Balls Says U.K. Labour Would Pursue ‘Tough’ Fiscal Plan

Britain’s Labour opposition sought to boost its standing on the economy by pledging to end benefits for wealthy pensioners as part of a “tough” program to reduce the budget deficit if it wins the 2015 general election.

With the Office for Budget Responsibility predicting the deficit will be almost 80 billion pounds ($122 billion) higher in the fiscal year starting April 2015 than it forecast three years ago, a Labour government would have to show “iron discipline” over the public finances, the party’s Treasury spokesman, Ed Balls, said in a speech in London today.

“Labour will set out a clear and balanced plan to support growth, alongside a clear timetable to get the deficit and the debt down -- finishing the job where this government has failed,” Balls said.

While Labour leads the Tories in opinion polls by about 10 percentage points, the party is losing the arguments on the economy and public spending. Prime Minister David Cameron is more trusted to run the economy than Labour leader Ed Miliband, a survey by Ipsos MORI found last month. Tony Blair, who won three general elections for Labour, warned in April that resistance to austerity and welfare cuts risks reducing it to a party of protest.

To help lower government spending, Labour would end winter-fuel subsidies for the richest pensioners as part of a “fairer” approach to deficit reduction, Balls said. Labour will also set out “tough” new fiscal rules monitored by the OBR, Chancellor of the Exchequer George Osborne’s non-partisan fiscal watchdog.

Missed Goals

OBR forecasts in March show the government borrowing 160 billion pounds more by April 2015 than had been forecast in June 2010, largely due to weaker-than-expected tax receipts. As a result, Osborne has been forced to push back his goal of balancing the structural budget deficit within five years.

The pace of austerity “choked off” the recovery, with the U.K. economy expanding 1.1 percent since 2010 compared with growth of 2.9 percent in Germany and 4.9 percent in the U.S., Balls said.

He attacked the decision to cut the top income-tax rate at a time when inflation is eroding the incomes of the majority of people and accused the government of clinging to a “discredited” belief in “old-style trickle-down economics.”

Balls urged Cameron and Osborne to cut value-added tax and heed the advice of the International Monetary Fund by boosting spending on housing and other infrastructure projects, financed by a “temporary” increase in borrowing.

‘Very Different’

“The situation we will inherit will require a very different kind of Labour government to those which have gone before,” Balls said. “We can expect to inherit plans for further deep cuts to departmental budgets at a time when the deficit will still be very large and the national debt rising.”

Separately, Cabinet Office Minister Francis Maude said that U.K. government departments saved 10 billion pounds last year as a result of changes to the way goods and services are bought.

“Civil servants are changing the ways they work and we are on the way to managing our finances like the best-run FTSE 100 businesses,” Maude said in a statement released today by his office in London.

Before it's here, it's on the Bloomberg Terminal.