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By Peter Hoskin
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ED Balls

Thanks
to the assiduity
of Martha Kearney
, Ed Miliband and his deficit enlargement plan are in the
news. Would he borrow more to fund his proposed VAT cut? Um, ah, well, he
wouldn’t admit it on Radio 4’s The World
at One
yesterday. But he did on
ITV’s Daybreak
this morning. “A
temporary cut in VAT, as we are proposing,” he deadpanned, “would lead to a
temporary rise in borrowing.” Now all he needs to do is admit that Labour’s
overall fiscal plans would probably mean a rise in borrowing, too.

But
forget Mr Miliband for a moment. In the past week, the most significant fiscal
claim from a Labour figure has come from Ed Balls – although it has been
reported far less extensively. It was issued during his response to last week’s
growth figures, and not just once but again and again. First, speaking to the
Beeb:

“The
government inherited an economy which was recovering, started to grow strongly.
Unemployment was falling, the deficit was coming down.”

And
in the same interview:

“In 2010,
they inherited an economy which was growing more strongly, unemployment was
falling and the deficit was coming down.”

And
then on the Daily Politics:

“[The
deficit] is down by a third because what happened in the first year of this
Government inherited from Labour when the economy was growing, unemployment was
falling and the deficit was going down.”

A-wha?!
The Coalition inherited a declining deficit? This claim requires more than a sceptical,
raised eyebrow. It requires some charts.


Erm, it doesn’t
look like it, Ed

Chart
numero uno is the one that really sinks Ed Balls’ claim. It shows the latest deficit
– aka, public sector net borrowing – figures for
New Labour’s final term in power,
in both cash terms and as a percentage of GDP. Here it is:

Graph 1

You’ll notice, the trajectory
isn’t exactly declining. The deficit rose, and kept on rising, between 1 April
2006 and 31 March 2010. This is the fiscal situation that the Coalition
inherited.

So, what
might Ed Balls have meant?

What
do I mean, “what did he mean?”? Surely Mr Balls was just flat-out lying with
his claim about the deficit? But this is the thing with the shadow chancellor:
he generally makes sure to have justification for his claims, however
misleading that justification might be. In this case, three possible explanations
spring to mind, all of them inadequate:

i) That the
deficit was forecast to fall under Alistair Darling’s plan

Oh
yes, Alistair Darling’s plan to have the deficit reduced by a half over this
Parliament – or, what Labour seldom admit, to have the structural deficit cut
by “at
least two-thirds”
over the same period. Here’s what it looked like in the Budget
of March 2010:

Graph 2

But
if Ed Balls is using these forecasts to claim that “the deficit was going down”,
then it’s a low form of deceit. After all, these forecasts were nothing more
than numbers on a page. As subsequent history has shown, forecasts can be
wildly wrong, not least when the economy is dragging along like a downcast slug.
The Treasury could have written any figures into that Budget – it doesn’t mean
they would have been true.

ii) That the
deficit fell in the fiscal year that straddled the general election

Perhaps
Mr Balls doesn’t have forecasts in mind. Perhaps he means to say that the
deficit fell in the fiscal year (2010-11) that banded across both New Labour
and the Coalition. This is what the Office for Budget Responsibility foresaw in
its very first publication, in June 2010, and it’s what the same body holds to
be the true now:

Graph 3

But
Labour can hardly claim credit for how the deficit declined from 2009-10 to
2010-11. For starters, they were only in power for one month of the fiscal year
2010-11. And even if you say that their fiscal policy held sway until George
Osborne delivered his first Budget in June 2010, the deficit was only £2.8
billion lower during those months than during the corresponding period the year
before.* It was £0.7 billion higher during the only one of those months that
Labour were actually in power.

iii) That
the deficit forecasts had fallen ahead of the election

And
this is probably the dodgiest possible justification: that the deficit forecast
for 2009-10 fell between the Pre-Budget Report that Alistair Darling delivered
in December 2009 and the Budget that he delivered in March 2010. Here’s the
relevant chart:

Graph 4

But – hark! – even though the deficit increased by less than expected in the Pre-Budget
Report, it still increased. And it increased to the tune of £70.4 billion. Few
people would describe that as the deficit “going down”.

All
of which is to say, we should keep an eye on Ed Balls and his claims about the
deficit. He’d have us all believe that the Coalition inherited a sprightly economy
and a health set of public finances. But the truth is somewhat different from
his hype.

* Update: A few commenters, below, have suggested that this fact backs up Balls's claim. But, as I say in response to Bob3142's comment, there's a reason I used the words "even if you say" in this passage. The simple fact is that Labour had left power by the time these borrowing figures were achieved, which makes it difficult for Mr Balls to argue that the Coalition inherited a deficit that was "going down". Besides, as I say above, the one month that Labour were in power during the fiscal year 2010-11 – i.e. April – borrowing was £0.7 billion higher than in the corresponding month the previous year. What's more, borrowing was actually £3.3 billion higher across the first four months of 2010 than across the same period in 2009.

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