Politics live blog – Thursday 16 June

Rolling coverage of all the day’s political developments as they happen 10.34am: Balls is now addressing the question of whether or not it would matter if Britain changed course. Osborne has said the markets would lose confidence in the UK if he changed the pace of deficit reduction. Balls admit that in 2009 he thought Labour’s plan to halve the deficit over four years was too ambitious. But in early 2010 the signs were that the plan was working. He says historians will debate whether Labour should have conducted a full spending review before the 2010 election. (That implies that he thinks there should have been one.) But Labour’s plan had credibility with the markets. Balls says Osborne also had a clear plan and that his plan had political support. But the question is: does it work? George Osborne’s logic is that if Greece, Ireland and Portugal had adopted the same approach that he is taking, they would not be facing such severe and deepening crises. The problem for him – and for them – is that they did. In fact, the Portuguese Chancellor went one better by introducing two VAT rises in the past year. And what they, Ireland and Greece have all discovered – just like Argentina, Brazil and Turkey before them – is that it doesn’t matter how much they cut spending or how much they raise taxes; if they can’t create jobs and growth, their debt and deficit problems get even worse and market confidence falls further still. My concern is that we are starting to see the same thing happen here in Britain. 10.27am: Balls says he wants to consider whether the fact that growth is slower than expected matters. He dismisses claims that he personally predicted a double-dip recession. I have been consistent in saying that a double-dip recession was never the most likely outcome – although it does seem that over the last 6 months we have missed it by a whisker. But the test for the economy is not whether we avoid a double-dip recession, or whether unemployment rises or falls in any particular quarter, but how much pain is inflicted along the way in lost growth and lost jobs. The fact that growth is slower than expected matters because it is making the UK poorer, Balls says. If UK growth came in 0.5 percentage points below trend in every year of this Parliament, our country would be £58bn worse off in 2015 – that’s £3,300 for every family. And the OBR has warned that we should expect unemployment to be up to 200,000 higher over the coming years than expected just a few months ago. So the test for the Treasury isn’t just whether they can post better growth rates – we all know the economy will return to stronger growth eventually – it’s whether they can make up all this lost ground in jobs and living standards. Balls says that on the Today programme recently Evan Davis suggested that, since the economy would recover eventually, it did not matter much how long this took. You could either have less growth now and less pain later, or more growth now and more pain (cuts) later. But Balls says this is a false choice. But – and this is the crucial point – the trend growth rate of the economy is not fixed – so this isn’t just about growth postponed versus pain deferred. Months – or years – of slow growth aren’t something that will be quickly repaired. It risks leaving a permanent dent in our nation’s prosperity – relative to how prosperous we might have been and how prosperous we are relative to other countries. Because economic history also teaches us that economies don’t simply bounce back to where they would have been. Who now doubts that the depth of the recession of the early 1980s had long-term and permanent effects? Manufacturing jobs and companies lost – never to return. Small businesses gone bankrupt – losing skills, ideas, networks and potential. Capital investment plans first postponed eventually dropped and never resurrected. And most importantly of all, adults and young people out of work for months, which turned into years, and left a permanent scarring effect on their skills, their health, and their ability and willingness to ever work again. 10.25am: Balls says Osborne blames “global headwinds” for the fact that growth in the UK is lower than expected. But these “headwinds” are not affecting other countries. The scale of the fiscal hit to demand and growth in Britain this year is unprecedented. And it is happening at a time when interest rates are already very low and can’t be cut and when other countries are also trying to cut their deficits at the same time. It is this combination of factors which suggest that the impact of this fiscal contraction on economic growth in Britain – what economists call ‘the fiscal multiplier’ – will be considerably more severe than even the OBR’s downgraded forecasts suggest. 10.20am: Balls says Osborne’s budget in March was a “do nothing” budget. But it has been a year since the government created the Office for Budget Responsibility. We can compare its forecasts from last year with its forecasts now. A year ago, the OBR forecast growth of 2.6% in 2011 – they now predict just 1.7% and even that three time-downgraded figure is looking optimistic compared to recent lower forecasts from the OECD, the IMF, the NIESR and the British Chambers of Commerce; Unemployment forecasts for the next four years have all been revised upwards; Inflation forecasts for the end of 2011 have risen sharply from 1.6% to 4.2% – with a further increase next year; And the result of this slower growth, higher unemployment and higher inflation is that the Government will have to borrow a further £46 billion more than forecast after the Spending Review. Balls mocks Osborne for blaming the snow for the negative growth at the end of last year. It also snowed in America, Germany and France – and they all posted strong growth. Indeed, the only other European countries with falling output at the end of last year were Denmark, Ireland, Greece and Portugal – and the latter two countries don’t tend to get much snow, even in winter. This was definitely not part of the Chancellor’s script a year ago. 10.19am: Balls reveals that chancellors choose cartoons of themselves to hang on the staircase in the Treasury to sum up their time in office. I didn’t know that. Unfortunately he doesn’t tell us what cartoon Gordon Brown chose. 10.18am: Balls says that today he will be arguing “that the accumulating evidence shows that George Osborne’s political gamble is taking our economy down the wrong path at huge cost to families and businesses – but that it’s not too late for him to change course.” 10.16am: Balls says Osborne had a key decision to make when he became chancellor. He could have followed Labour’s defict reduction plan. But he chose not to. Balls says that he thinks Osborne was motivated by politics, not economics. I was – and remain – deeply suspicious that he was using the imperative of deficit reduction as convenient cover to drive through a deeply ideological programme of cuts to public services and the welfare state. But since then, I have become more convinced that George Osborne’s plan was primarily about electoral politics – rapid tax rises and spending cuts chiefly designed to fit a political timetable that: – gets the pain over early; – makes Labour take the blame; – uses the Liberal Democrats as a human shield; – hoping to store up a Tory war-chest – bolstered perhaps with the proceeds from a quick sale of Northern Rock – to cut income taxes before the election. 10.13am: Balls says there are moments in history when leaders face “a fork in the road”. But sometimes they make the wrong choices. He mentions Alan Walters opposing Britain’s decision to joint the Exchange Rate Mechanism and John Maynard Keynes opposing Churchill’s decision to rejoin the Gold Standard in 1925. Balls has been saying recently that just because the consensus backs George Osborne, that does not mean that Osborne and the consensus are right. Balls seems to be identifying himself with Walters and Keynes. 10.10am: Ed Balls is speaking now. He says that this is his first speech on economics since become shadow chancellor. And he reassures his audience that he won’t be delivering a lecture on economic theory. I presume that means we won’t be hearing about post-neoclassical endogenous growth theory. 10.03am: Ed Balls hasn’t started yet – I’m monitoring it from Sky and BBC News – but the full text of his speech is on the New Statesman website. I’m just reading it now. 9.36am: Ed Balls (left) will be delivering his economy speech at 10am. I’ll be covering it in full live. And if you want to know why it’s so important, just look at the polls. As this chart shows (pdf), the economy is viewed as by far the most important issue facing the country. It gets cited as one of the most important issues facing Britain by 73% of people; immigration comes next on 49%. And, as this chart shows (pdf), voters blame Labour for the spending cuts. Asked who is responsible for the current spending cuts, 40% blame the last Labour government, 24% blame the coalition and 24% blame both. Balls’s task this morning is to try to persuade those 40% that they are wrong. 8.59am: Do read Alan Milburn ‘s article on the government’s revised health reforms in the Daily Telegraph. It’s one of the most interesting pieces that has been written about the plans unveiled by David Cameron, Nick Clegg and Andrew Lansley on Tuesday, and probably the most damaging, because of Miliburn’s own reputation as an enthusiast for using competition and the private sector to reform public services. But in March Milburn wrote an article for the Guardian saying that the government’s original plans – which were far more pro-competition than the proposals unveiled this week – were also flawed. Is he being consistent? Milburn is particularly strong on the politics of the coalition U-turn. He claims that the debacle has “set back for a generation the cause of market-based NHS reform” and that as a result the government will not achieve the £20bn in efficiency savings that it wants to achieve. And he issues a powerful warning for Cameron. So how will the NHS books be balanced? By the usual device which policy-makers have deployed every decade or so in the NHS. A very large cheque. It is precisely the situation Cameron and George Osborne were trying to avoid: sorry, George, but the cash you were saving in your pre-election Budget for tax cuts will now have to be spent on a bail-out for the health service. As for explaining why the revised plans won’t work well, Milburn complains about the new commissioning structures being set up. The U-turn slows the pace of reform and dramatically dilutes its impact. GP consortiums that were supposed to be in place by 2013 now have no deadline for their creation. England will have a patchwork quilt of decision-making for years to come. Worse still, GPs’ ability to drive more services out of hospital and into the community has been severely compromised [presumably because hospital doctors will now be represented on the commissioning consortia]. Miliburn also complains that the national NHS Commissioning Board (which was always going to be left in charge of commissioning specialist services worth up to £30bn, and which will also take charge of commissioning in areas where the new clinical commissioning groups are not ready by 2013) will have too much power. This is a point he made strongly in his Guardian article in March. This is what he says about it today. Instead, the Government’s U-turn places real power in the hands of the national NHS Commissioning Board – the daddy of all quangos. The board will control how £60 billion of NHS money is spent in local communities from Darlington to Dartmouth. It is the biggest nationalisation since Nye Bevan created the NHS in 1948. I’m not sure whether he would be laughing or turning in his grave at the prospect of the Conservative Party championing such a policy. Milburn is on weaker ground when he criticises the way Monitor’s scope to promote competition in the NHS has been watered down. This is what he says today. Monitor, which was to have been charged with promoting competition, will have a duty to promote integration. Words have meaning in the NHS. Every single local decision-maker will read that change as a signal to weaken competition, not strengthen it, and to protect the public sector incumbent over the private or voluntary sector insurgent. The debacle has set back for a generation the cause of market-based NHS reform. But in the Guardian in March criticised the bill as it then was on the grounds that it did not do enough to promote integration. This is what he wrote. While it is a good idea to extend competition, in the NHS it is a bad idea to allow this to fragment local services or to be on the basis of price rather than quality. Market mechanisms can work in healthcare but only when properly managed … The bigger question to pose is whether these reforms can possibly meet the challenge the NHS faces from an explosion in chronic diseases, such as diabetes. That calls for policies that integrate services rather than fragment them, and for more focus on prevention. One other point is worth mentioning. Today’s article is not just an attack on the government. Milburn also says that Labour’s response to the announcement on Tuesday suggests that the party is retreating into its “comfort zone”. There is an open goal for Ed Miliband’s Labour Party. The temptation, of course, is for Labour to retreat to the comfort zone of public sector producer-interest protectionism – and there were signs of that in the party’s response to the Government’s U-turn this week. It would be unwise, in my view, for Labour to concede rather than contest the reform territory. It now has an opportunity to restake its claim to be the party of progressive, radical reform. It is only when we are that we win. 8.42am: We’ve got a big speech from Ed Balls this morning. As Nicholas Watt report s, based on extracts released yesterday, he will accuse George Osborne of creating a “permanent dent” in the British economy by cutting spending too fast. And, overnight, the BBC has been briefed that Balls will be calling for an emergency tax cut. I’ll be covering the speech in detail after 9.30am. I’ll be having a look at Alan Miliburn’s declaration that the government’s revised health reforms will be “the biggest car crash in NHS history” . And there are a few other things going on too. Here’s a full list. 9am: Sir David Nicholson , the NHS chief executive, speaks at a health commissioning conference. 9.15am: Prof Steve Field , the chairman of the NHS Future Forum , gives evidence to the Commons health committee 10am: Ed Balls , the shadow chancellor, delivers a speech at the LSE. 10.15am: Michael Gove , the education secretary, speaks at the National College for School Leadership conference. As the Guardian reported yesterday , he will say that by 2015 he expects every secondary school in England to be achieving the current national average of at least 50% of pupils achieving five A*-C grades at GCSE, including English and maths. 11am: Lord Fowler , chairman of the Lords communications committee, asks a question in the Lords about what the government is doing about phone hacking . Lunchtime: David Cameron holds a PM Direct event. As usual, I’ll be covering all the breaking political news, as well as looking at the papers and bringing you the best politics from the web. I’ll post a lunchtime summary at around 12.30pm. After that I’ll be off – I’ve got a meeting to go to – but my colleague Hélène Mulholland will then be taking over. House of Commons Andrew Sparrow guardian.co.uk

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