Ed Balls says voters will turn to Labour on economy - Extracts from an interview with Fabian Review (Source: The Guardian, 22 December)
Ed Balls has claimed that the autumn statement, in which the government was forced to admit that its deficit reduction plans were badly off course, will prove to be a game-changer that will see voters increasingly turn to Labour. The shadow chancellor says he believes his party is ahead of the electorate on the issue, and will reap the benefits in 2012.

Balls reveals the vindication he felt when the chancellor had to admit in the autumn statement how much higher borrowing was going to be in the future. "To have a moment when George Osborne had to stand up and say it had gone so wrong, and to have a chance to explain why, was very important for me. I've been waiting to do that response for a year.
"There were times when Cameron and Osborne were fidgeting, and the whole of the Conservative and Lib Dem backbenches were silent because they all know this isn't working. That was the completely best thing about it for me.
"Implementing strategy takes time. It's always difficult when, for a period, you get ahead of where the public are." Balls said the public has not yet fully understood that the government plan is not working, or even delivering on its own terms of balancing the books by 2015. He said it would take time to filter through.

The Chancellor's Autumn Statement 29 November 2011 (Source: The Guardian)

There are four significant cuts announced in the Autumn Statement.

 Scrapping the planned above-inflation increase to the child element of the child tax credit. This will save £975m next year, and more than £1bn by 2014/15. This meqns families will loose the extra £110 per child and 5.5 million families would be affected.
 Freezing working tax credit. This will save £265m in the next financial year. This will reduce the income of working families by £100. A further 2 million families would face a double hit because of these changes.
 Restraining public sector pay for a period of two years after the end of the two-year pay freeze in 2012-13. This will only save £75m next year. But in 2014/15 it saves the Treasury more than £1 bn.
 Allocating less for international aid. The government is committed to spending 0.7% of GNI (gross national income) on aid by 2013. But, because national income is lower than expected, Osborne can save £380m from this in 2012/13 and £525m by 2014/15.

The Resolution Foundation, a thinktank that studies the plight of low and middle-earners, has described these cuts as "straightforwardly regressive". An analysis by the Resolution Foundation, using the OBR's revised forecasts, shows that even in 2016 typical wages will be no higher than they were in 2001 - £1,400 below their 2009 pre-recession peak.

In addition, the Chancellor needed to find £15bn of extra cuts by 2016-17 to meet his fiscal targets, even using all the flexibility offered by his “five-year rolling target”. This £15bn will all come from cuts to spending, but he has not yet announced where they will fall.

Comprehensive Spending Review (2011-12 to 2014-15)
At a glance　
Chancellor George Osborne has announced the government's four-year Spending Review to Parliament, revealing some of the deepest cuts in public spending in decades.
The key announcements:
 VAT rate increased to 20% with effect from 4 January 2011
 Average 19% four-year cut in departmental budgets
 £7bn in additional welfare budget cuts making a total of £18bn
 Police funding cut by 4% a year for each of the four years and public safety compromised because of fewer police officers, law courts and prisons;
 Cut in council spending by 25%
 Retirement age to rise from 65 to 66 by 2020 and those women aged under 55 will lose up to 6 years of state pension compared to older age groups.
 Curtailing of social care provided to the disabled, sick and elderly;
 Regulated rail fares to rise 3% above inflation (on average an increase of £1000 for an annual season ticket to London) and the subsidy to bus service reduced by 20%, which will result in bus fare rises in the future);
 Child benefit (1st child £20.30 and 2nd and subsequent children £13.40 per week) has been frozen for three years. However, child element of the tax credit is increased by £150 above CPI inflation in April 2011 and by £60 above inflation in April 2012.
 Working tax credits frozen and child care tax credit reduced by 10% from 80% to 70%.
 Withdrawing the non-means-tested element Employment and Support Allowance (ESA), which replaces incapacity benefit;
 Health & Pregnancy grant of £190 for all for all pregnant women beyond their 25th week of pregnancy will be abolished in April 2011.
 Sure Start Maternity Grant of £500 will be restricted to the first child only for low income families.
 The only crumb of comfort is the increase in the personal allowance by £1000 to £7,475 in April 2011. With the RPI at nearly 5% by then, this measure is worth, in real terms, about £150 to all taxpayers. It will lift an estimated 880,000 people out of tax altogether but the VAT increase has already wiped out this gain, if not more.
 On the other hand an estimated 700,000 middle income earners have been dragged into the higher-rate tax band of 40% due to the reduction, by about £2,500, in the tax threshold from £37,400. Thus, middle income earners of about £42,500 or above (including the personal allowance of £7,475) are paying a marginal rate of 40% tax from April 2011. They will also forfeit child benefit, which was always supposed to be a universal benefit to all in order to reflect some of the costs of bringing up children.
 Two year pay freeze for public sector workers earning more than £21,000 and a flat rate increase of £250 for those earning less than £21,000. They are also expected to increase their pension contributions by 3%, which will mean a real-terms cut in their disposable income.
 It is expected that nearly 490,000 public sector jobs will be axed (This figure is now estimated at 710,000 in the Autumn Statement on 29 November 2011). Women would bear this cut more than men as women make up the bulk of the lower grades in the public sector.
 £2bn extra for social care – but half of it is transferred from NHS budget
 NHS budget in England to rise every year until 2015 by 0.1% above inflation
 Bank levy has been made permanent
 Structural deficit to be eliminated by 2015 (This is now delayed by a further two years  in the Autumn Statement on 29 November 2011) 

How are young people affected?
Removal of EMA, three-fold increase in tuition fees, starving councils of funds resulting in cut to youth services, axe the Future Jobs Fund, implement an austerity budget for ideological reasons, which resulted in unemployment to reach over 1 million among the 19-24 year old.

EMA replacement 'failing young poor students' (BBC News, 7 February 2012)

Poor youngsters are dropping out of college because the government's replacement for the Educational Maintenance Allowance (EMA) is "inadequate", a report says.
The Barnardo's report says lower levels of money and a lack of access to it are leaving some of England's poorest students with no choice.
Young people are skipping meals in order to pay their fares to college, it adds.

Education Secretary Michael Gove announced he was axing the £560m a year scheme soon after his party came to power in 2010. He said he wanted support for poor pupils more targeted.

'Held back'
EMA provided students from lower-income families, with incomes under about £30,000, with weekly payments of up to £30 a week. All students had to do to get it was to attend the courses they were studying.
The government's £180m replacement Bursary Fund is only targeted at young people who are in care, leaving care or on income support, with the most part being pumped into a discretionary fund run by colleges.
But Barnardo's in-depth study, looking at 51 disadvantaged youngsters and the colleges they attend, suggests that cuts to funding and confused targeting is leaving many vulnerable young people without enough means to carry on learning.

Pensions Bill becomes The Pensions Act 2011 on 7 November 2011

The following changes will come into effect:
 From April 2016, women’s state pension age will rise faster than originally planned so that it reaches 65, the same as for men, by November 2018
 Pension age will then increase for both men and women from 65 to 66 by October 2020
 The Department for Work and Pensions (DWP) will communicate with people affected by the change

See the DWP website (www.dwp.gov.uk) for more details

[The Chancellor announced in the Autumn Statement on 29 November 2011 that he intends to increase pension age for both men and women to 67 by 2026, eight years earlier than previously planned]

COALITION CUTS ARE MAKING LIFE TOUGH FOR MOTHERS (Source: The Guardian)
Childcare cuts, maternity leave threatened, higher taxes... Young mothers are bearing the brunt of coalition cuts

WHERE THE CUTS HIT WOMEN
■ A £20m cut (28% of the total) from Playbuilder funding, which allows local authorities to build more playgrounds. No longer ringfenced.
■ A grant that helped women eat a healthier diet during pregnancy has been abolished.
■ Funding for childcare and Sure Start
has been rolled in with other programmes, cutting the funding by 22.8% this year and removing the ringfence. Many councils have had to withdraw, scale back or charge extra for services such as holiday childcare and leisure activities.
■ The childcare element of the working tax credit has been cut from 80% to 70%, meaning an average loss of £436 a year for 470,000 families.
■ Core local authority funding across England is to be cut by 27% over four years,
forcing many councils to cut all non-statutory provision such as libraries and youth services, which provide crucial services for working mothers.

Poorest spend higher proportion on VAT than richest (BBC News 31 October 2011)

Source: Office for National Statistics (ONS)

The poorest 20% of UK households spend a higher proportion of their disposable income on VAT than the richest 20%, the Office for National Statistics said.
Its research covered 2009/10, which was before the increase in VAT from 17.5% to 20% in January 2011.
When Chancellor George Osborne announced the increase in his 2010 Emergency Budget, the government said that VAT was a progressive tax.
But the ONS research suggested that is not the case.
Proportion of disposable income spent on VAT
 Poorest       - 9.8%
 2nd quintile - 7.4%
 3rd quintile - 6.9%
 4th quintile - 6.3%
 Richest       - 5.3%

Deficit in public finances in the UK

Questions and Answers
Q: What is the cause of the deficit in public finances in the UK?
A: It was caused by the financial crisis in 2007-08 that led to one of the deepest recessions in recent history.

Q: How did the Labour government react to this crisis?
A: Gordon Brown and Alistair Darling made the right call – the Government rescued the banks – that avoided the recession turning into depression as happened in the 1930s. Labour chose to support the economy when the private sector was weak.

Q: Wasn’t Labour profligate in government by running up the national debt?
A: No. Before the financial crisis Labour kept the national debt low and, for some time, it was below the debt ratio of 42.5% of GDP inherited from Conservatives in 1997. Even after the bank bail-outs the national debt was 57% of GDP, which is lower than either France and Germany. In fact, the Chancellor, George Osborne, supported the stance taken by the Labour government at that time as, before the recession, the Tories promised to match Labour’s spending plans - but they have now changed their policy afterwards. The measures taken by Alistair Darling in 2009 to stimulate the economy resulted in a deficit which was £11bn lower than forecast for the 2009-10 financial year. This stimulus facilitated the UK economy to continue to grow by 1.1% and 0.6% respectively during the 2nd and 3rd quarters of 2010. When the cuts announced in the Emergency Budget in June 2010 and the Spending Review took effect the growth of UK economy faltered. This is borne out by GDP figures shown below. 

Quarter    % of GDP growth

2010 Q1    0.4
2010 Q2    1.1
2010 Q3    0.6
2010 Q4   -0.5
2011 Q1    0.5
2011 Q2    0.0
2011 Q3    0.6

The Chancellor was forced to revise the GDP forecast downwards again to 0.7%when he delivered the Autumn Statement in November 2011.  Taking into account the negative growth (-0.2%) in Q4 of 2011 the GDP has just grown by 0.3% since the Autumn Statement of 2010 (15 months ago) compared to the Chancellors forecast of 3.0% at that time.

Q: Isn’t drastic action to tackle the deficit necessary to avoid a Greek-style collapse in investor confidence and the UK facing higher interest rates to finance its borrowing?
A: The prospects of a sovereign debt crisis hitting Britain are slim because the UK’s debts are long term and its economy is in a better state than that of Greece. The Chancellor has exaggerated the threat to drive forward the Tory policy of making the public sector shrink with the help of Lib Dems. In effect he is a "deficit deceiver". The Tory MPs who waved their Order Papers in glee at the end of the Chancellor’s speech are a disgraceful spectacle when the weak and the poor are hit severely by the CSR proposals.

Q: Is it not true that the IMF, OECD and prominent private sector employers support the Chancellor’s CSR proposals?
A: Yes, it is true. However, equally prominent economists, such as David Blanchflower, a former member of Bank of England MPC, and Britain's new Nobel Prize winning economist Professor Christopher Pissarides take the opposite view. Their view is that a clear deficit-reduction plan over the next five years, postponing more of the cuts until the recovery becomes less fragile should be adopted. The CSR package is putting the economy through some unnecessary risks because of the Chancellor’s ill-founded fear of a sovereign debt crisis. In fact, Ireland followed the IMF policy two years ago and had to introduce a series of spending cuts with the next one to be announced in early December 2010. This has proved a vicious circle for the Irish people – with spending cuts causing a further deterioration of the economy and this deterioration then being used as a ‘justification’ for further spending cuts. IMF, EU and ECB have agreed to fund a rescue package of €85bn of which Ireland has to contribute €17bn by raiding the country's pension funds.

Q: What are the CSR cuts announced by The Chancellor in the Parliament on 20 October 2010.
A: Reductions in public spending of £81bn in total were announced. These are made up of £46bn in departmental budgets, £18bn from the social security budget and the £6bn already announced in June 2010. The remaining £11bn of the £81bn is from lower than expected debt interest (£10bn) and other savings of £1bn. The very fact that debt interest payments are lower than expected shows the UK is in no danger of losing the confidence of lenders in the international financial markets.
The implementation of CSR is a big gamble that could choke off economic recovery as well as putting a severe burden on vulnerable sections of the society – the disabled, sick, unemployed and children – and making many more job losses unnecessarily.

Q: The Coalition says there is no Plan B from Labour to reduce the deficit.
A: That is untrue. Alistair Darling’s budget statement in March 2010 allowed for a saving of £48bn by implementing spending cuts and £21bn in tax increases. Labour in Opposition has now suggested a ratio of 40% taxation and 60% spending cuts to protect vulnerable sections of the society. This is in contrast the Coalition plan to cut borrowing by 23% in taxation and 77% in spending cuts – a deeper and faster cut that puts at risk the economic recovery. The Shadow Chancellor, Alan Johnson, has also suggested an extra tax on the banking and finance sector – so that they can make a contribution to solving the deficit, as the deficit flows from the financial crisis that originated there.

Q: What are the implications of these drastic cuts being put in place?
A: The cuts will lead to a deterioration of public services and worsen the financial position of low and middle-income families, who are the 'squeezed middle' sector of the population.

Tory-led Coalition’s cuts programme force £10bn in public sector savings (Acknowledgement, The Guardian)

More than 200 areas of public spending faced real-terms cuts in the first year of coalition government, with departments having to find £10bn in savings from services such as GP care, prisons and the rail network, an analysis by the Guardian shows.
The survey highlights the challenge the coalition government faces in implementing its austerity plan, as substantial service cuts are offset by rising spending in other areas.
George Osborne announced £6.2bn of in-year cuts during his first year as chancellor, a more significant cut to budgets than had been proposed by the previous Labour administration, which was concerned that spending cuts might stifle growth.
Government spending shows that cuts far larger in total than this were required to offset spending on benefits and debt repayments, which soared during the economic downturn. Overall government spending actually increased year-on-year by £22bn, a 0.3% increase after inflation is taken into account.
The cuts to government spending were offset by a huge increase in the cost of servicing government debt, which increased from £31.3bn in 2009-10 to £43.9bn the following year, an increase twice the size of the cuts targeted by the government over the course of the year.
An analyst at the Institute of Fiscal Studies, said that the cuts to government spending in an attempt to reduce the UK's deficit had taken effect earlier than widely believed. The cuts began slightly earlier, with real-terms spending by central government on public services being £12bn lower in 2010-11 than in 2009-10. Of this, roughly £5bn had been planned by the previous Labour government, an additional £5bn was announced by the new government last May, while £2bn appears to be departments underspending on their allocated budgets. This underspend might be deliberate given the scale of the cuts to follow: departments are expected to find a further £14bn this year."
The spiralling cost of debt repayments is likely to pose a particular challenge for the coalition, as forecasts made by the independent Office of Budget Responsibility, founded by Osborne, the chancellor, suggest the UK's national debt will increase by about £120bn over the current financial year.
Rachel Reeves, shadow chief secretary to the Treasury, said: "These figures underline Labour's warning that trying to cut too far and too fast risks getting the economy into a vicious circle. If you choke off the recovery, push up unemployment and add to inflation by raising VAT then you end up spending billions more on benefits and having to cut deeper into frontline services.
"Despite David Cameron's promises, the NHS has had its first real-terms cut since 1996 when the Tories were last in government. And over the rest of this parliament the government is already set to borrow £46bn more than planned because of the slower growth, higher inflation and higher unemployment the government's failed policies have delivered."

SOURCE: GUARDIAN DATA RESEARCH BASED ON DEPARTMENTAL REPORTS, IFS

Child poverty warning as cuts threaten to close 3,500 Sure Start centres (The Observer, 13 November 2011)
Flagship scheme for children is in danger as budget restrictions bite, warns former government adviser

Pressure is growing on the government to step in to protect the country's Sure Start children's centres amid confusion over the true scale of cuts being proposed around the country.
Former government adviser Naomi Eisenstadt, Sure Start's first director at its launch in 1998, said it had become obvious that ministers "couldn't guarantee anything" for 3,500 centres, credited with reducing child poverty levels and creating community cohesion.
"Sure Start is being cut, anyone who says otherwise is wrong, but everything is being cut and the real issue is the removal of the ring fence," she said.
Labour has produced figures suggesting that 47 children's centres have closed or are earmarked for closure this year and budgets have been slashed in 83% of England's local authorities. The average decrease in real term budgets was 11% this year and will be 21% next year. The largest budget cut was 56% by Hull.
The government has so far been unable to confirm or deny those figures and Education Minister Sarah Teather has admitted that her department was struggling to get clear answers from local authorities.
But Eisenstadt is concerned that the impact of Sure Start is being diluted to such an extent that advances in tackling child poverty in this country will be dramatically reversed. She said: "Sure Start has made an impact on child poverty. It didn't get everything right, but it achieved a lot and was continuing to develop and learn. I am worried we're now going completely the wrong way.
"The original aim of Sure Start was to help that bottom 30% of families living in poverty, getting money into the areas where the poorest people lived, supporting whole communities in areas where you could improve social mobility. Helping people mix and support each other, building communities.
"But now there seems to be a policy shift with a lot of language being used about instead helping just the neediest, the most disadvantaged, the bottom 1% to 3% essentially, the very hardest to reach and I think that is potentially very destructive. You take services that are already spread very thin and spread them even thinner."
Children's charities are also hugely concerned about the potential impact on child poverty in the UK. There are worries that centres, while not actually closed, may become so drained of resources they cease to be of any use. Anne Longfield, Chief Executive of the charity 4Children, said: "The issue with Sure Start is that it actually was designed for the future of children and families, to stop problems before they happen. It hit the nail on the head as far as communities were concerned which is why it is so effective and why parents love it."

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