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Shadow chancellor says move would put more money directly into people’s pockets and boost consumers feeling the squeeze from rising prices and rising taxes Ed Balls has called for an emergency temporary cut in VAT to kick-start an economy he said was performing worse than any of its major competitors. In his lengthiest policy speech since taking on the role of shadow chancellor, Balls offered no apology for Labour’s spending either ahead of or during the banking crisis to prevent recession tipping into depression. He admitted he was still relatively isolated in his view that the markets will tolerate a less aggressive approach to the deficit and said it was too early to say whether his judgment, or that of the chancellor, George Osborne, would be proved right. Many believe the outcome of the next election will hinge on which man is right. Balls said the economic evidence so far was pointing in his direction, arguing: “Looking at growth across the EU over the last six months compared to the previous six months, we have gone from the top end of the economic growth league table to fourth from bottom, with only Denmark, Greece and Portugal below us. “While policymakers in the US are worried that their recovery is slowing down, the US has nevertheless still enjoyed growth of 1.2% over the last six months, compared to our zero.” Accusing Osborne of being inflexible in the face of the evidence, he insisted the markets would tolerate a change of course. And he said the VAT cut would put more money directly into people’s pockets and boost consumers feeling the squeeze from rising prices and rising taxes, especially pensioners and those on low and fixed incomes. He added: “The inevitable increase in consumer confidence would help the struggling retail sector. It would help to push down inflation, and so reduce the risk of a recovery-choking interest rate rise later this year “And it would give the flatlining economy the jump-start it so urgently needs, boost jobs and help us get the deficit down for the long term. “The risk is that George Osborne will wreak long-term, as well as short-term, damage on the British economy by creating a vicious circle of permanently lower business investment, lower income and lower employment, which in turn requires bigger tax increases and deeper spending cuts to get the deficit down.” Balls said the “scale of the fiscal hit to demand and growth in Britain this year is unprecedented”, adding that, a year ago, the Office for Budget Responsibility “forecast growth of 2.6% in 2011 – they now predict just 1.7%”. He said: “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 £46bn more than forecast after the spending review.” He said he had become convinced that the plan to eradicate the structural deficit in this parliament “was primarily about electoral politics – rapid tax rises and spending cuts chiefly designed to fit a political timetable that gets the pain over early [and] makes Labour take the blame”. Balls added that he was astonished Osborne had not thought more carefully about the “fork in the road” when he came to office last May. He said: “He did not hesitate in making a rash and headlong lunge down the path of rapid deficit reduction. But while he might have been expected to carefully contemplate the fork in front of him and consider the consequences of his decision, George Osborne said, ‘rapid deficit reduction is the priority, there is no choice – the markets demand it, the faster we cut, the better for confidence, no alternative is possible, and anyone who says otherwise is a deficit denier.’” Ed Balls Economic policy Tax and spending Labour George Osborne Conservatives Liberal-Conservative coalition Economics Patrick Wintour guardian.co.uk