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Ed Balls speech: the good, the bad and the ugly

    Today, Ed Balls made a speech to the Labour party conference in Brighton, which (given his brief) unsurprisingly focused on the economy. Many of the “big” announcements had already been trailed over the weekend and this morning, and most other policy commitments re-iterated from previous announcements. But I think it is still worth setting out some of the good, bad and ugly segments of the speech.

    First, the good bits:

    • Although he still argues for a slight loosening of capital spending, the Chancellor has largely abandoned his overall critique of the Government’s deficit reduction policy, looking forwards anyway. There was no talk of “Plan B” or “recessions made in Downing Street”. Talk which helped fuel left-wing fantasies of borrowing more to borrow less have thus been abandoned. About time.
    • The Shadow Chancellor promised that Coalition current spending plans for 2015/16 would be his “starting point” and that any deviation from these would entail fully-funded plans such that overall borrowing was no higher than the Coalition. The eagle-eyed among you will notice this means he could increase taxes and spending for that year. But given we are already forecast to be borrowing over £90 billion in that year, we can be grateful that Ed Balls has at least committed not to borrow more.
    • Balls continues to promise a zero-based review of government spending, which would be extremely welcome. Though he appears to have ruled out using any identified savings to cut spending and taxes, by instead talking about switching resources to “Labour priorities”.
    • There was a section of the speech expressing doubt about the government’s guarantee of mortgages and the potential effect on house prices.
    • Ed Balls seems to recognise that social security spending needs to be brought down and this means reviewing eligibility for certain benefits. He wants to means-test the winter fuel allowance, for example, but not in terms of saving significant sums. More noticeable were his commitments not to reverse the child benefit means-testing, to cap structural social security spending, to maintain the benefits cap (albeit to adapt it to make it more responsive to housing costs) and to continue to review state retirement ages.
    • It was good to see the Shadow Chancellor commit to using the money from RBS and Lloyds re-privatisation to reduce the national debt.
    • Likewise, it was good that Balls was asking whether HS2 was the best means of spending £50 billion of taxpayer money.

    The bad bits:

    • The shadow Chancellor still insists that the 50p tax rate cut to 45p is a £3 billion tax cut, despite evidence from HMRC and income tax revenues showing that there were huge behavioural effects from the 50p rate.
    • Ed Balls seemed to imply that Labour could get the budget back to balance in this next Parliament mainly by cutting out waste. Either he thinks there is tonnes of waste in government, or he is just unwilling to spell out other areas where Labour might adjust fiscal policy in the future. But if the former, is he saying the waste has just appeared in the last three years? Or that a big chunk of the 62% real increase in expenditure by Government under the last Labour government was waste?
    • Balls said a future Labour government would repeal the Coalition’s healthcare reforms. There were no caveats. That means another re-organisation of the NHS, irrespective of whether outcomes have improved.
    • The Shadow Chancellor said Labour “won’t pay for new free schools in areas where there are excess school places, while parents in other areas are struggling to get their children into a local school”. This means in reality that lots of potential benefits associated with competition from new free schools will be lost.
    • Ed Balls announced an extra 10 hours a week “free” childcare for parents of 3 and 4 year olds, paid for by extending the bank levy. The last Labour government over-regulated the childcare industry, driving up costs to parents. Now, rather than deregulating to boost the supply of child minders, they seem to want to just further subsidise it. This will not improve the affordability of childcare. It will make it more expensive, without encouraging new providers.  This is especially damaging given the funding comes from a bank levy, which is a populist measure which will reduce bank lending.
    • The Shadow Chancellor said that he wanted to increase the value of the minimum wage. Though this might not have a huge effect on employment, it will freeze the some of the most low-skilled and young from the labour market altogether.

    The ugly:

    • The Labour party is committed to abolishing the so-called “bedroom tax”. Not delaying it, or concerning themselves with specific cases. But opposing it. Given that the last Government introduced similar reforms for the private rented sector, and the implication seems to be that it is the job of taxpayers to fund people living in social houses bigger than they need, this seems a bizarre principle.
    • Ed Balls wants the OBR to audit Labour’s tax and spending plans. Sounds sensible and reasonable, but a) this would mean changing the remit of the OBR and puts the onus on the parties to provide much more detailed planned spending and tax measures than they are usually willing to provide in manifestoes b) it would be perceived as them endorsing different policy packages, especially when the public finances are still in a poor state c) would this be restricted to running Labour and Tory policy costs? Or would the OBR then be obliged to do other parties, such as the Greens, UKIP or the Liberal Democrats? d) Given the IFS does this sort of analysis already, should taxpayers have to pay for parties to have this sort of work done?
    • The Shadow Chancellor again explained how he wanted to introduce a mansion tax to fund a 10p starting rate of income tax. I’ve written about why this is bad policy here and here.
    • Finally, that drawn-out “Who wants to be a Millionaire” analogy. Awful.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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