23 April 2015

Balls says IFS wrong not to assume Labour wants a surplus – but how would it be achieved?

The shadow chancellor emphasises growth while the IFS emphasises austerity.

(Photo By Ed Balls at the launch of Labour's "NHS Week" earlier this week in London. Photograph: Getty Images.)

Most of the sections on Labour in today’s IFS report focus on how the party’s fiscal plans are more flexible than its austere rhetoric suggests. It notes that the party would only need “relatively small cuts” to unprotected departments to balance the current deficit and that it could outspend the supposedly anti-austerity SNP by 2018-19.

But in his reponse to the report, Ed Balls argues that the IFS has overstated Labour’s room for manoeuvre. He said: “[The] IFS’ numbers wrongly assume that Labour will get the current budget only into balance. Our manifesto pledge is to get the current budget not only into balance but into surplus as soon as possible in the next Parliament. How big that surplus will be, and how quickly we can achieve that in the next Parliament, will depend on what happens to wages and the economy.”

A tiny surplus of £100m (excluding capital investment) would of course still be a surplus. But Balls’s words suggest that he aspires to a far larger figure than that. The IFS did note that Labour might want “a lower level of borrowing” but added that “if they did, it would require them to introduce more tax increases and/or spending cuts” than set out. But while they focus on fiscal measures, Balls emphasises the performance of the economy. The shadow chancellor hopes that by boosting jobs and wages (for instance through its jobs guarantee programme and its £8 minimum wage pledge) Labour would be able to stimulate more growth than the Conservatives. He is also aware (as George Osborne learned to his cost) of how quickly changes in the economy can blow deficit reduction off course. Better to be flexible now than to capitulate later.

In response, the SNP, which was accused by the IFS of misleading anti-austerity rhetoric, has attacked Labour for planning to “cut more” than thought. Finance Secretary John Swinney said: “Ed Miliband is claiming the IFS is wrong and that Labour would cut more than the IFS suggest to create a surplus – exposing Scottish Labour’s attempts to pretend they are opposed to austerity.” As Balls’s words make clear, his hope is that a significant surplus would actually be achieved through greater growth. But that Labour has knowingly exposed itself to this attack shows that the party believes combating its profligate reputation is a greater priority than countering the “anti-austerity” left.