Miliband says Labour won’t back Tory plans for 1930s style spending – but there will be yearly cuts until the books are balanced

Ed Miliband will make a major speech on Labour’s plans to reduce the deficit tomorrow (Thursday) – and will make clear that as Prime Minister he would eliminate the deficit in a way “consistent with our values”. This evening, meanwhile, Ed Balls has written to members of the Shadow Cabinet to warn them to “be planning on the basis that your departmental budgets will be cut not only in 2015/16, but each year until we have achieved our promise to balance the books”.

Miliband’s speech will outline five principles for cutting the deficit, in order to deliver a budget surplus by the end of the parliament. The five points are:

1. Setting a credible and sensible goal to balance the books and get the national debt falling as soon as possible within the next Parliament.

2. Recognising that Britain will only be able to deal with the deficit by tackling the cost-of-living crisis.

3. Making common sense spending reductions with departmental spending falling and using money better by devolving power, breaking down old bureaucracies, and rebuilding public services around early intervention.

4. Protect everyday working people by ensuring those with the broadest shoulders bear the greatest burden.

5. Promising new policies only when they are fully funded, like Labour’s £2.5 billion time to Care Fund for the NHS, so that they do not require any additional borrowing

The focus on reducing the deficit comes as a reaction to George Osborne’s Autumn Statement last week in which he set out plans to cut public spending beyond the levels required to eliminate the deficit, going much further to reduce the size of the state to 1930s levels. Miliband will confirm in his speech that Labour won’t follow Osborne. And in a reference to Labour’s alleged 35% strategy for the general election, Miliband will say the only person with a 35% strategy is the Tories:

“The Tory plan is to return spending on public services to a share last seen in the 1930s: a time before there was a National Health Service and when young people left school at 14. There is only one 35 per cent strategy in British politics today: the Tory plan for cutting back the state and spending on services to little more than a third of national income. 

“And they have finally been exposed by the Autumn Statement for what they really are: not modern compassionate Conservatives at all – but extreme and ideological, committed to a dramatic shrinking of the state and public services, no matter what the consequences.

“They are doing it, not because they have to do it, but because they want to. That is not our programme, that will never be our programme, and I do not believe it is the programme the British people want.

However, Miliband will say that the deficit needs to be eliminated, and commit the party to cuts in non-protected departmental budgets every year until the deficit is dealt with:

“But I want to be clear about what the backdrop will be for a Labour government. We have said previously we will raise extra resources for our NHS and protect our commitments to international development.  And our manifesto will spell out other limited areas which will have spending protected. Outside those areas and departments, we’ve already said that for the first year of the next government most budgets will fall.

“But it won’t just be for the first year. Outside protected areas, for other departments, there will be cuts in departmental spending. 

“And we should plan on it being for every year until the current budget is in balance. Today, as our Zero-Based Review of every pound spent by government continues, Ed Balls is writing to our shadow cabinet colleagues spelling this out.”

Miliband will be keen to stake out Labour’s position on the deficit after coming under sustained pressure from the Tories in recent months for omitting the deficit from his conference speech in September. Whilst Miliband has already been clear that Labour will have to make cuts, this is the most explicit he has been in terms of those cuts coming from all non-protected departmental budgets, and that they’ll be ongoing until the deficit is closed. However, cuts won’t be the only means of closing the deficit for Labour – tax rises (such as the Mansion Tax, and perhaps other measures yet to be announced) will also play a role in public spending decisions.

Here’s Ed Balls’s letter to Shadow Cabinet colleagues spelling out the need for departmental cuts in the years ahead:

Dear Shadow Cabinet colleague,

As we discussed yesterday, the Autumn Statement confirmed that David Cameron and George Osborne have now broken all of their promises on the economy.

They promised people would be better off, but while those earning over £150,000 have been given a £3 billion a year tax cut, working people are now on average £1,600 a year worse off since 2010.

The continuing squeeze on living standards has led to tax revenues falling short, which is why George Osborne has had to admit that his promise to balance the books by next year will be broken. He is now set to have borrowed £219 billion more than he planned and government borrowing next year is forecast to be £75 billion.

This presents a huge challenge for the next Labour government. As Ed Miliband and I have said, we will balance the books where this government has failed and do so in a fairer way. We will cut the deficit every year, and deliver a surplus on the current budget and falling national debt as soon as possible in the next Parliament. But we will take a different approach to balancing the books than the Tories.

It’s now clear the Tories have abandoned any pretence of being in the centre-ground with an increasingly extreme and unbalanced plan. They have made an ideological choice to pencil in deeper spending cuts for the next Parliament because they are refusing to ask those with the broadest shoulders to make a greater contribution and, crucially, are ignoring the need for a plan to deliver the rising living standards and more good jobs that are vital to getting the deficit down.

In contrast, Labour will take a tough but balanced approach to getting the deficit down. Our economic plan will deliver the rising living standards, more good jobs and stronger and more balanced growth which are a vital part of any fair and balanced plan to get the deficit down.

We will make different and fairer choices from the Tories, including reversing this government’s £3 billion a year tax cut for people earning over £150,000 and taking action to close tax loopholes and introducing a mansion tax on properties worth over £2 million in order to help save and transform our National Health Service.

And unlike George Osborne, we will not make any spending or tax commitments without saying where the money is coming from.

But as we have discussed a balanced plan to reduce the deficit will also require spending cuts.

We have already set out a number of the difficult decisions we will have to take, including scrapping the winter fuel allowance for the richest five per cent of pensioners, cutting Ministers’ pay by 5 per cent and capping child benefit rises at one per cent for two years.

We have already made clear that the NHS will be a priority for the next Labour government – including with our plans to raise £2.5 billion a year for Time to Care Fund, on top of the Tory spending plans we inherit. We also have a long-standing commitment to spending 0.7% of national income on overseas development aid. We will set out for our manifesto other priority areas of spending which will be protected.

In the meantime you should be planning on the basis that your departmental budgets will be cut not only in 2015/16, but each year until we have achieved our promise to balance the books.

Of course all departments have been taking part in the Zero-Based Review of every pound spent by government, because even priority areas of spending which will be protected should be looking for waste and efficiencies that mean resources can be prioritised for the frontline.

A number of departments have already shown how, in the context of reduced budgets in the next Parliament, they can make different choices which will allow frontline services to be better protected. For example, the Shadow Home Affairs team has set out how it will make nearly £250 million of savings – including by scrapping elected Police and Crime Commissioners and mandatory joint purchasing of equipment by police forces – in order to better protect frontline policing.

Chris Leslie’s cross-departmental work has also set out how we will look to sell government buildings and assets where there is a value for money case for doing so and seek to move more civil service jobs out of London in order to help make savings and rebalance our economy too.

We will be publishing further interim reports from the Zero-Based Review in the coming weeks and months.

These are the elements of Labour’s tough but balanced and fair plan to get the deficit down: a credible and sensible goal for balancing the books, a plan to change our economy, making tough but different choices on spending and taxation, ensuring those with the broadest shoulders bear the greatest burden, and not making any unfunded spending or tax commitments.

It is in sharp contrast to a Tory approach which has failed in this Parliament and which is set to be increasingly unbalanced and extreme if they win the election.

Yours sincerely,

Ed Balls