Ed Balls: 'Lost decade' for economy looms if George Osborne fails to act
The British economy risks being plunged into a lost decade of Japanese-style stagnation unless the government tempers its austerity drive with a plan for jobs and growth, Ed Balls warns today.
In an interview with the Observer the shadow chancellor says that without a change of direction from the chancellor, George Osborne, the economy could dip in and out of recession for a "very long time", as Japan's did from the early 1990s.
After a week in which official figures showed the UK had sunk back into recession, Balls says the public deserves to hear the economic policy alternatives and calls on Osborne to join him in a live TV debate.
"There are big choices to be made about how we get out of this very deep hole," he says. "We have to find a way to talk this through and try to get to a better place."
His analysis is striking because since becoming shadow chancellor last year Balls has been cautious about talking of a return to recession, while insisting that Osborne has been cutting spending too far and fast.
It comes as a poll suggests the public is feeling increasingly anxious. Two out of five people believe the economy will worsen over the next year and their incomes will fall, according to TNS-BMRB, while more than a third of employed people (37%) say their job feels less secure in April 2012, compared with 36% in August 2011.
Balls warns that with the UK's key markets in the eurozone sliding into recession, and the Bank of England left with little room for manoeuvre after slashing interest rates and injecting £325bn into the economy through quantitative easing, the UK faces a prolonged period of anaemic growth.
"I am not predicting years of recession although we could well be in for a long 'lost decade' style period of slow growth and high unemployment," he says. The risk is that "the economy continues to underperform and, Japanese-style, it grows below trend and therefore unemployment stays high. That sort of stagnation is consistent with a bit of growth, but not enough, that could go on for a very long time," he adds. "I don't see what it is which gets an economy out of [trouble] now when you have got such a fiscal clampdown."
Balls, who was accused by ministers of talking down the economy, says he is owed an apology by David Cameron and Osborne. "The government said we have got a plan, it will work, we will secure recovery, we will get unemployment down, we will get the deficit under control and on every one of those measures it has failed.
"In politics and especially in economics and politics, when things start to go wrong, the sooner you admit it the better … The thing that frustrates me is that for a year is how arrogantly George Osborne has said, 'No my plan will work – you are wrong', and we are a year on and it is now too late."
He concedes that by making austerity the centrepiece of his economic strategy, and warning that any deviation would be punished by financial markets, Osborne has made it all but impossible to change course.
Labour has been pressing for a five-point plan for jobs and growth, including a temporary cut in VAT to boost demand, measures to tackle youth unemployment funded by a tax on bank bonuses, and national insurance cuts for firms taking on staff.Resources: Ed Balls: 'Lost decade' for economy looms if George Osborne fails to act
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