Every time that Labour attacks George Osborne for planning to borrow £245bn more than planned, the Tory rejoinder comes, “but you would borrow even more!” Asked today on The World At One whether he would do so, Ed Miliband replied: “I don’t accept that borrowing would be higher under a Labour government”, arguing that higher growth would mean a lower deficit. But he later added that borrowing would be lower “in the medium term”, leaving open the question of whether it would be lower in the short term.
The answer, of course, is that the deficit would likely be higher in the short term as Labour borrows to fund its five-point stimulus for jobs and growth. But when pressed by Martha Kearney on how the party would meet the £12.5bn cost of a temporary cut in VAT (one of the five policies), Miliband dodged the question and replied: “the whole point about a VAT cut is that it would get growth moving and if you get growth moving you get more tax revenue in”. On that point, he is almost certainly correct, which is why Labour can reasonably claim that borrowing would be lower in the medium term. But that doesn’t resolve the issue of borrowing in the short-term.
At some point before the election, and sooner rather than later, Labour will need to decide whether it is prepared to make the explicit Keynesian case for a deficit-financed stimulus. Without declaring that it would borrow for growth (and explaining why), the party merely reinforces the impression that borrowing is always and everywhere an economic ill.
In a radio interview, Miliband can just about get away with an answer as evasive as the one he supplied. But in an election debate with David Cameron, he will not be able to dodge the question of whether Labour would borrow more in the short-term. In which case, Miliband and Ed Balls should prepare a convincing answer now.
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