession with other people’s problems is never good, but it’s particularly bad in both the US and in the UK, because far too many people are still inclined to making deep sacrifices so they can keep giving tax breaks to the extremely wealthy.”"

    • Quiet_Sceptic

      Well we didn’t pay much attention to Keynes during the boom and pay down the national debt so to be fair, we are at least consistent.

    • Jeremy_Preece

      Excellent comment aracataca.

  • http://www.facebook.com/people/Mike-Homfray/510980099 Mike Homfray

    I think there must be considerable difference between areas. there is no sign of growth or recovery here

    • MrSauce

      Then again, where I am there hasn’t been a recession since 2008.
      We just sell stuff to other people who also make stuff in the UK.
      No need for govt bailouts or funny bank deals.
      Hopefully there are now a few more out there who think making stuff and doing it better is the way forward.

      • Serbitar

        So you’re a Martian then?

  • jaime taurosangastre candelas

    It is not the main point of this article, but I am curious as to how Labour propose that the “4G licence money to pay for 100,000 new homes” policy would work in practice.  It seems like a very attractive idea, but it also seems to be very inefficient and could result in expensive houses.

    The Government do not build houses, so the work would be done by the private house building companies.  Currently, they buy the land and get the planning permission, then build the houses and sell them for a profit.  The Government is not directly involved less some taxes.

    Is what is proposed is that the Government sells the air to get in £2-3 billion, and then transfers that money to the private building companies in return for them building houses, and the house buyers pay the Government for each individual house?

    Are the houses instead to be new council houses, owned by the national Government, or do the councils buy them from the national Government when built and then take them onto the stock of their own council accounts?  If so, how does the national Government arbitrate between lots of councils all wanting to have new houses built with national Government money?

    Is there a central control to allocate “X” thousand houses to which region of the country, or is it all demand-led with London and the south east getting all of the new houses, and Darlington getting none?  Does the Government buy the land first?  What is the incentive for the building companies to be efficient?

    The financing model seems to be so completely different from the existing housing market that I cannot see it as being quick and efficient.

    Alternatively, do the building companies operate as they currently do, and having taken the financial risk of buying land, obtaining permission and building the houses, then seek to have the costs reimbursed by the national Government, in which case there is no incentive for efficiency, and no control over all of the building companies building in popular locations, and nothing at all elsewhere.

    It has the seed-corn of a good idea, but the practical measures seem challenging.

    • Quiet_Sceptic

      The other unanswered question is over what time period the 100,000 houses will be built?

      That number on its own, amounting to what £10bn-£15bn of stimulus, (£100k-£150k per house), isn’t big enough to have any sizeable impact on the economy or the nation’s housing issues unless we’re talking about it being some sort of annual output target.

      • jaime taurosangastre candelas

        From what I have read, the idea is a one-off sale of licences for the 4G spectrum raising about £2-3 billion (that must surely be an estimate).

        Last month it was the bankers’ bonus tax also raising a similar amount for the 100,000 houses, and that may be repeatable year on year, if the bankers do not get too clever and find legal if morally unjustifiable ways of avoiding any such tax.  I have little expectation that they will annually pay without complaint, or even that there would not be some legal challenge on the grounds of discrimination to the idea of “bankers” (Britain has about 1 million employees who are “bankers”) being especially singled out for additional taxation.

  • trotters1957

    Triple dip on the way in 2013.

  • MrSauce
  • robertcp

    Hopefully the government has learnt the lesson that it tried to cut the deficit too far and too fast.  This caused the second recession and the increased deficit this financial year.  Slower deficit reduction should avoid another recession, which will actually help reduce the deficit.    

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