Oct. 13 (Bloomberg) -- Britain’s opposition Labour Party called on David Cameron’s government to draw up an emergency budget to invest in job creation and slow the pace of deficit reduction amid rising unemployment and a stagnant economy.
Labour leader Ed Miliband and his Treasury spokesman, Ed Balls, will tour the country making the case for a cut in value-added tax, a levy on sales, and tax breaks for companies that take on more staff. They also called for a 2 billion-pound ($3.1 billion) levy on bank bonuses to pay for jobs for young people and 25,000 affordable homes.
“Day after day, with every downgrade in growth, with every rise in unemployment, it’s clear the government’s plan is not working,” Miliband told reporters in London today. “It’s an economic emergency and we need an emergency budget to start to take action to get the economy moving.”
U.K. output has barely expanded over the past year, and figures yesterday showed unemployment climbed to a 15-year high of 8.1 percent, fueling concerns the economy could tip back into recession amid slowing global growth, government spending cuts and the biggest squeeze on household incomes since the 1970s.
Labour is seeking to portray Chancellor of the Exchequer George Osborne’s policy of eliminating the structural budget deficit by 2015 as one that’s tipping the U.K. into recession just 18 months into the program. Balls yesterday told Parliament that to expect the private sector to make up for the loss of public-sector activity and 300,000 jobs is “fantasy.”
“The economy has stagnated for the last year -- the question is how bad do things have to get before the government admits it’s not working?” Balls said today. “If you’ve got more people out of work, not paying taxes, instead on benefits, the problem is the borrowing comes in higher and we already know George Osborne is having to plan on 46 billion pounds more borrowing than he was planning.”
Two years after the recession ended, gross domestic product is 4.4 percent below its peak level in the early 2008, representing the weakest recovery for almost a century.
Nobel economics laureate Christopher Pissarides said in an open letter to Osborne published in the New Statesman magazine yesterday that the U.K.’s budget cuts risk causing a double-dip recession and the government should lower taxes to spur demand and job growth.
“Deficit reduction is best done with spending cuts when the economy is recovering, not with higher taxes in a downturn,” Pissarides wrote. “There is enough time in the life of this Parliament to achieve your deficit-reduction objective with a policy that is friendlier to job creation.”
Labour’s proposals would add 20 billion pounds to the structural deficit and cost Britain its top credit rating, which was affirmed by Standard & Poor’s on Oct. 3, Osborne told lawmakers in a debate with Balls in the House of Commons yesterday. Defending his plans to cut the deficit as “tough but necessary,” the chancellor said there is no quick fix for the U.K. economy.
Responding to mounting concerns over the economy, Osborne outlined plans last week to ease the credit strains continuing to hamper small and medium-sized companies by using billions of pounds of public money to buy or guarantee their debt.
Osborne and Cameron have staked their reputations on being able to wipe out the structural deficit by 2015, saying the plan allows the government to borrow for 10 years at 2.6 percent, compared with rates of more than 5 percent in Italy and Spain.
“You need to have credible deficit-reduction plans otherwise the confidence isn’t there to invest in the future,” former Labour Prime Minister Tony Blair said in an interview with Bloomberg Television in Istanbul today. “On the other hand you have to do that carefully calibrated, so that you don’t choke off growth,” he said. “You need to judge that and be prepared to adjust that as time goes on.”
“It’s not a left-right argument, it’s a right-wrong argument,” Blair said. “In political terms this is a judgment that should be made on grounds of efficacy, not ideology.”
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