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Ed Balls sets out Labour plan to regain trust of voters

Shadow chancellor announces five-point growth package and attacks coalition for ‘piling austerity upon austerity’

The shadow chancellor, Ed Balls, has set out a five-point growth package, with measures including a cut in VAT to 5% for home improvements and a one-year national insurance holiday for small firms taking on extra workers.

He accused the coalition government of piling austerity on austerity, and said its “reckless, ideological” plan was hurting the economy.

As part of his package, Balls also reaffirmed previous proposals to reverse January’s VAT rise from 17.5% to 20% and promised a repeat of this year’s bankers’ bonus tax, using the money to guarantee 100,000 jobs for young people and building 25,000 affordable homes.

In the fifth part of his plan, he said the government should bring forward genuine long-term investment projects covering schools, roads and transport, but did not put a figure on how much capital spending should be invested.

There was no costing for his overall proposals, but his aides said the targeted VAT cut for the housing industry would cost between £100m and £500m, pointing to similar targeted VAT cuts being tried in France and Sweden. The national insurance holiday for small businesses taking on extra staff would be funded from money left over from the government’s failed national insurance rebate fund, set up by George Osborne to encourage businesses to hire additional workers. Ministers had originally set aside £1bn for this fund. The Conservatives claimed the overall cost of the package was £20bn, with the economic secretary to the Treasury, Justine Greening, saying Balls’s speech showed he remained dangerously addicted to debt.

But the Federation of Small Businesses welcomed the proposals, and the CBI said the ideas were worth considering if they were affordable.

In interviews Balls was brutally frank about how Labour had lost the electorate’s trust on the economy and said voters needed to regain trust “in our credibility and our ability to make tough decisions”.

He also made a series of admissions about Labour mistakes in government and promised he would set up tough fiscal rules to cut the current deficit, monitored by the Office for Budget Responsibility. He conceded he could not promise to reverse every Tory spending cut, and said he deeply regretted the failure to regulate the banks properly.

In a shift of tone, reflecting Labour’s current low credibility on the economy, he said: “No matter how much we dislike particular Tory spending cuts or tax rises we cannot make promises now to reverse them.” He added: “I won’t do that and neither will any of my shadow cabinet colleagues.” He said: “We still know today what we recognised 17 years ago – we will never have the credibility unless we have the discipline and strength to take tough decisions.” He said he “always knew that a reputation for credibility and a platform for stability were the essential preconditions for achieving [Labour's] goals”.

He promised discipline in pay, adding: “We cannot duck difficult decisions on pensions,” and said that under Labour pension contributions and the retirement age would be rising too.

But the bulk of his speech was an attack on the government for continuing to cut at a time when unemployment was rising and growth faltering. Plan A was not working, he said. But critics will claim that any British stimulus will have little impact if the world economy continues to slide in face of the eurozone crisis.

Balls ridiculed the idea that Britain was a safe haven and said he did not believe there was any risk of retribution from bond markets if the government spent more. But he added he did not know what the debt levels will have reached by the end of November when third quarter UK growth figures are published.Underlining the scale of the crisis, the shadow chancellor said: “These are the darkest, most dangerous times for the global economy in my lifetime. Our country – the whole of the world – is facing a threat that most of us only have ever read about in the history books – a lost decade of economic stagnation.

“This is not a crisis of debt as the government claims, which can be solved country by country, by austerity, cuts and retrenchment, but truly a global growth crisis which is deepening and becoming more dangerous by the day.

“The world must learn the lessons of the 30s,” he added. “There is no credibility [in] piling austerity on austerity, tax rise on tax rise, cut upon cut in the eventual hope that it will work when the evidence is pointing the other way.”

He claimed Labour had shown discipline in office and rejected suggestions that Gordon Brown’s Treasury had spent too heavily in advance of the banking crash in 2008.

Balls said: “Don’t let anyone tell you that a Labour government was profligate with public money. When we went into the crisis with lower national debt than we inherited in 1997, and lower than America, France, Germany and Japan. Don’t let anyone say it was the public spending on public services here in Britain which caused the global financial crisis.” But he added: “We did not get everything right, we made mistakes.”

The list of Labour errors offered by Balls included “the 75p pension rise, we did not do enough to get all employers to train, we should have adopted tougher controls on migration from eastern Europe, we did not spend every pound of public money well. And yes, we did not regulate the banks toughly enough and stop their gross irresponsibility.”

All these apologies have been made before either by Tony Blair, Brown or Balls himself. Blair apologised for the 75p pension rise a decade ago.

John Cridland, the CBI director general, said: “Labour has form spending money it does not really have.”

He questioned whether the five-point plan was affordable, adding the reversal of the VAT rise could cost billions. But he welcomed proposals to help the young unemployed. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds