Ed Miliband is right – and it’s very worrying
YOU will probably not read this here very often but Ed Miliband is right.
In his response to Chancellor George Osborne’s Budget speech, the Labour leader said that the downgrade in official forecasts for economic growth was not the result of chance, but of choice – the Government’s choice to tackle the deficit in a single Parliament.
There was, said Mr Miliband, “another way”. And so there is, but more of that later.
The day before the Budget, however, Angela Eagle, Shadow Chief Secretary to the Treasury, took her turn in the economic debate.
Taking her cue, perhaps, from Shadow Chancellor Ed Balls, who has been mining the same rich vein of economic absurdity since he took up the job, Ms Eagle accused Mr Osborne of adding to the Bank of England’s difficulties in tackling inflation.
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“George Osborne is putting the Bank of England in an impossible position,” she said, responding to the increase in inflation to 4.4%.
“It has been left to do all the work to support a halting recovery, while the Tory-led Government pursues a fiscal policy to cut deeper and faster than any other major economy in the world and pushes up inflation too with its VAT rise.”
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From no conceivable angle does this analysis stack up.
The effect of January’s increase in VAT, from 17.5% to 20%, is one of the more reliably measurable elements within the inflation calculation and its duration as factor is finite. In January next year it will drop out of the equation.
The notion that members of the Bank of England’s rate-setting Monetary Policy Committee will allow the VAT effect to tip the balance in their decision-making is as wide of the mark as an England footballer in a penalty shoot-out. Given the MPC’s medium-term perspective, they will simply not be swayed in this way.
As for the idea that the Government’s policy is putting the MPC in an “impossible” position, the boot is on the other foot.
It is only because of the fiscal squeeze, being applied to help bring down the deficit, that the MPC has felt able to avoid tightening monetary policy in the face of rising inflation.
Were Labour still in power and pursuing its more gradual approach to cutting debt, interest rates would already be rising for this reason alone.
And if, as would be a very real risk without the Government’s robust approach to restoring credibility to the public finances, the UK’s credit rating began to suffer, the outlook for interest rates would be worse still.
So, yes, Ed Miliband is right. There is another way.
The wrong way.