UK Politics

Balls says Labour 'vindicated' by economic recovery

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Media captionEd Balls: "The coalition must act quickly to reverse George Osborne's cuts "

The UK's better than expected growth figures are vindication of Labour's economic policy, Ed Balls has claimed.

The Labour leadership contender said the 1.2% expansion in the second quarter of 2010 was down to money Labour had pumped into the economy.

And - in a break with the policy in which his party fought the election - he said halving the deficit in four years was "too ambitious".

He was speaking as the five-way leadership race reached its climax.

With ballots due to be sent out to party members and trade unionists next week, the economy looks set to be the key battleground, as Mr Balls re-opened the general election debate about how best to deal with Britain's record budget deficit.

Speaking at an event in central London, Mr Balls, who is trailing Miliband brothers Ed and David in terms of declared support from Labour MPs and unions, argued for a slowing down in the pace at which the deficit is being reduced, to avoid a double-dip recession.

"Going forward, I think even halving the deficit in four years was too ambitious.

"That is a difference from the strategy we had in the run-up to the election.

"I think to do a slower and steadier pace going forward is actually more likely to support jobs and growth, more likely to boost financial market confidence and likely to be fairer as well."

The deficit-cutting plan was drawn up by former Chancellor Alastair Darling in 2009 and backed by Gordon Brown. Although he supported it at the time, Mr Balls was believed to have doubts about it.

'Vindication'

The shadow education secretary said Friday's stronger economic data were "absolutely determined" by what Labour had done in office to combat the impact of the recession.

"Those figures today show that Labour's strategy was working," he said. "They don't say anything at all about what is going to happen in the next period."

Labour's efforts to support the economy in 2009 by increasing public spending, had limited the rise in unemployment and restored growth more quickly, he said and although he said he did not want to make predictions, he suggested the growth figures for the next quarter would be more "sluggish".

But he added: "The question is whether that pattern - which I think is a vindication of what we were doing in government - continues or goes into reverse."

Since the coalition came to office, he said its approach had been "not to spend but to cut...not to support jobs but to cut spending on jobs" and his "fear" was this could stop the recovery in its tracks.

"If you see US and Europe slowing in the next six months, combined with fiscal retrenchment [in the UK], means we could see more sluggish growth."

Mr Balls used the speech in the City of London to warn against cutting the deficit too aggressively, saying it was "wrong-headed" and would result in "heartless" cuts.

The coalition says Labour left the economy in a mess and a faster deficit reduction programme is needed to cut future debt repayments and ensure the UK does not have its international credit rating cut.

By acting now, the government says, interest rates can be kept lower than would be the case under Labour plans, so encouraging private sector growth.

Leadership front runner David Miliband has defended the policy of halving the deficit in four years as the "right" approach while attacking the coalition for wanting to go further in cutting spending.

'Lost its way'

Speaking on Friday, his brother Ed said he was the only candidate in the election who truly understood the scale of the change facing Labour if it was to get back in power.

Labour had "lost its way" ideologically, he said in a speech in London, becoming too "casual" about issues such as state encroachment on individual freedoms and excessive pay in the private sector.

Amid signs of tension between the two about who the party should be appealing to, he said there should be no "false choices" between the interests of middle and lower income groups.

"The choice is whether we recognise that it is all parts of the electorate that we need to win back not just one," he said.

Shadow health secretary Andy Burnham, who is thought likely to be battling it out with Mr Balls and Diane Abbott for third place in the contest, has called for radical reform of the tax system, based around the introduction of a "land value tax".

By levying an annual tax on the rental value of land, the government could scrap stamp duty and make it easier for young people to get onto the housing ladder.

In an article for the Guardian, he said David Miliband was "wrong" to equate radical tax reforms with a retreat to the "comfort zone" of opposition - akin to where the party found itself in the 1980s.