Anthony Painter

The economic strategy of both Ed Balls and George Osborne are inspired by their reading of economic history. George Osborne is looking back to the 1990s when fiscal retrenchment, exports, capital investment and consumer expenditure led an economic recovery from recession. Ed Balls is looking to periods when failure of Government to support the economy with fiscal expansion led to economic disaster- 1925, 1930, 1949, 1967, 1981, and 1990. They draw equal and opposite conclusions.

Balls v Osborne is a economic death match. Only one can win and if you lose then you are politically broke. This is the argument of my LabourList column this week. Just because George Osborne has decided to bet all his chips on one strategy, it doesn’t mean that Labour should do so also. It is just not sensible economics or politics to go for this win or lose approach. If Labour goes down that road it will be left in the invidious position of secretly hoping for a economic downturn- it would be politically broke if there was a recovery. That’s exactly what George Osborne wants. Labour would be advised not to play his game. Even if the bet comes off, Labour would be tarnished in the process as the doom-mongers of British politics. And the outcome is anything but certain (and, for the record, OBR forecasts show a much greater chance of the recovery following George Osborne’s rather than Ed Balls’ path.)

No-one can predict the direction of the economy over the next few years with any degree of certainty. In essence, both have a point. The economy does still need fiscal support and a high and continuing deficit does pose a different but by no means insignificant risk. Both extend their position to its logical- and extreme- conclusion. And that is a mistake.

George Osborne has taken an enormous risk with the UK economy apparently with no plan B. For his plans to succeed they require three years of export and private sector investment growth at a level not seen since the mid-1960s. And this at a time when our main export economy is stagnant and the pound has appreciated again. He may get lucky and Labour should always remember that- the UK’s is still an open and dynamic economy that could respond energetically in the next few years. The issue is not *will* happen. The issue is the risk associated with that.

Ed Balls in his Bloomberg speech last week not only took the historical lessons- and these can be contested relatively easily- but turned the risk that George Osborne’s growth projections will be missed into a certainty. On that basis he proposed an equally risky economic strategy as a response. Should the tide turn and the UK had not demonstrated that it was serious about tackling the deficit then that would be a dire situation to be in.

A better approach for Labour is to demonstrate that it is serious about tackling the deficit at the earliest possible moment that didn’t jeopardise the recovery. Let George Osborne take the risk. And for the Chancellor, he’d be advised to contemplate a Plan B. Just in case.