The UK economy faces a lost decade of economic stagnation due to the ‘deepening crisis’ in the world economy, shadow chancellor Ed Balls warned the Labour Party conference today.
He called
on the government to implement a five-point plan to boost demand in the
economy, including reversing January’s VAT rise and bringing forward more
infrastructure development.Speaking in Liverpool, Balls said that a vicious circle of slow growth in the world economies will make it harder to cut the UK deficit. He argued that nine months of ‘flat-lining’ economic growth showed that the government’s plan ‘wasn’t working’.
‘The global economic crisis is deepening and our economy is badly exposed,’ he said, with markets ‘losing confidence in governments all around the world because there is no growth’.
Balls added: ‘A credible economic policy does need a plan to get the deficit down. But an economic policy can only be credible if it works, and George Osborne’s economic plan is hurting but it’s just not working.’
He also called for the government to repeat the tax on bank bonuses, which raised £3.4bn in April 2010, to pay for the construction of 25,000 affordable homes to boost growth.
He also proposed a further cut in VAT on home improvements to 5%, and a one-year national insurance tax break for small businesses that take on new employees.
‘A plan for growth now will help get the economy moving again and stop the vicious circle on the deficit,’ he said.
However, he added that this would not ‘magic the deficit away’ by itself. Labour would, before the next election, outline ‘tough fiscal rules’ to balance the budget. These would then be monitored by the Office for Budget Responsibility if Labour formed the government.
A future Labour government would also use any profit from the sale of the Treasury’s stake in nationalised banks RBS and Lloyds to pay down the national debt.
Responding to the speech, business lobby group the CBI said that some of the proposals for stimulating growth were ‘worth considering’, but they must be affordable.
CBI director general John Cridland added: ‘Given that public spending cuts are vital to eradicating the deficit and protecting our triple-A credit rating, it is right that Ed Balls commits to new fiscal rules.’
