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Sunday, January 26, 2014

Ed Balls and Labour's credibility gap

I am just looking at a chart reflecting the outcome of an opinion poll which shows that at this particular point in time the public blame Labour more than any other party for the cost of living crisis.

Of course that may change and we should not use it as an excuse to continue to help people through some very difficult times, but it does show the hurdles Labour still have to jump before they can regain credibility on the economy.

The point is that Labour did overspend before the 2008 crash as this graph shows:

By 2006 Labour had already very deliberately overspent by more than the total cash cost of the bank bail out. They were unprepared for the inevitable shocks. Until recently Ed Balls had refused to acknowledge the existence of any pre-2008 deficit. The Spectator nails the spin:

Let’s start with Balls’ misquoting of his interview with Andrew Mar from January 2011. Here’s what he said then:
Andrew Marr: ‘It is true to say, is it not, that in the run-up to the financial crisis, Britain was running the worst structural deficit — that’s the extra beyond the cycle — of any of the G7 countries?’
Ed Balls: ‘I don’t think we had a structural deficit at all in that period.’
But today, Balls said:
‘His question to me, which you mustn’t take out of context is: “Should you have acted differently in 2007?” Well at the time, the answer is no. In retrospect, ‘cos we now know the world was different, of course there was a structural deficit.’
And what about Balls’ claim that the government didn’t know ‘at the time’ that it was running a structural deficit? Here’s what he said today:
‘Let’s be clear. The charge is, in 2006-07, Labour was being irresponsible given the figures available. The answer is that at that time, given the figures available, there was not a structural deficit on the current account. In retrospect, of course there was. I’ve never denied that.’
So I took a look at the figures available in 2007, and guess what they show? That’s right: a structural deficit.

Ed Balls answer yesterday was to say he will reintroduce the 50p tax rate for those earning more than £150,000 a year, which I support and that he will aim to run a budget surplus by the end of the next Parliament.

It is worth noting at this point that even if a 50p tax rate did bring in more money, which is disputed by some, it will still only cover approximately 6% of the yearly deficit. To run a budget surplus Ed Balls would need to increase massively the cuts that form the centre-piece of the austerity programme currently being run by the UK Coalition. That reality is going to make Labour's negative campaigning very difficult in the run-up to the 2015 General Election.

The UK Coalition Government has a good record on seeking to help the worse off cope with the cost of living crisis. 1.1 million low-paid Welsh workers are now paying £600 less in tax than they were in 2010 and that will be £700 less by April. We have taken 130,000 workers in Wales out of tax altogether.

Pensions are up £12.50 a week, including the biggest ever pension rise in 2012. The basis state pension will go up another £2.95 a week in April. And petrol is now 13p per litre cheaper than it would have been under Labour's plans. Thanks to the freezing of fuel duty the average family has saved £187 per year.

What is more, despite cutting the top rate of tax to 45p, a millionaire will pay £381,000 more in income tax over the five years from 2010 to 2015 than they did under Labour from 2005 to 2010. Stamp duty has gone up so that an extra £40,000 will be payable on a £2 million house, whilst the top rate of Capital Gains Tax is now 28%. It was 18% under Labour.

Interestingly, Ed Ball's resolve to bring back the 50p tax rate does not have the full support of his own party. According to the Telegraph, Lord Myners, who served as City minister in Gordon Brown’s government, ridiculed the policy, saying that the economics behind it would not even get “a pass at GCSE”.

Labour's message is being weakened by their own record and the lack of credibility suffered by their chief economics spokesperson.
The Office of Budget Responsibility and the Institute for Fiscal Studies are uncertain that a 5p increase in the top rate of tax will generate significant income. See e.g. http://www.telegraph.co.uk/news/politics/labour/10596856/IFS-downplays-importance-of-Labours-50p-tax-rate-pledge.html.
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