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David Miliband Accuses U.K. Coalition of ‘Economic Masochism’

Aug. 26 (Bloomberg) -- David Miliband, favorite to win the leadership of the U.K.’s main opposition Labour Party, accused the country’s coalition government of “economic masochism” that’s putting the recovery at risk with excessive budget cuts.

Miliband, 45, whose four rivals for the job include his younger brother Ed, is first placed by bookmakers to become leader when the result is announced Sept. 25. He has the most nominations from Labour lawmakers, who make up a third of the electoral college. Last night he won the support of Jon Cruddas, who ran for the deputy leadership of the party in 2007.

While one other candidate, former Schools Secretary Ed Balls, has questioned whether there’s an urgent need for moves to reduce the country’s largest deficit since World War II, Miliband said he accepted that it must be cut. He said the pace proposed by Labour before the May 6 election, of reducing it in four years, was best. The Conservative-led coalition plans to almost eliminate the deficit by then.

“The Tories are ladling on top of the fiscal contraction we were proposing an extra 32 billion pounds ($50 billion) of spending cuts and 8 billion pounds of tax rises,” Miliband said in an interview in London last night. “That’s economically inept and socially divisive.”

Miliband said forward indicators of the economy were now “turning in the wrong direction” as a result of Chancellor George Osborne’s emergency budget in July. “The government need to be taken to task for the risks they’re running with the economy and the lives of the British people,” Miliband said.

Slowing Growth

The economy expanded 1.1 percent in the second quarter, the fastest pace in four years. Still, growth in services, manufacturing and construction all slowed for a second month in July, according to surveys by the Chartered Institute of Purchasing and Supply and Markit Economics Ltd.

Benefit cuts announced in the budget are “regressive” and will hit the poorest households hardest, the Institute for Fiscal Studies said yesterday.

In a speech to supporters last night, Miliband, the former foreign secretary, attacked some behavior in the financial sector. “I stand for a moral economy,” he said. “People should not be playing games with other people’s money in the welfare state, but nor should they do so with our pensions on the trading floor of the City.”

Asked afterward whether he felt pension funds had been especially reckless, Miliband said he wanted to see “socially useful finance.”

“I’m very proud that we’ve got a financial-services sector that is the world capital,” he said. “I think we’ve got to get it working more closely with the rest of British industry and the economy as well.”

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net; Kitty Donaldson in London at kdonaldson1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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