The economic tide has turned, but Labour won't admit it

Keynesians will say that, odd as it sounds, it makes sense to borrow more now


The Conservatives are sure that this is a "tidal" moment, as one No 10 insider put it last week. They think that, finally, the weight of water has turned and is breaking Ed Miliband's flimsy defences. The dyke cracked on Friday, when my colleague Andrew Grice reported that Ed Miliband is preparing to "bet the house" by promising at the next election to outspend the Tories.

Labour's rebuttal was unconvincing. "That is not our policy; it's not our position," said Ed Balls. He said it was wrong to suggest that "we will decide now", when "we don't know how bad the economy is going to be then". But that wasn't what The Independent reported. Miliband and Balls must have a view about what they would do, and the importance of Grice's report is that their view is – unless the economy changes dramatically – that they will go into the election promising to borrow more than the Tories. Miliband is certainly capable of great indecision, which was the unintended implication of Balls's denial, but I think Miliband is "minded" to go one way. On this, his dreamworld idealism coincides with Balls's confidence in his own judgement as an economist.

Normally, I would agree with David Cameron's advisers that Miliband and Balls are in the middle of making a serious mistake. I do not know what Tony Blair said to Ed Miliband when they met last week for their polite "showdown" after the former prime minister's article in the New Statesman. That was the article in which Blair urged his successor not to "tack to the left on tax and spending". We Blairites tend to favour sound money. One of the reasons I liked Bill Clinton was that he balanced the budget. One of the times I felt proud of Gordon Brown was when he used the £22bn from the 3G auction in 2000 to pay off some of the national debt.

On the other hand, we fiscally responsible types also have to show a little humility. On our world view, Labour should have done worse at the last election than it did. I mean, 29.7 per cent of the vote was not a great result: a mere 1.4 points higher than the share won by Michael Foot in 1983. But it was enough, the way the votes were distributed, to deny the Conservatives a majority. Which suggests that the voters, far from worrying about borrowing, were more alarmed by the Tory plan to cut public spending so deeply.

Before last week, I thought that Labour's plan was to accept Tory spending plans but not to say so until about January 2015. This would allow them to oppose all they like now, but to pose as fiscally responsible in the election campaign. I thought that Miliband might make two or three symbolic spending promises, possibly on student finance and building houses, but that, crucially, these would be funded. That is, they would be paid for by devices such as the mansion tax.

That might have been the plan at one stage. But it assumed that, by the time of the election, the economy would be growing at a reasonable pace. Instead, it is quite possible that growth will still be sluggish in 18 months' time, which is when the important decisions will have to be finalised. In which case the serious Keynesian economists will still be saying that, although it sounds odd, it makes sense to borrow more now to borrow less in the long run.

Lord Ashcroft, the Conservative who pays for a lot of opinion polling, wrote last week: "After nearly 50 years in business I know a tough sell when I see one."

But I can see how Miliband and Balls might convince themselves that outspending the Tories is an election-winning proposition. Miliband thinks he knows better than Blair, and Blair, ever tactful, might not have done enough in their private chats to disabuse him. Blair might even have told him what he has said to others, which is that he accepts that leaders would come along after him and Gordon Brown who would dismiss what they did as old hat.

Balls, meanwhile, thinks of himself as the lone voice who held out against adopting the euro and who has been vindicated by its crisis. He also thinks that he has won the argument about when to cut the deficit. He caused knowing Blairite eyebrows to be raised in the leadership campaign in 2010, when he said that even Alistair Darling's "less far and less fast" plan was too austere. Balls thinks that the failure of growth to pick up since then makes his case – although there are many other possible causes, including the eurozone crisis.

So I think Miliband and Balls have made their decision, because of the need to respond in June to George Osborne's spending review, which will set the plans for 2015-16 – that is, the financial year that includes the election and most of the year afterwards. They think they can make the case for easing off the pace of deficit-cutting. They may even be right as a matter of macro-economics.

You have to wonder, though, whether Labour's economic credibility is too damaged by association with the financial crash. They will be attacked, in the pitiless light of an election campaign, as returning to the tax, spend and borrow bad old Labour days.;

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Senior Marketing Executive- City of London, Old Street

£40000 - £43000 per annum + benefits: Ashdown Group: Senior Marketing Executiv...

Ashdown Group: Marketing Manager

£40000 - £43000 per annum + benefits: Ashdown Group: An international organisa...

Ashdown Group: Internal Recruiter -Rugby, Warwickshire

£25000 - £30000 per annum: Ashdown Group: Internal Recruiter -Rugby, Warwicksh...

Ashdown Group: Marketing Manager/Marketing Controller (Financial Services)

£70000 - £75000 per annum + benefits: Ashdown Group: Marketing Manager/Marketi...

Day In a Page

Read Next
The traditional Boxing Day hunt in Lacock  

For foxes' sake: Don't let the bloody tradition of the Boxing Day hunt return

Mimi Bekhechi

Letter from the Deputy Editor: i’s Review of the Year

Andrew Webster
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all