As Shadow Chancellor Ed Balls wrapped up his speech to the Labour party conference on Monday, one thing became abundantly clear: Labour still have a trust issue when it comes to the economy.
Largely that problem comes from the fact that they were in government when the global economic crisis swept all before it in 2008, creating panic in the financial markets leading to a global recession, the nationalization of several of the UK’s largest banks, and general fear and loathing between the banks themselves and between the banks and the public at large.
Whatever Balls’ protestations that it wasn’t Labour’s fault that Lehman’s Brothers collapsed, or for that matter Royal Bank of Scotland, Lloyds Bank and Halifax -- among others -- it happened on Labour’s watch. And there was a personal element to his conference speech, he knows the public blames him for the state of the economy and he doesn’t think that’s fair.
So it was that in the context of the events of 2008 and the subsequent three years of near economic paralysis that one of the men largely held responsible for the whole sorrymess took to the stage at the Labour party conference on Monday.
Ed Balls’ speech had three main objectives: first to apologize for the last government’s economic mistakes (although not all of them), second to show that Labour had learned from those mistakes and third to tell the British people that the coalition government was making even bigger mistakes.
Apart from refusing to apologize for every mistake that Labour made -- selling Britain’s gold reserves at a discount, for example, and spending £15 billion on an IT project for the National Health Service (NHS) that still hasn’t seen the light of day -- the problem Labour has is that both the Conservative party and the Liberal Democrats have over the last 16 months done a pretty good job of controlling the narrative when it comes to the economy.
Ask most people and they will tell you that Labour just doesn’t have a convincing economic strategy. The latest Guardian/ICM opinion poll, published at the beginning of the Labour party conference on Saturday, found that only 34 percent of the public believe Labour has the right economic plans.
That’s not a particularly convincing number, and tinkering around the edges of the economy, as Ed Balls’ five point plan announced yesterday does, is unlikely to improve matters.
Balls was partly correct in his assertion that the idea that Britain was considered a safe haven by investors was nonsense. One only has to look at the fact that investors are still snapping up US 10-year Treasury notes despite the US government being stripped of its triple A credit rating by Standard & Poor’s as proof of that.
He was also correct in his argument that Britain needs a growth plan. Ask most economists, and there is a growing consensus that the coalition government needs to do more to stimulate economic growth. There are still dissenting voices as always, but there are far fewer of them compared to a year ago.
Even the government appears to have accepted this, as Business Secretary Vince Cable’s interview with the Guardian newspaper last week ahead of the Lib Dem party conference appeared to suggest.
But, as with the Labour party in 2008, the coalition finds itself in an almost impossible position.
Even if the money were available to implement the shadow chancellor’s five point plan -- and there’s no concrete evidence there is -- it doesn’t change the fact that the outlook for the global economy is pretty negative.
It doesn’t change the fact that demand in Europe and the United States has weakened, or that Chinese manufacturing output has, as a by-product of that falling demand, also weakened – for the third month in a row. Neither does it change the fact that Chinese demand for Western goods has become weaker as the second largest economy in the world, seen in many quarters as being responsible for rescuing the global economy from the brink of collapse three years ago, has begun to slow down.
Granted, the vast majority of people in Britain won’t care about these larger problems but they are the real issues that the politicians are finding themselves faced with.
Nonetheless, it is worth pointing out that the most of the government’s planned spending cuts have yet to be implemented, and the whole issue of finding growth is a little more complicated than the shadow chancellor would have most voters believe.
Britain’s economic fate is tied inexorably to that of its largest trading partner, the European Union, even if the UK is not a member of the eurozone.
So I suspect what keeps George Osborne awake at night isn’t whether a reorganization of the NHS is going to cost the government £2 billion that it need not spend, but whether Greece is going to default on its debt and bankrupt the whole of Europe.
Were that to happen, the issue of whether the coalition is cutting public spending by too much and more quickly that Labour would have done had they won the general election, wouldn’t matter.
Monday’s speech to the Labour party was an attempt by Ed Balls to help the party regain a lot of lost ground on the economy. On a personal level it was also an attempt to restore his own credibility on the same issue. But it is hard to imagine that he achieved either. He offered nothing new in terms of economic solutions.
Cutting VAT by 2.5 percent simply takes us back to the position we were in prior to the 2.5 percent increase introduced by the coalition government in January. But given the state of the economy and the lack of confidence among the public, it won’t lead to consumers flocking back to the shops so that the UK spends its way out of recession.
Taxing banker’s bonuses is something that the current government did last year so is again nothing new. Using the money to build 25,000 affordable homes is, at approximately 10 percent of what the UK actually needs in terms of house-building, far from solving the problem. It’s barely scratching the surface.
Bringing forward infrastructure investment projects as Balls suggests is unfortunately again nothing new and the coalition’s business secretary Vince Cable already hinted the government may do this anyway during his interview with the Guardian ahead of the Lib Dem party conference last week.
An immediate one-year cut in VAT to 5 percent on home improvements, repairs and maintenance seems odd to say the least, given this is unlikely to be enough to encourage families struggling to pay their energy bills this year, to pay for big ticket items such as double-glazed windows, cavity wall insulation or a new boiler.
And a one-year national insurance tax break "for every small firm which takes on extra workers, using the money left over from the government's failed national insurance rebate for new businesses" smacks of opportunism and is unlikely to work any better than the government’s own failed policy.
On the basis of the above, Labour have a lot more work to do yet to convince anyone that they can be trusted with the economy. But then the general election is still four years away and no one would have trusted George Osborne with the country’s coffers in 2006, so maybe there is still time.
The simple truth is the only way to restore economic growth is to restore confidence, neither the government’s plans nor Labour’s are doing much in this regard at present..In some respects it doesn't really matter what Labour or Ed Balls do.
For now they will have to live with the fact they have eroded the public’s trust in their ability to handle the economy. But it will return, eventually.
After all, the old maxim that it's not opposition parties that win elections but government's that lose them will give them hope. All they have to do is wait. And both Ed Balls and his leader Ed Miliband know this, that's not the problem. The problem is how long will they have to wait? And will they still be in charge?