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Why the Left should be celebrating Ed Balls’ Fabian speech on ‘fiscal discipline’

On hearing that Ed Balls was to use the Fabian conference to announce Labour’s commitment to a budget surplus, Hopi Sen tweets with mock insouciance

This is amusing, because his #intheblack labour side hasn’t won.  It’s lost, and my side has won.

As George Eaton has pointed out*

While Osborne’s promise applies to total government spending, Balls’s only applies to current spending (day-to-day spending on public services, for instance teachers’ salaries and hospital drugs). This leaves open the option of Labour borrowing to fund additional capital spending (investment in assets such as housing and roads).

This is not something In the Black Labour ever conceived of in their original short paper.

Where George continues to get it wrong is his assumption that additional borrowing will go towards capital spending only.  True, Balls focused on capital investment today, but the crucial (and largely ignored) Zero-based review makes it clear that there is an openness to non-capital social investment where additional funds are needed in the short terms to generate longer term savings to the public purse e.g. through investments in education and social justice-focused welfare provision.**

Ed Balls’ conversion (or re-conversion) to a reasonable sensible fiscal strategy in government should be a matter of celebration for the Left, much more than the politically attractive but much less meaningful 50% tax-rate (which should have been announced much later, giving top earners less time to shift there income around to avoid it).  It comes about not least because of the pressure by sections of the Left on Labour to do something seriously pro-growth AND pro-social justice, and marks quite a big shift in our direction.  If you look closely.***

 

* Fair play to George for finally waking up to this.  It’s possible, though I’m sure he’d deny it, that he realised what was going on when I took him to task on his failure to keep up to date.  His colleague Rafael Behr, whom I also found wanting, has conceded that I am right.

**This is easy enough to manage at a Treasury level – simply lower capital expenditure in Departmental budgets by shifting these costs into the new investment funds, thus allowing for increased investment-focused revenue in the Departmental budget.

*** To be fair to Hopi, he’s not alone.  All the press comment I’ve seen other tha George’s has seen Balls’ speech as a simple move towards fiscal disipline, ignoring the bit about this only being on current spending, and the room that this leaves.  This, for example, is quite wrong.

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  1. oldcobbler
    January 26, 2014 at 10:10 am

    Yes, the commitment is to balance current spending only. But he also said “The next Labour government will balance the books and deliver ….. falling national debt in the next Parliament.”

    It’s not very clear what he means by falling national debt. Falling in real terms ? Falling as a % of GDP ? In any event, doesn’t this additional commitment significantly limit the scope for borrowing for capital expenditure, however defined ?

    • paulinlancs
      January 26, 2014 at 7:02 pm

      Yes, that’s well observed, but there are a number of ways this can be got round, including the old favourites around PFI for capital to hide off-balance sheet, though I’d prefer a firming up of the deal emerging with big public sector Pension funds to do this (not that dissimilar to what Cable/Osborne mooted a couple of years ago, but Labour has a chance of pulling it off). More broadly, Labour may just think that coping with being picked up on that o 2019 is a risk worth taking, as long as the actual investments are beneficial.

      Oh, and expect to see stuff like municipal bonds for capital finance e.g. through the Northern authorities plans around rail franchsing, plus there’s the regional investment banks.

      Not all of this will come off, and it’ll be messy, but enough to give us hope.

  2. January 26, 2014 at 2:17 pm

    Ummm:

    “In addition to tough prioritisation, the other consequence of fiscal conservatism is to acknowledge that social justice is advanced far better by bold reform and well-targeted investment than public spending: this applies to the public sector as well as the private. Ultimately, this will force the left to articulate a different conception of the state.”

    So yes, it’s exactly what we were talking about. Indeed we specifically talk about measure like a British investment bank.

    Besides, even if I grant you that point, (which I don’t) come on: Zero based spending review, clear fiscal target for closing deficit, OBR strengthened and reviewing policies, Yeah, we won. Not sure it’ll make too much difference though. Opinions are set now.

    • paulinlancs
      January 26, 2014 at 6:56 pm

      That’s a nice attempt at revisionism (just as Anthony has tried here before when Labour’s actual economic policy) was becoming clearer back in the summer), but it doesn’t wash; there’s nothing in what you wrote which suggest additional borrowing (or whatever strategy to go beyond the ‘current spending’ envelope is chosen. I do understand your motivations for revisionism in this way, and it’s good that you’ve come round.

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