Saturday 14 January 2012

Ed Balls: 'Labour will keep all these cuts'

Rather than opposing the Tory-led government, Ed Balls is picking a fight with trade unions. Instead of focusing energies on stopping cuts to welfare, pensions, pay and public services, the shadow chancellor is telling us to learn to live with it.

An article in today’s Guardian begins:

‘Ed Balls, the shadow chancellor, has moved to challenge accusations that Labour is not credible on the economy by telling the public sector unions that he endorses George Osborne's public sector pay freeze until the end of the parliament, and that he accepts every spending cut being imposed by the Conservatives.’

Green MP Caroline Lucas described it as 'an odd relaunch - one that makes them even less distinguishable from the Tories'. Left-wing Labour MP John McDonnell commented that 'for Miliband and Balls economic credibility means accepting Tory cuts and pay freezes. To me it sounds like capitulation to neoliberalism.'

At a time when the union movement is split over pensions – with the biggest public sector union Unison largely accepting the government’s terms for negotiations, while many other unions look to further strike action – this intervention by the Labour front bench is a clear message to accept the government’s ‘heads of agreement’. But it goes much further than that – and will trouble even the most painfully moderate of Unison or TUC moderates.

In the last two weeks there has been a series of indications that Labour’s leadership is tacking right and emphasising ‘realism’ (code for conservatism) about the economy. Liam Byrne’s provocative remarks about supposed ‘benefits dependency’ were the most outrageous, but there’s also been shadow defence secretary Jim Murphy stressing the need for cuts and Ed Miliband’s own talk about ‘accepting’ austerity this week.

These latest comments from Balls are perhaps the most important yet, offering real substance to Labour’s support for cuts from an authoritative figure. He refers, for example, to forthcoming 'tough decisions' on welfare from Byrne, making it clear the work and pensions secretary wasn't simply expressing his own maverick worldview with recent remarks.

Many Labour activists have invested hopes in the shadow chancellor, seeing him as marginally to the left of the party leader and standing for an alternative to more of the same old Blairism associated with the previous Labour governments. He has just severely dented any such illusions.

The central issue is public sector pay. Balls argues:

‘There is no way we should be arguing for higher pay when the choice is between higher pay and bringing unemployment down. I know there will be some people in the trade union movement and the Labour party who will think of course Labour has got to oppose that pay restraint in 2014 and 2015. That is something we cannot do, should not do and will not do.’

It is hard to be more emphatic than that: Labour now openly supports the government’s public sector pay restraint for this parliament. There is a pay freeze for the next 2 years, with average annual rises of just 1% planned for 2014 and 2015. The cumulative effect, when inflation is accounted for, is a substantial pay cut for millions of public sector workers.

It gets worse. Balls states:

"My starting point is, I am afraid, we are going to have keep all these cuts. There is a big squeeze happening on budgets across the piece... At this stage, we can make no commitments to reverse any of that, on spending or on tax. So I am being absolutely clear about that."

The assumption has tended to be that Labour, led by Miliband and Balls, would deliver cuts in services, pay and pensions but significantly slower and shallower, combined with a strategy for creating jobs and thus stimulating the economy. That would be a deeply flawed approach, but clearly preferable to the current coalition policy. The shadow chancellor is now insisting on acceptance, however reluctantly, of rapid and deep cuts.

It is false to juxtapose job creation to increasing pay for millions of working people. Reducing unemployment and increasing pay are both strategies that put more money in people’s pockets, enabling greater consumer spending and helping revitalise the economy. The current pay freeze is, like high unemployment, disastrous for prospects of economic recovery.

As the European crisis deepens, it is obvious the 'tough medicine' of cuts and privatisation is not working. Now more than ever, we need to articulate alternatives to the failed economics of George Osborne - and his European counterparts who are dedicated to the same destructive approach. The Labour leadership’s capitulation to a mythical ‘acceptance’ of austerity is the wrong approach in every way.



  1. This has got to be the defining economic argument of our time and i always find the comment on it so uninforming and unimaginative :-( Is this because most people don't know enough about economics?)

    So Alex, thanks for the post i think it raises the interesting point of how strange mimicry is as an opposition strategy but towards the end of it you say

    "Reducing unemployment and increasing pay are both strategies that put more money in people’s pockets, enabling greater consumer spending and helping revitalise the economy."

    I agree that unemployment is the symptom of a monster problem that must be solved rather than ignored but your point about consumer spending presumably driving us out of recession- huh? I guess that’s Keynesian logic right? but if that money is just going into the coffers of mega corporations how would that benefit the British economy? And surely consumer spending is part of our economic problem. In China no one has personal debt. In the west we have replaced wage increases with it!

    So I (like everybody else, I guess) don't know much about economics but if cutting seems to cause social problems that will eventually undermine the goal of the exercise and not cutting is relying on the power of consumer spending to power us out of a 'downturn', (the same consumer spending that probably knocks us further down the road to sup-prime chaos) then what are we supposed to do?

    My lecturer (in politics) at university said he was 'agnostic' on the cuts!?

    How can we be 'agnostic' on this debate!? The reactionary left seems to not take things into account (consumer spending), the reactionary right also seems to not take things into account (society!!) what kind of sense is the layperson supposed to make of all this besides the conclusion that we're probably doomed and the BRICs are laughing all the way to the bank?

    btw. I'm a big fan of your blog. Thanks

  2. The crucial point here is that the economy - at a time of recession - needs more demand in the system. But cuts inevitably mean a reduction in demand, due to a combination of suppressing pay and the fact more people are without jobs. Less money is being invested, less is being spent - and we end up in a vicious downward spiral.

    Jobs are needed, but so is higher pay. There's a political element here too. The government uses high unemployment precisely to discipline working people - everyone's encouraged to feel grateful simply for having a job at all, and insecurity equals a reluctance to fight for better pay. So rising unemployment and pay freezes can - for political reasons as much as anything - be combined. Meanwhile, the rich remain unaffected and we see inequality increase.

    An alternative to cuts therefore requires a number of things: investing in sustainable jobs, refusing the demands for more and more cuts, taxing the rich, and - even more radically - having a moratorium on the debt across Europe. As the international crisis deepens, this last one is becoming more urgent.