The degree to which Ed Balls, as a key Treasury minister in the last New Labour government, is responsible for the government’s massive budget deficit is subject to argument. But what is not in dispute is Balls’ undying support for the unbridled, unregulated expansion of the financial sector which, as we know, went down in flames in 2008.
Balls, newly promoted as shadow chancellor following the sudden resignation of Alan Johnson, claimed yesterday that having studied economics for over 25 years, he knew what it was all about. Subsequent events prove a) how useless bourgeois economics is and b) how arrogant Balls is.
New Labour, as we know, transformed itself into a party that cheer-led the rise of corporate-driven globalisation and, in particular, the parallel growth of a financial sector that fuelled consumerism and, more to the point, had with government support, evaded all known regulatory frameworks.
As chancellor, Gordon Brown couldn’t believe it. The financial sector’s tax revenues grew apace. And in September 2006, Balls, then economic secretary to the Treasury under Brown, went to Hong Kong to sing the praises of London as a financial centre and how easy it was to do business under New Labour.
Balls told a joint meeting of the Hong Kong General Chamber of Commerce and the British Chamber of Commerce: “The UK’s financial tradition as a free, fair and open global market has resulted in tremendous growth in London’s international financial markets in the past decade – over-the-counter derivatives turnover up by 770%, foreign equities turnover up by 260%, cross-border bank lending up by 160% and foreign exchange turnover up by over 60%.”
After praising the growth of fantasy finance, Balls declared that central to London’s “success story” was “light-touch principle-based regulation” which New Labour was entirely responsible for. Giving the Bank of England independence was Brown’s first act in May 1997. Creating the toothless Financial Services Authority was act two.
Admiring the Big Bang of 1986, when the Thatcher government opened up the City to global competition as “decisive”, Balls went on to laud the FSA which had “confounded those who feared the FSA might become a heavy-handed and inflexible regulator.” In fact, Britain’s “regulatory regime continues to be the best in the world”.
Famous last words or what, considering there were queues outside Northern Rock branches 12 months later as people scrambled to withdrew their money from a bank that had failed in every respect?
The truth is that regulation was non-existent, not so much a light touch as light-headed. Bankers were running rings round the FSA and the Bank of England – and everyone knew it. “Products” like derivatives lay completely outside the scope of the regulators, yet Balls praised them as if they were a new form of gold.
At the time, this is how the political class and the financial elites saw it. Money could beget more money, profits would rise along with tax revenues, ordinary people could get as much credit as they wanted to buy commodities mostly made in other countries. Surely it could never end? As Brown himself said on the eve of the meltdown in July 2007, the City had entered a “new golden age”.
Then came the crash, an immediate recession and the crisis found its way into government finances, producing eye-watering deficits and interest payments on the debt heading towards £100 billion a year. So, yes, Balls does share political responsibility for the crisis. As he said in Hong Kong: “Government decisions … have an important role to play, for good or ill.”